Analysis of New York Fries - Case Study Example

Analysis of New York Fries Analysis of New York Fries Operational model – part Core Competency Achieved Proof of Achievement High quality product Yes The company and its subsidiaries received several awards and accolades in this regard. Knowledge of the industry Yes The founders started their first company (a salad chain) in 1977 Experienced in franchising Yes NYF mainly operated domestically and internationally as franchise and had 190 stores in six countries in 2011 Strategic decision making Yes The stores were mainly placed in crowded places such as malls. As a result, the brand performed alright even during recession. Problems and causes – part 2 What: Declining sales and unsuccessful international ventures. Why: The business witness low sales as a result of financial crisis. The financial crisis handicapped the purchasing capability of consumers around the world and consumers focused on saving their disposable income. International ventures of the company witness moderate success in most countries while in countries such as Australia and New Korea, the brand failed as a result of insufficient business development capabilities among franchisees. When: During early 2000s, inception of global economic meltdown and financial crisis (Prashad 1-9). Common decision criteria – part 3 Cash flow: Cash flow was determined to be one of the essential decision criteria of the company as NYF maintained strict policy regarding upfront fee and royalty from franchisees. The regular flow of royalty plays an important role in maintaining positive cash flow at the firm. The company earned 6 percent of total sales from local franchisees and 3 percent of the same from the international ones. Additionally, the royalty varied from country to country. Quality: The products of NYF never compromised on quality even if the company had to charge premium price for the same. The French fries were made from real potatoes and were fried in sunflower oil, which is free of trans fat. NYF is the first company in the Canadian fast food industry that abolished trans fat from the menu. In the company’s website, the company has published nutritional information with each of its products. Corporate image: The management of the company ensures that the corporate image of NYF remains intact irrespective of its geographical store location. The company had to withdraw its Korean franchising venture because the franchisee was willing to give the store a local image and design that conflicted with its international image. Profit: Every organisation is driven by profit motive and NYF is no exception to that. The company’s profit margin has always been in two digits and profit prominently driven its international strategies (Prashad 1-9). Issues – part 4 Immediate Basic Failure of some international franchisees Market saturation Expansion in emerging economies such as India and China Rising competition Industry analysis – part 5 Industry size-up NYF prominently operates in Canada, the United States and in some countries in the Asia Pacific region. The industry sizes in these industries are $7588.5 million, $82166.3 million and $98573.8 million respectively as measured in 2011. The fast food industry in these regions can be broadly classified in categories such as quick service restaurants, street and mobile vendors, leisure and takeaways. In Canada, Asia Pacific region and the US, it was determined that the quick service restaurants act as the important source of revenue for the fast food industry. The company incurs various direct and indirect costs such as manpower, advertising and marketing, cost of physical resources, taxation and others in order to generate profit and maximise the same. Competitive overview The global fast food industry is dominated by several small and large companies that are domestic and international players. However, some of the prominent players in the industry are McDonald’s, Burger King, Domino’s Pizza, Wendy’s and Yum brands. McDonald’s has 35% market share in the US, 35% in the Europe and 8% in Middle East and Asia regions. Yum Brands mainly comprises of three brands namely Pizza Hut, Kentucky Fried Chicken and Taco Bell. Each of these brands has two digit market shares in the global industry. Product differentiation is essential to combat cutthroat competition. Each of these firms has adopted green strategy to mitigate competition. Healthy choices and large variety are being presented by companies to mitigate competition (Marketline “Fast Food in Canada”; Marketline “Fast Food in the US”; Marketline “Fast Food in Asia Pacific Region”). Worksheet 1 – SWOT analysis Strength: The Company is in the industry since 1984 and since the inception of the business, NYF has ensured high quality is in its offerings. Constant growth even during economic downturn and moderate global presence are arguably other strengths of the organisation. Weakness: Heavy reliance on franchising can minimise the company’s control over its stores and consequently can be considered as a weakness. Market saturation and rise in price of raw material and other resources can be considered as weakness as well. Opportunities: NYF has limited variety on its menu offerings; as a result, the company has strong opportunity of product innovation and differentiation. NYF has strong growth prospect in various emerging markets such as China, Hong Kong and India. Threat: The Company can face intense competition from various international and domestic brands in the industry. The other threats are growing demand for healthy food products, recession and strict health regulations (Prashad 1-9). Worksheet 2 – Porter’s five force analysis Buyer’s power In the fast food industry, consumer power has strengthened significantly as a result of financial crisis and recession. Consumers are increasingly becoming price sensitive and as a result, companies in the industry may require adjusting their prices to attract more and more consumers. Additionally, quick service restaurants may witness elasticity in demand as a result of price fluctuation since fast foods are not exactly essential commodities. Supplier’s power In food industry, supplier of raw materials for food products are the prominent providers and it is important for the firms to maintain strong links thereof for having continuous flow of quality raw materials. Suppliers’ power has strengthened over the time as a result of increasing demand for quality suppliers and integrated supply