Sustainable Competitive Advantage of Gourmet Factory - Case Study Example

GOURMET FACTORY COMPETIIVE ENVIRONMENT ANALYSIS By Location Introduction In order to be successful in any business, one needs to have knowledge on the competition affecting the business. The knowledge alone is not enough as it is necessary to have a proper analysis of the competition, which will help in the determination of the strategies to implement so that the organisation may have a competitive advantage. The idea behind competitive advantage is to see the investment returns be better than that which is considered the average in the sector. A good method of analysing the competition is the use of Porter’s 5 Forces analysis that consists of; threat of entry, rivalry degree, threat of substitutes, supplier power and buyer power (Porter 2004, p. 5). From the labelling of the forces, it is clear that the analysis focuses on external factors influencing the organisation’s competition as well as internal forces dealing affecting the firm’s capability to compete (Shuen 2008, p. 110). However, there are other complementary forces that need to be discussed to analyse the competitiveness of a firm. The strength, interaction and mix of these forces determine the nature of the competition. This paper seeks to discuss the porter’s six forces for a London kitchen and explain the competitive environment in the area as well as offer an alternative sixth force that is complementary to the market environment of the Gourmet Factory. Porters 6 Forces As the name suggests, the force deals with the head to head competition in the market between the various players and the value it creates (Porter 2004, p. 6; El-Khamy and Golubov 2005 p. 3). This makes it the most obvious force in the framework. The kitchen’s market structure consists of a number of firms with no monopoly being held by anyone. A number of firms offering nutritional food have set up shop and are in operation in London. The idea is to offer people who do not want to cook at home healthy foods instead of the usual unhealthy foods associated with the industry. This creates a scenario where the competition is mainly based on the costs of the food as well as the service offered alongside the food. This has seen the firm, incorporate certain strategies to have a competitive edge. First is the plan to take the information of a customer and creating a meal profile for the customer for a month, ensuring customer satisfaction and return, at least for a month. This has seen a significant boost to sales. The delivery of the food to any location in the city at the time specified by the customer also served as a competitive advantage. However, other firms are also delivering food free of charge which has intensified the rivalry. Fresh healthy organic food is also used in the kitchen as a strategy of maintaining a competitive edge by ensuring we maintain our current customers as well as attract new ones by ensuring that the quality of food we serve is of the best quality. Then there is the recommendation of clients to us by trainers to gyms at a commission that will see the customer base always expanding. As such, the firm has established itself as a good competitor that can rival the operations of others. New entrants The competitive environment sees the influence by existing and potential firms who as both affect profitability (Grant 2010, 464). The ability of the market seeing new entrants is determined by the barriers of entry (Team FME 2008, p. 19). These take different forms including the economies of scale, government legislations, distribution channels, cost of entry or start up, differentiation as well as size related costs. The effect of these barriers is to prevent the entry of new firms into the market when the profits rise above zero. The existence of entry barriers is usually detected when an outsider is not able or has difficulty in replicating the position held by an incumbent firm. Gourmet Factory is a key player of the London Kitchen industry. The existence of the firm for several years has seen it become a household name in the industry with the brand strength improving over the years with the firm having a good customer relationship (Tan and Theodorou 2009, 26). This poses a barrier to new players whose brands are unknown meaning that they spend a lot on advertising that has the effect of generally increasing the cost of operations. At the same time Gourmet Factory has the ability to retaliate to a strong advertising campaign through promotions that will draw more customers and deter new players. However, the incorporation of social media in the operations of firms in the market has seen the information sharing playing field levelled as the new entrants are able to effectively convey and share the message about their services. Then there is the knowledge accrued over time that concerns the market that has enabled Gourmet Factory to develop economies of scale lacking in new entrants that enables the firm to have a competitive edge in the industry. However, the initial costs associated with starting up a firm in the industry is generally low that makes it free for new entrants (Tan and Theodorou 2009, 26). Substitutes In any competitive market, there exists different products to which customers may turn to as alternatives when satisfying their wants (Ahlstrom and Bruton 2010, p. 161). The success of any organisation and therefore Gourmet Factory needs to take account of the price to performance ratio of the different products and services offered by the kitchen as well as other firms in the sector. The threat has also to look at the switching costs that come about when a customer switches to another product (Ahlstrom and Bruton 2010, p. 161). In Gourmet Factory case, there are substitutes readily available in the market with people able to buy food on almost any street in London. The substitute availability is also created by the existence of various nutritional food offering firms in the industry. However, convenience makes a value addition to our product minimising the threat of substitution to our products. Nowadays, convenience is a major requirement in the lives of the population. This has seen such practices as cooking at home reducing although they are cheaper. This is because people are usually on the go. This is a strong part of our competition profile as we are able to deliver ready, organic and healthy food anywhere in the city within a short period of time. The ever expanding argument that is pro-healthy eating has seen the alleviation of fast foods as a substitute to our food as more people turn to our product. Buyers Buyer power refers to the ability of the buyers to control the market in terms of the pricing and quality of the product. In Porter’s five forces model, buyer power is a horizontal force influencing the appropriation the industry’s value creation. The power of the buyer is mainly determined by the concentration and size of the customers as well as the number of competitors in the industry. The information available to the customers also determines the power that they have (Howes and Tah 2003, p. 60). However, competitiveness between the market players determines the power that the buyers will have over the products and their producers. This is because competitiveness creates a price sensitive customer base where there