Strategic Business Unit of Easyjet Company - Research Paper Example

Strategic Business Unit of Easyjet: EasyPizza Table of Contents Pizza Market in UK 3 Five Forces Analysis of the Pizza Sector 3 The Market Trend of Pizza Sector in UK 4 EasyPizza in the Pizza Sector 5 SWOT Analysis of EasyPizza 6 Strategy Formulation and Implementation 7 Conclusion 10 Reference 10 Introduction Strategic Business Unit (SBU) is a small separate venture, or department of a bigger organisation serving in different markets. The SBU is like a small version of a large organisation. Its operation process is same but is restricted to a limited area. Sometimes the parent companies set up their SBU in order to make forward or backward integration. In this process, the parent companies can fulfil their needs and also serve the market. The reason for establishing a SBU is to ensure high growth in that market or to manufacture closely related products. Most of the cost related to such products is shared with the parent organisation. The SBU also adds value to its parent organisation. The purpose of establishing a SBU is very different from that of diversification. In case of diversification the entire parent company diversifies itself from the existing business but the purpose of establishing a SBU is to expand its brand image in different markets. Like the parent company, the SBU comprises all levels of strategy and to supervise this unit there is separate team of management with their own strategies. This paper is an attempt to evaluate a Strategic Business Unit of a giant organisation. It will include an evaluation of various strategies of SBU and will suggest proper strategies that will enable the SBU to sustain in market with maximum profitability. The EasyPizza is a perfect model of SBU and this paper will evaluate the mode of operations of EasyPizza. EasyPizza is an SBU of Easy Group of companies who is a major player in the airlines industry operating under the name EasyJet. Easy Group of companies is a conglomeration of many small ventures that includes EasyPizza. EasyPizza is a unique pizza maker unlike other pizza stores. It is a UK based pizza maker and operates only in UK. The USP (unique selling point) of EasyPizza is that anyone from UK can place their order through internet. “No more waiting for them to either answer the phone or taking for ever to spell your name. You can now order your pizza delivery online just like buying a plane ticket” (EasyPizza). It is a delivery-only pizza maker and was launched in December 2004. The EasyPizza serves the customer with their pre-made pizza unlike the other pizza store, EasyPizza offers very limited choices. Pizza Market in UK The UK pizza market has great potential due to its high growth and high valued market. The demand for fast food like pizza is growing in UK and this Italian food is a favourite among most of the fast food lovers of UK. Throughout UK, the annual sale of pizza is estimated to be nearly US$3.1 billion. The market of pizza delivery in UK is growing every year with two percent. The pizza market of UK covers nine percent of the food market. Annually eight percent of UK people prefer home delivery service and pizza is one of the popular food items in UK (easygroup). Currently UK is enjoying healthy sales of pizza but the pizza market is becoming too crowded. To grab the growing opportunity in pizza market every company is trying to overtake the other. There are a number of UK based pizza makers among them ASK, Pizza Express, Prezzo etc are prominent names. Pizza Hut and Dominos are however, the dominating players in UK with the largest market share in pizza sector. Pizza Hut has nearly 600 outlets that include 380 dine-in restaurants and 100 company owned home delivery outlets throughout UK (The Centre For the Hospitality Research). Another big player in UK’s pizza sector is PizzaExpress which has nearly 320 outlets in UK. Dominos serves the UK people with nearly 616 stores including the home delivery outlets. Dominos receives online orders that add value to its services. Apart from these big two, Perfect Pizza, owned by US chain Papa John’s, has more than 200 UK outlets. Others like ASK group, Easypizza covers a small portion of the market. Five Forces Analysis of the Pizza Sector Porter’s five forces include all threats like competition with rivals, substitute products, potential entrance, bargaining power of suppliers and buyers. These forces shape the structure of an industry and are very important to formulate strategies. According to Porter, it is crucial to defend the competitive forces and to shape them in companies’ favour (Porter, 2008, p.4). In case of rivalry, it is already discussed in the threats analysis of SWOT. However the most dangerous of all threat is the threat of substitute as large variety of fast foods are available like Burger. Generally pizza and other fast foods fall under the same sector but already a developed and separate market exists for pizza. The pizza sector does not require high investment and any food chain or restaurant store can easily enter the market. The power of supplier is quite mild. The quality of ingredients has to be