External Analysis of Mr Empanadas Restaurant - Research Paper Example

Module External Analysis of the Macro and Industry Environments in regards to Mr. Empanada’s Restaurant INTRODUCTION ‘Mr. Empanada’ is a casual restaurant based in Tampa that was launched by Albert and Audrey Perez in 1984. The Perez couple would sell their restaurant in 1990 to a company that was unable to maintain it. The closure of Mr. Empanada took place in 1993. However, a decade later, Albert Perez would once more open Mr. Empanada after realizing that the restaurant was an important project that had to be seen through. More than a decade after this entrepreneurial action, Mr. Empanada was well on the way to being a recognized fast food company in the Tampa Bay area (Mr. Empanada). Mr. Empanada served as a vendor in the forum of the Tampa Bay Times. The most recent franchise of Mr. Empanada was established in the Soviet Union in St. Petersburg in September 2012 (Mr. Empanada). To preserve the quality of its products, Mr. Empanada only produces its food stuffs in one location in Armenia Avenue. There are many restaurant chains that sell empanadas in the United States; but Mr. Empanada is the only restaurant that specializes in creating different types of empanadas. It is also the only restaurant that operates in the Southeast. Empanadas, as well as other similar specialty food offerings are a niche market with potential for greater development. Empanadas are quite cost effective yet bring considerable proceeds to the restaurant. In addition, the low cost of the ingredients used to create empanadas along with the wide range of flavors that can be used has been made Mr. Empanada a great success. Macro environment factors refer to external factors that affect a company but that are beyond a company’s capacity to control. A model that addresses external factors that affect firms is the Porter’s Five Forces Model. Formed by Michael Porter, this model has been used by many companies to determine the most practical marketing-based planning for their organizations (Porter, 87). According to Porter, the five factors that are beyond a firm’s capacity to control but that can affect its structure as well as day o day operations include: (a) The threat of new entrants (b) The bargaining power of buyers (c) Bargaining power of suppliers (d) Rivalry among business competitors (e) The threat of substitute products (Kerfoot, Davies, and Ward 115) Diagram of Porter’s Five Forces Analysis (Porter, 89) Competitive rivalry concerns one of the most important aspects for industries, as it may be used to decide on potential marketing or operating strategies that will ensure that the organizations stays ahead of the competition. Mr. Empanada’s marketing strategies are largely based on factors that take into account its competitors. The restaurant’s consumers naturally have high standards and will opt for the outlet that caters best for their needs. This explains why Mr. Empanada is constantly looking to create new and more flavor filled products that are created with organic raw materials. Rivalry in the restaurant industry is evident in the price discounting practices, advertising campaigns, service improvement initiatives, and new product introductions that are often seen in many restaurants. Moreover, sometimes, intense competition can negatively affect profitability. Many times, the intensity of business rivalry is brought about by the following factors: Exit Barriers – Competition between businesses usually increases when the expenses involved in closing the business are more than the costs involved in remaining in business. The expression ‘exit barrier’ is descriptive of an impediment that makes it difficult for an entrepreneur to leave the business. These barriers mean that the entrepreneur will incur a great cost in spite of having good reasons for leaving. Exit barriers can exacerbate business rivalry because if a corporation is not able to leave due to underperformance, it is forced to compete. In the restaurant industry, there is a low exit rate and there are not many entry barriers. An entrepreneur who wishes to launch a restaurant does not require formal qualifications to start a business like Mr. Empanada. Moreover, any experience in hospitality is quite useful. In the United States, liquor licenses and food permits are also easily obtained. In most circumstances, asset specialization is also counted as a part of exit barriers. Asset specialization as a subject addresses how quickly a restaurant can exit the market without having problems in trying to liquidate its assets. Since most restaurants require some custom-made equipment that caters to particular needs in maintaining the restaurant’s brand image through its products, there is a high level of asset specialization- which results in an increase in exit barriers. When a restaurant owner acts in a way that attracts a counter-response from other business competitors, the business rivalry intensifies. Such rivalry is based on the restaurants’ aggressiveness in trying to use different factors to gain an advantage against other chain owners. Industry Concentration- The great diversity of restaurant chains makes the rivalry more intense since the businesses all have to compete for the same consumer demographics as well as basic resources. In the United States alone, there are other chains such as McDonald’s, Pizza Hut, Wendy’s, Smiley’s Grill, Burger King, and El-Shabrawy, among others. All these are seeking to win over their rivals’ consumers; and thus can be counted as Mr. Empanada’s business rivals. Fixed costs/value added- High fixed costs bring about an economy of scale consequence that further increases business rivalry. When total costs are typically fixed costs, the restaurant has to operate near capacity in order to realize the lowest unit costs. High storage costs, as well as highly perishable goods