are no costs incurred for switching providers. In the Gourmet Factory case, there is reduction in the power of consumers by producing differentiated products. Each day has its own special with the chef having his own secret ingredients. Then there is the production of foods that cater for entire demographics with alleviation to specific demographic targeting methods for example wide range of breakfast options to go with coffee aimed at targeting the professionals. However, the existence of a number of firms means that the pricing of the products needs to be competitive with increasing the price of a commodity posing the risk of lost of customers which gives the customers the power of price determination. Suppliers Supplier power is the opposite of buyer power, some would say it is a mirror image (Team FME 2008, p. 23). Supplier power refers to the ability of suppliers to alter the competitiveness of a firm. Analysis of this power examines degree of inputs differentiation as well as the concentration and number of suppliers relative to the industry (Cannon 2006, 26). Suppliers have the ability to influence the charges imposed on customers for a product by determining the value that a firm derives from the inputs supplied. If the pricing of the commodity is in line with the value addition of the inputs, the market consists of high supplier power and low buyer power. Gourmet Factory key marketing point is the ability to deliver healthy, organic food anywhere in the city quickly. Focusing on healthy and organic, we realise that the quality of food is important in the determination of profitability of the firm. This means that the suppliers of our products determine the profitability of the kitchen as they determine the quality of the food served. The presence of a number of nutritional kitchens that is almost equal to the number of fresh organic food means that there is reduced competition for inputs. This means that there are alternative suppliers which prevent them from hiking prices. This proposes to level the supplier power that is heightened by the direct effect they have on products. Government Subsidies The 6th force in Porter’s analysis is the role played by the government. This acts as a complementary force (Shuen 2008, p. 204). The impact of the government on the business may be direct on the industry as a sixth force or by influencing the other forces in any direction whether positive or negative. The key component in Gourmet Factory is regulations. As a way of protecting consumers, the government has established a set of requirements that need to be met by food sold in the nation that specifies the limits of contents of food beyond which it is not to be sold. This has meant that Gourmet Factory has to ensure all food inputs supplied meet these standards. The packaging is also regulated to ensure the safety of the food. This has meant that Gourmet Factory Kitchen has had to purchase boxes that meet the safety requirements that has seen the cost of businesses increase. At the same time, the regulations stipulate standards that players in the industry need to meet which bars other players who cannot do so from entering the market. Limitations of the model Porter’s model is one of the most wide spread models use in analysing business competitiveness. However, it has faults with one of them being that there is no justification for the choice of the five forces (Dalken 2014, p. 3). Then there is the argument that the model is static and does not consider the effects of time on the forces as it only generates snap-shots of the situation. Because changes can occur quickly it becomes difficult to determine which markets have the best dynamics for competition (Dalken 2014, p. 3). Then there is the issue that utilisation of the framework is not a guarantee of a sustained and inviolable competitive advantage. Sustanianble Competitive advantages Taking keen note of the critical micro factors will help our realize the target of our business. One of the main factor that will be put to consideration is the management for the business. This is a factor of great importance since the business deals entirely with people so choosing the right human resource is important. Leadership with experience and good courtesy will go a long way in realizing the goals of the organization. The prices of our products will be fair and competitive with possible value for money in every product. This will mean that customers will be more attracted to our products hence remain competitive in the market. We seek to introduce new items that are not offered by our competitors to attract clients and remain competitive. Timely response with our suppliers is a key factor to note in the organization. This will ensure that there is proper and constant supply of raw materials in teh business hence constant success. The location of the business will play a critical role and help reach the potential and target market. This means, therefore, that our business must be stratgically placed with the right infrastructure that will be good for the business. Environmental/Operation The operation of our business will be in a manner that every day the business will be running. This means that staff will work in shifts to ensure that the customers are not at any time disappointed by our absence. Constant business operation will not only mean constant business but potential expansion of pour business and confidence to pour clients. Cleanliness will be ensured in the business as the envorimeont that we operate in should be in a manner that the customers are satisfied with our services. Further to this, there will be a suggestion box that will ensure that the customers can be part of decision making as well as the staff meaning that decisions will not only be left for the top management. Financial To ensure that our business operates without disturbance, our revenue will be directed to investement in a company premises that will mean that after a certin period, the business will operate from our own land. This is an assurance to continuity of business. As approximated, the first financial year will raise revenue not less that $200,000 after any possible overhead that will be directed deposit of the business premise. As we put in place better mechanisms, the revenue will be expected to go up each year hence more investment. Ethical As planned, our business will operate within law meaning that every government rule will be adhered to and every other regulations by related bodies will not be overlooked. This will mean that the business will pay possible taxes and avoid business closure. This will be a driving force to motiviate our staff as clients as well. Thw business will consider every moral philosophy that might affect the operation of our business and this will lead to realization of organizational goals and objectives. Bibliography Ahlstrom, D, and Bruton, GD 2010, International management: strategy and culture in the emerging world, Australia, South-Western Cengage Learning. Cannon, T 2006, The entrepreneurs strategy guide: ten keys for achieving marketplace leadership and operational excellence, Westport, Conn. [u.a.], Praeger. Dalken, F. 2014, Are Porter’s Five Competitive Forces still Applicable? A Critical Examination concerning the Relevance for Today’s Busines. 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