superior and there are number of suppliers available in the market. However, the power of the buyers is quite strong as the buyers are spoilt with choice as far as pizza is concerned. So, convincing the buyers is very important in this sector. The Market Trend of Pizza Sector in UK The pizza market in UK generally depends on its ownership. Various ownership styles like franchises, partnership with other food retail store are prominent. Initially the pizza selling was restricted to the restaurant but due to its popularity a separate sector for the pizza has been developed. It can be termed as speciality restaurant. Besides this, the pizza sector takes into account the quality and the variety of pizza. People generally like to choose their own preferred topping and sizes while ordering pizzas. The trend of frozen and pre-made pizza is rising in UK. Frozen pizzas are durable pre-made pizzas that require baking in the oven before they are served for eating. The frozen pizzas are now available in many supermarket stores. In case of frozen pizza there is not much scope to choose the various toppings. So, in the pizza sector the segmentation of product according to the customers’ choice is very important, hence the segmentation needs to be flexible. Another important factor in the pizza sector is the nutritional value of ingredients. Now days, people are becoming increasingly concerned about their health. Domino’s has come up with a new type of pizza that has 30% reduced-fat. EasyPizza in the Pizza Sector The pizza sector of UK is already crowded with many big players; against them the EasyPizza seems too tiny to grab a decent market share. The idea of placing an order through online is very innovative but still it is unable to face the challenges posed by other big players. The main strategies that EasyPizza relies on are online orders and cheap price without compromising on quality. In Milton Keynes, Easypizza first applied this strategy and secured a profitable venture in that particular area. According to Stelios, the management head of EasyPizza,uHHHHhhhsa the lower price of pizza has not compromised the quality and the service standard. The main aim of EasyPizza is to attract those customers who cannot afford the luxury and convenience of delivery pizzas. To expand its outlet chain, EasyPizza had started to distribute its franchises throughout UK. The franchising is done through partner relationship. The existing small pizza seller can also avail the franchise of EasyPizza just by making a place for storage and having a sufficient place for oven. Despite all these strategies, EasyPizza is still restricted to a very limited market. As UK pizza sector is growing, the company should aim for higher market share. For these the company should be restructured with proper investments. Currently it has teamed up with ‘Just Eat’. It has helped EasyPizza to take and deliver the local pizzas efficiently. SWOT Analysis of EasyPizza Before crafting new strategies it is mandatory to scan the external and the internal factors of any organisation. The SWOT analysis includes the evaluation of its strengths, weaknesses, opportunities and threats. In spite of it being a small unit in the pizza sector of UK, still it remains a profitable venture due its strengths. Currently it is operating in the major parts of the country where the demand for the home delivery pizza is high like Acton, Bedworth, Earls Court, Coventry, Hayes, Hove, Bognor Regis, Brighton, Burgess Hill, Eastbourne, Hastings, Milton Keynes, Peacehaven, Shoreham and Worthing. It has also expanded its operations throughout London. These operating areas are one of the major strengths of EasyPizza. Moreover, the price of the pizzas offered by EasyPizza is very low compared to other big names like Pizza Hut and Dominos. Many people can afford the price of the pizza sitting in their home. The quality of pizza is also acceptable in the standard pizza market of UK. The most important weakness of EasyPizza is that it only sells frozen and pre-made pizzas; this limits the choice of the customers. In the fast food market the preferences of the consumers varies largely and the customers seems to be choosier. If the customers do not find it suiting their taste they hardly turn up. Another weakness is that they do not have sit & dine restaurants where customers can place their order and get fresh baked pizzas. Considering the growing profitability in the pizza sector, the size of EasyPizza seems to be too small to acquire a good market share. EasyPizza can introduce new flavours with different sizes which will be easily liked by the customers. Such innovation will help it to increase its sales. EasyPizza can expand its operation in those areas where home delivery pizzas are preferred. It can choose the area according to its business. People who are often busy in their work hardly want to visit a pizza outlet. This people can easily place their order online. They can tie up with restaurants which do not sell pizzas. This will add value to that restaurant as well as it will also increase the demand of EasyPizza. More number of people will become aware of EasyPizza. The demand of healthy