Strategy Analysis of the Lounge Industry in London - Essay Example

Strategy Analysis of the Lounge Industry in London The bar and lounge industry ranks among the most prosperous businesses in London and other parts of the world. Sitting at the centre of the United Kingdom, London acts the as economic hub of the country. As such, ventures offering public utility services such as restaurants, hotels, and other entertainment services such as bars and lounges prove viable (Hooley, Saunders, and Piercy, 2004:91). As such, the competition in the bar and lounge industry is stiff, with new and existing ventures opting to offer differentiated menus and services to retain and increase their market share. In addition, the industry includes global and national franchises, chains, and independent operators. With this in mind, it is important to carry out a comprehensive competition analysis f the industry in London using Porter’s five force model and the TOWS model, as well a strategic risks-scenario analysis prior to setting up a lounge at the region. This paper seeks to analyze and evaluate the competition in the industry using the three models in efforts to determine the viability of the venture. Porter’s Five Forces Analysis Porter’s model analyzes an industry of interest by looking at the difficulties of entry by new operators, the bargain power of suppliers and customers, and the threat posed by substitute services and products (Bulletin Solutions). Threat of New Entrants The threat posed by new entrants into the lounge market within London is relatively high as since there are few difference of proprietary products and services and the cost of entry to the industry is relatively low. In addition, there is plenty of skilled labor in the region, considering the literacy level of the city. In addition, labor costs are relatively low despite the growth of the Gross Domestic Product of the city and the country as a whole (Daheim, and Uerz, 2008:327). Large existing companies with strong brand identities such as Concrete Bar and Café, the Exchange Bar, and Shadow Lounge makes it difficult for new entrants to establish and succeed in the industry. However, the city is far from saturation as far as the lounges and bars are concerned, thus there is still opportunities for establishment and growth. Nonetheless, new entrants may face formidable price competition from existing lounge and bar chains in the region (Grant, 2008:153). Bargaining Power of Buyers One of the assumptions of the analysis is that consumers in London have significant bargaining power in that they choose the type of lounge and bar they want to go to. Nonetheless, the location of lounge and the type of cocktails, wines, and side dishes offered may significantly reduce their bargaining power. The nature of the business and the small purchase size of clients dictate that the business adopts an approach that appeals to many people to be successful. As such, lounges may do well in urban and populated areas than in remote areas. The consumers will not have access to the same drinks and equipments that the lounge offers, thus it would be difficult for the clients to duplicate the taste of the drinks and meals at home, as well as the unique atmosphere that appeals to them, especially the Chinese drinks and art (Hitt, Ireland, and Hskisson, 2005:98). Threats of Substitutes Substitutes range from other competing lounges and bars to family joints to drinks and meals prepared at home. However, the greater the quality and taste of drinks offered by the lounge, the greater the possibility of success. In other words, the risk of substitutes reduces with the increase in the uniqueness of the services and products of the lounge (like emphasis on Chinese wine, cocktail, and side dishes). Bargaining Power of Suppliers Suppliers have a relatively small bargaining power in the lounge industry, unless when it comes to the special types of Chinese cocktails, wines, and dishes. In other words, suppliers will have a greater determining power in the prices of only rare Chinese products required by the lounge. Apart from these, other products have relatively low price flexibility (Dobson, Starkey, and Richards, 2004:124). Thus, setting up a lounge specializing in Chinese drinks will need a consideration for the supplier. Rivalry among Competitors The lounge and bar industry is relatively established and continues to grow rapidly, allowing room for competition. Additionally, the industry does not seem to experience impacts of economic stability of the country or the political attitudes towards the nationality of the drinks or dishes offered by the lounge. As earlier stated, the more specialized the services and products of the lounge, the less the threat of substitutes and competition. However, this also imposes a greater threat of changing consumer drinking and eating habits, such as the trend to drink Chinese cocktails versus normal English cocktails (Porter, 2004:67). Competition in the industry also depends on marketing campaigns by giant lounges and bars, such as the Exchange Bar and Shadow Lounge. TOWS Model Analysis TOWS model analysis is a variant of SWOT analysis, with a different arrangement of the acronyms for strength, weaknesses, opportunities, and threats. The chief difference between the two is that TOWS focuses on external environment and the other on the internal environment (Mind Tools). Threats Among the formidable threats are competitors and current economic status. Concerning competition, the central