cause most restaurant owners to want to sell their products as soon as possible (Walters and Rainbird 468). If other restaurant owners are similarly attempting to sell as many perishable products at the same time, there will obviously be competition for the consumers. In such cases, when different restaurants sell many products, high production levels result in a struggle for market share. Industry Growth – refers to the pace at which the restaurant market is expanding. Usually, developing markets do not provide much incentive for restaurants to aggressively vie against each other. Intermittent Overcapacity- Overcapacity is descriptive of a situation where there are more resources to create products than there is demand for the products. In the restaurant industry, reduced demand can result in considerable idle productive capacity (Kerfoot, Davies, and Ward 151). With all restaurants having more than enough customers have to make decisions based on less practical or critical issues. Restaurants are thus forced to advertise more or make improvements in aspects such as decor in order to draw customers. Product Differences- In order to reduce the extent of business rivalry, restaurants can use product differentiation to compete on a different basis other than product cost (Wansoo and Heesup 223). The Mr. Empanada restaurant, for instance, can improve features within the restaurant, or implement new practices in food production that affect the flavors of the foods in order to provide consumers with a unique product. Mr. Empanada could even launch franchises in areas that have restaurants that provide foods that are different from those offered by it. Business competition will be exacerbated when there are three different restaurants in the same street offering the same food type cooked in different ways than when there are restaurants in the same street that offer different ethnic cuisines. Switching Costs – Many times, when restaurants in close proximity provide similar food products, their consumers do not experience much loss when they switch from one restaurant to another (Jamal and Anastasiadou 401). Restaurants struggle to attract customers more and thus experience more rivalry between themselves when their customers are able to freely change from one chain to the next without feeling that there is much change. Brand Identity - The more competitors there are in the food production industry, the harder it is for restaurants to reach customers with the message of their uniqueness (Hanson, Dowling, Hitt, and Ireland, 43). In such cases, a good brand identity is critical because it highlights the differences between restaurants such as Mr. Empanada and its competitors. Product features alone would not be able to accomplish in the fast moving restaurant market. Diversity of rivals- In the past, restaurants only considered other restaurants as potential rivals and so came up with strategies to address the threat brought by other restaurants (Andaleeb and Caskey 55). In today’s food market, it is the drug stores and community stores that offer freshly cooked meals which are providing real competition for restaurants. To lure the multitasking consumer, these non-traditional competitors have begun to proffer a wider range of food products such as salads, freshly made sandwiches, fresh food, wraps, heat, sushi, and even beverages. This competition from non-traditional sources merely adds onto the competition posed by ordinary restaurants thus greatly increasing competition within the food industry. Corporate Stakes- A rapidly developing market as well as the potential for realizing high profits attracts new entrepreneurs to the food industry. In the recent past, the entry of outlets such as the drug stores and convenience outlets has made the food industry become crowded with competitors form different sectors. Alternatively, the market may also grow to be crowded if the development rate in the restaurant industry slows down, creating excess capacity with too many food products being availed for the consumption of very few buyers. Such a situation could even result in company failures, intense competition, and price wars. Below is a chart showing the levels of intensity in different factors that may spur rivalry within the restaurant sector (Porter, 91) Number of Business competitors Great Rate of Industry Growth High Intermittent Industry Overcapacity Few Exit barriers High Diversity of Competitors High informational complexity and asymmetry Low Brand Equity High Fixed cost allocation per value added High Level of advertising expense High Works Cited Andaleeb, Saad, and Amy Caskey. “Satisfaction with food services.” J. Foodserv. Bus. Res 10.2 (2007): 51- 65 Hanson, Dallas, Peter Dowling, Michael Hitt, and Duane Ireland. Strategic Management: Competitive and Globalization. Australia: Thomson, 2008. Jamal, Ahmad, and Kyriaki Anastasiadou. “Investigating the Effects of Service Quality Dimensions and Expertise on Loyalty.” Eur. J. Mark. 43.3 (2009): 398- 420. Kerfoot, Shona, Barry Davies, and Philippa Ward. “Visual Merchandising and the Creation of Discernible Retail Brands.” International Journal of Retail & Distribution Management 31.3 (2003): 143 -152. Magretta, Joan. Understanding Michael Porter: The Essential Guide to Competition and Strategy. Massachusetts: Harvard Business Review Press, 2011. Mr. Empanada. “Franchise Corporation” 2013. Web. http://www.mrempanadafranchisecorp.com/ Porter, Michael. “The Five Competitive Forces that Shape Strategy.” Harvard Business Review, (2008): 79-93. Walters, David, and Mark Rainbird. “The Demand Chain as an Integral Component of the Value Chain.” Journal of Consumer Marketing, 21.7 (2004): 465-475. Wansoo, Kim, and Han Heesup. “Determinants of Restaurant Customers' Loyalty Intentions: A Mediating Effect of Relationship Quality.” J. Qual. Assur. Hosp. Tour. 9.3 (2008): 219- 239. Read More