pizza with low fat is increasing and EasyPizza can capitalise on it. The challenges faced by EasyPizza in the present market are not easy to handle. As it is a very small organisation the threats are stronger. If Easypizza aims to capture a decent part of the pizza market it will have to face the giant pizza makers who already have acquired a large part of market share. So a huge threat already exists for EasyPizza. The rising price of the ingredients of pizza is another big threat. One of the strength of EasyPizza is the low price offered by the company and this can be used to challenge this threat. Another threat is that, many giant pizza makers have already started online services for pizza. Among them the Domino’s is one of the major rivals of EasyPizza in this respect. Strategy Formulation and Implementation After scanning the whole sector and the external & the internal analysis of EasyPizza, the suitable strategies will be formulated for EasyPizza. To tackle the five forces of the industry, Porter has suggested some strategies, these are positioning against the forces, exploiting the changes and diversification. As the pizza sector is quite profitable therefore diversification is rejected. Easypizza can position itself against the weakest force in the industry. The entire rivals are producing nearly same types of pizzas but service in this sector is of utmost importance. Therefore focusing on the services can be the most successful weapon. Apart from that it should maintain its low price to out beat the rivals. Exploiting the future changes is also very important. People are becoming very health conscious, hence pizzas with low fat and without harmful ingredients should be produced. This change has already been identified by some of the pizza makers but still there is enough scope to exploit this trend. Porter has developed a generic strategy that can be implemented in any venture. This can be used to frame a relevant strategy for EasyPizza. Figure 1: Porter's Generic Strategy (Source: Porter, 1985, p.12) EasyPizza is basically a low cost pizza provider and its target market is the entire UK. Therefore it should follow such strategies that would enable it to meet the desired purpose. The main advantage of low cost in UK pizza sector is that other pizza makers’ charge very high price which is often beyond the reach of common man. With mass production and reduction of the power of suppliers, the cost strategy can be followed. By entering a partnership with a chain of restaurants, the major investment for establishing the retail stores can be saved. However, at all cost the quality of pizza should not be compromised with. Now we can apply Ansoff model to identify the various processes that would help EasyPizza to expand its growth in the pizza sector of UK. It will show the strategic options available to EasyPizza. Figure 2: Ansoff Growth Strategy Model After analysis the generic strategy of Easypizza with the help of the Ansoff model it can be concluded that though EasyPizza has a place in the pizza sector of UK, it is still in its rudimentary stage. The market is already overshadowed by big players and to capture the market it has to penetrate it. In order to do so, EasyPizza should keep the price of the pizzas low and develop unrivalled service strategies. Besides these, product development is very necessary. Product development can be in the form of pizzas with new tastes, reduced fat and variety of flavours so that customer can have a wide range of choice to choose their preferred pizzas. Conclusion The pizza sector is a very small segment of the large fast food industry but still pizza has become so popular that it is growing at a stupendous rate. This sector is very popular and profitable. Many strategic business ventures have successfully been able to dig out a huge profit. These SBU can expect huge returns in future if it manages to capture the large market. EasyPizza, a SBU, is a profitable venture but the growing pizza sector can make it all the more profitable if the company restructures its strategic implementation to capture the potent market. EasyPizza should keep the price of its pizzas low so that it can penetrate the market. Affordable yet scrumptious pizzas coupled with excellent service will enable EasyPizza to achieve its desired goal. Reference EasyPizza. No date. About us. [Online]. Available at: http://easypizza.com/about/#top. [Accessed on May 6, 2010] Easygroup News. February 9, 2006. Stelios launches first easyPizza.com franchise in Fareham, Portsmouth. [Online]. Available at: http://www.easy.com/archive/09.02.06EP.html. [Accessed on May 6, 2010] Graziadio Business Report. No date. Growth Strategies for High Tech Firms. Available at: http://gbr.pepperdine.edu/981/marketing.html. [Accessed on May 6, 2010]. Porter, M. E. 1985 Competitive Advantage. The Free Press. Porter, M. E. 2008. On Competition. Harvard Business Press. The Centre For the Hospitality Research. August 19, 2004. MICROS Delivers End-to-End Solution to Pizza Hut UK. [Online]. Available at: http://www.hotelschool.cornell.edu/research/chr/news/newsroom/item-details.html?id=4020337 [Accessed on May 6, 2010]. Read More