region of London has already established and potentially challenging lounges and bars. These include Village East, the Exchange Bar, Shadow Lounge, Bar Battu, Albion, and All Stars Lanes. However, these ventures are not pose competition in terms of the type of services and products. This is because they offer products of a different nature. The main challenge may be Shadow Lounge, which has plans to opening three other outlets in the region with liquor licenses (Aaker, 2001:71). The main challenge is that they offer Italian cocktails, wines, and dishes, with specialists from Rome. The current economic condition in the United Kingdom is relatively difficult, thus majority of people may find it not sensible to expensive cocktail and wine sprees at the centre of London when they have an option of visiting other joints and possibly spending about half the amount. Opportunities There are many opportunities in the London lounge industry, including collaborating with movie theatres to initiate ‘Chinese dinner and a movie’ package, as well as other take-out strategies. The Chinese lounge may potentially a wide range of target markets, including couples, cougars, families celebrating, student of legal age, business people, as well as Chinese residents of the city. The new target market may perhaps focus the customers of competitors such as the Shadow Lounge. In addition, the lounge may open more locations around London (World’s Best Bars). Weaknesses The lounge is relatively expensive as it specializes in Chinese drinks and side dishes. For instance, an appetizer, two drinks, and two entrees may cost up to $75. In addition, picky eaters and drinkers may have issues with the ‘fine dining and wining’ of the lounge, as some may find it too fancy and ‘Chinese.’ Another possible weakness may be the singular location of the venture (Brand Lounge). Strengths The lounge will remain open seven days a week, including national holidays. Furthermore, the lounge targets individuals celebrating milestones and achievements, which may encompass a variety of people in diverse situations seeking to go out and enjoy their time. The lounge will also offer great promotional campaigns, such as Ladies Night for $40 with 4 appetizers and 4 Chinese cocktails and Date Night for couples for $50. An added advantage is the excellent cocktail and wine menu with a Chinese touch as well as a classical interior design that offers a relaxing and redefined environment. The lounge will also have a modern Chinese decoration. The lounge is also strategically located centrally in London. The lounge prides itself with offering high quality and innovative foods and drinks with the freshest ingredients. Another competitive advantage of the lounge is the provision of nutritional information in the lounge and online, offering a gluten-free menu options (Fan, 2006: 368). The ultimate differentiating factor from other similar ventures is the e-menu, which enables clients to view the menu from the screen of ipads with waiters. This is the first instance of such a system in London. Strategic Risks-Scenario Analysis Scenario Risks analysis provides a strategic planning method that assist in making long-term decisions. In developing and assessing of structurally different scenarios, the lounge has potentially unpredictable future. The scenarios include repeated economic meltdown, increasing prices of Chinese food and drinks, and prevalence of current economic conditions. Linking these scenarios with operational decisions, the set strategy for opening the lounge will succeed (Anonymous). Bibliography Aaker, D., 2001. Strategic market management. New Jersey: John Wiley&sons. Anonymous. Application of Porter’s Five Forces Model Paper. Available from: http://www.ohiodominican.edu/uploadedFiles/Library/CoursePages/Courses/Bus/Bus498/Application-PortersFiveForcesModelPaperExample.pdf [Accessed April 22, 2012] Brand Lounge. Brand Lounge Approach. Available from: http://www.brandlounge.ae/Brand-Lounge-Approach.aspx [Accessed April 22, 2012] Bulletin Solutions. The Bar Nation. Available from: http://www.nightclub-business.com/forum/ [Accessed April 22, 2012] Daheim, C., and Uerz, G. 2008. Corporate foresight in Europe: from trend based logics to open foresight. Technol. Anal. Strategy. Manage. 20: 321-336. Dobson, P., Starkey, K., and Richards, J., 2004. Strategic management issues and cases. London: Blackwell Publishing. Fan, Y., 2006. The Globalization of Chinese brand, journal of Marketing Intelligence &Planning, 24:4, 365-379. Grant, R. M. (2008). Contemporary Strategy Analysis. Malden: Blackwell Publishing. Hitt, A., Ireland, R., and Hoskisson, E., 2005. Strategic Management: Competitiveness and Globalization, 6th edition. New York: Thomson. Hooley, G., Saunders, J., and Piercy, N., 2004. Marketing strategy and competitive positioning, Third edition. New Jersey: Prentice Hall. Johnson, G., and Scholes, K., 2002. Exploring corporate strategy, Sixth edition. New Jersey: Prentice Hall. Lynch, R., 2006. Corporate strategy, Fourth edition. New Jersey: Prentice Hall Mind Tools. Using the TOWS Matrix. Available from: http://www.mindtools.com/pages/article/newSTR_89.htm [Accessed April 22, 2012] Porter, M., 2004. Competitive strategy: techniques for analyzing industries and competitors, First free press edition. Tampa, FL: Free press. World’s Best Bars. World’s Best Bars in City and East London. Available from: http://www.worldsbestbars.com/united-kingdom/london/city-and-east-london [Accessed April 22, 2012] Read More