chain. Threat of new entrant Entry in food industry does not require large capital outlay but quality maintenance and meeting competitive demand often prevent firms from entering the market. However, most companies operate on the basis of franchising; as a result, new entry does not affect these firms to a great extent. Threat of substitutes Threat of substitute is moderate in the industry as sale of fast food is threatened by greater demand for fresh and healthy foods only. Otherwise, there exists no exact substitute of fast foods. Rivalry Rivalry in the industry is high as it is largely dominated by major players such as McDonald’s and Burger King, who have international and long term presence in the industry (Marketline “Fast Food in Canada”; Marketline “Fast Food in the US”; Marketline “Fast Food in Asia Pacific Region”). Worksheet 3 – Value and cost drivers Value drivers of NYF are: High standard trans-fat free offerings redesigned concept of hamburgers Innovative recipes of poutine Loyalty program Cost drivers of NYF are: Cost of raw materials Cost of man power Investment in new business Initial investment in franchisee development (Prashad 1-9) Worksheet 4 – customer analysis New York Fries Burger King McDonald’s Yum Brands NYF primarily offers fries and hamburgers. These foods provide negligible food value to consumers and as a result, scope of switching is very high. NYF has stores only in top tier malls in the US and Canada so that products can be sold at premium price. Burger King started as a chain that will be selling burgers but the company diversified into selling fries, sandwiches and other products. Burger Kings stores can be located in prominent locations and as a result more accessible to general consumers. Reasonable prices are generally charged. McDonald’s corporation is a prominent international brand that operates as independent franchisee as well as in the form of mall based stores. McDonald’s is heavily preferred by different consumers because of their sensitiveness towards consumers’ need and demand. The products of the company are fairly priced and as a result, are affordable. KFC, Taco Bell and Pizza hut are complementary brands of Yum and are reasonably priced. The products of each brand are unique and are not considered as competitor of one another. The price range various from moderate to high and the product range consists of fast food as well as healthy choices. Consequently, Yum brands can be a tough competition from consumers’ perspective. Worksheet 5 – Competitive analysis New York Fries Burger King McDonald’s Yum Brands Strengths: 1. Global brand 2. Product innovation 3. Strong market in the US and Canada 4. Large number of patents in Canada and the US 5. Large number of awards and accolades for high quality product and services Weaknesses: 1. restricted assortment 2. Excessive dependency on franchising 3. Limited resources 4. High dependency on franchising 5. Unhealthy menu Strengths: 1. Global brand 2. Franchisee diversification 3. Variety offerings 4. Strong growth 5. Strong market share Weaknesses: 1. The concentration is on the US market only 2. No advertisement 3. Limited marketing strategy 4. High dependency on franchising 5. Unhealthy menu Strengths: 1. High brand recognition 2. Focus on adults as well as children as consumer 3. High market share in the industry 4. Strong advertising 5. Independent franchising Weaknesses: 1. unwholesome food menu 2. unconstructive marketing 3. Limited product differentiation 4. Limited focus on greener food 5. Legal issues Strengths: 1. Fairly high market share 2. Dominates the market using three distinct brands 3. Geographical diversified organisation 4. Strong market reputation 5. High market share Weaknesses: 1. Unhealthy food menu 2. Insufficient market service 3. Lack of innovation 4. Limited focus on greener food 5. Limited research and development Worksheet 6 – Alternative: pros and cons Alternative Pros Cons The company should undertake licensing instead of franchising Licensing enables company to train employees at licensed stores; resulting to better product quality and services. Licensing involves disclosing trade secrets to licensee and thereby increases threat of those being used by the licensee in long run. Greater focus on greener offerings and more product variety Greener offerings and more product varieties attract greater consumers and will provide competitive advantage to the firm The main drawback of this substituting strategy will be major changes in the menu of the company. The company will not be able to sell what it sells without restrictions. Worksheet 7 – Alternative analysis matrix Decision criteria Alternatives Quantitative impact Time to implement Relation to causes Decision criteria supported Licensing The company will have to invest significantly on training and development. The company is expected to gain from the process as the procedure will be standardized across all its stores. NYF have to invest in patents so that flaws of licensing process is avoided It is a continuous process but each training and development session should not take more than 4 weeks time. Licensing will eliminate variation in the business process that is caused by franchising. Like franchising, licensee is supposed to pay royalty to its licensor. Better product management International market development High quality standardized product and service Strong corporate image Green focus and more variety Investment in purchase of raw materials that require minimum processing for consumption purpose 4 weeks to meet and develop suppliers Green strategy improves market image of a company Greater variety will attract more consumers from different age group Sustainability Brand and corporate image Worksheet 8 – Resource Gap Analysis – Preferred Alternative/Solution Resource Category Required Resources Available Resources Major Gaps Gap-closing Analysis Man power High skilled resources for better product and services Manpower with limited knowledge to develop the alternatives Knowledge and skill gap Requisite training and skill development Works Cited Marketline. “Fast Food in Asia Pacific Region.” Marketline. Marketline, 2011. Web. 24 January 2015. Marketline. “Fast Food in Canada.” Marketline. Marketline, 2011. Web. 24 January 2015. Marketline. “Fast Food in the US.” Marketline. Marketline, 2011. Web. 24 January 2015. Prashad, Sharda. “Developing an international growth strategy at New York Fries”. Ivey Publishing (2011): 1-9.Print Read More