Analysis of Hotel and Restaurant Industry in the United Kingdom - Case Study Example

Competitive Business Environment of the Introduction Whitbread Plc is referred to as one of the largest hospitality chains in the United Kingdom. The company mainly operates series of restaurant, hotel and coffee businesses. The prominent brands of the company are Premier Inn, Brewers Fayre, Costa, Beefeater Grill, Taybarns, Hub by Premier Inn and Table Table. Among all these brands, Costa is the only coffee business that the firm has presently. The company and its brands predominantly operate in the UK, but Costa operates in around 29 countries by means of coffee shops and self-service espresso machines (Market line, 2014a). In recent years, the motel and hotel industry in the UK has witnessed significant fluctuations with respect to growth and decline and one reason for this fluctuation is changing food habits of consumers across the globe. The paper focuses on analysing external environment of Whitbread Plc and specifically on Brewers Fayre. The restaurant is present in about 154 locations in the UK and its popular offerings comprises smothered chicken, mixed grill, New Yorker burger, Beef, Gammon Steak and Ale pie (Market line, 2014a). The paper critically analyses the impact of political, economic and other external factors on Brewers Fayre in short and long run. The future strategy of the firm and the brand has also been assessed in the light of the political and economic changes, and recommendations have been provided accordingly. PEST analysis of hotel and restaurant industry in the United Kingdom Political environment The political environment of the country focuses on various fiscal and governmental measures in the areas where the company is operating. It comprises of taxes, environmental regulations, health regulations, employment law and trade restrictions. Presently, the UK government has issued guidelines to minimise drinking related issues. Research suggests that approximately 15000 deaths occurs yearly in the UK as a result of alcohol consumption, while the cost the society pays in this regard is as high as £21 billion (UK Government, 2014). Other health regulations comprise exercising control on food that can cause various life style disorders such as obesity. Local and national authorities have been empowered to take measures for minimisation of obesity among children and adults. With respect to employment, a number of acts have been enacted to minimise workplace discrimination, ensure fair and equal practices and prevent illegal activities. Environmental laws are moderately strict in the UK and it ensures that all organisations are engaged in sustainable practices (UK Government, 2014; Caldwell, 2013). Economic environment The economic environment of an organisation mainly focuses on its financial aspects and considers external factors that may increase its costs. With respect to Whitbread Plc’s business in the UK, one important economic aspect is the impact of the financial crisis. The other factors are consumer need, growth rate of the industry, inflation, exchange rate and cost of raw materials. The UK economy is an important part of G7 economies and is the only economy that is recovering steadily post financial crisis. The gross domestic product of the country is relatively low but is showing positive growth. The inflation is also low but it has been observed that consumer purchasing power has improved significantly in recent time. The service sector was determined to be the major driver of the UK in terms of growth and employment (PWC, 2014). Social environment The social environment of Whitbread Plc is mainly driven by consumer needs, population growth rate, career preferences, potential market, ethnicity, health consciousness and age distribution. Restaurant and hotel industry is an important part of individual’s social life. It was determined that the restaurant industry in the UK has witnessed growth of 3.6% between 2009 and 2013 and cafes along with restaurants are enjoying lucrative growth opportunities. However, the industry is undergoing significant structural change considering changing food habits and increasing issues such as obesity and life style disorders (Market line, 2014b; 2014c). Technological environment Incorporation of technology in every business sector has become a natural trend in business world. Presently, a number of fast food chains are incorporating technologies for attracting greater number of consumers as buyers are increasingly becoming technology savvy. Research suggests that McDonald is exploring choices such as placing food orders by means of tablet, self-serving kiosk and 3D Printing services. Wi-Fi is another service that is being provided by restaurants for gaming and other activities for attracting consumers thereof. Technologies are being used to replace a number of manual activities such as cooking, cleaning and processing (Baldwin, 2013). Porter’s five force model for industry analysis Besides external environmental factors, analysis of certain internal factors with respect to the industry is essential for determination of an organisation’s strategy. The five force analysis has been done with respect to the restaurant industry in the UK so as to have better understanding of position of Brewers Fayre. Bargaining power of buyers Most buyers in the restaurant industry are individual purchaser and consequently, are vast in number and bear limited power as an individual. Contribution of single consumers towards revenue is very limited for budget restaurants. However, in premium priced restaurants, every buyer is very important. The recession affected all buyers collectively and as a result, restaurant business was severely shaken at that point of time. With respect to fast food centres and other low cost restaurants, the switching cost for consumers is very low which strengthens purchasing power of consumers. It is noteworthy that restaurant services are not considered as an essential service to consumers; instead, it is considered under the purview of leisure activities. Considering the increasing concern over health and obesity, a large number of restaurant visitors have reduced their visit to restaurants while other consumers are highly loyal towards certain specific restaurants (Market line, 2014c). Bargaining power of suppliers The restaurant industry is highly labour intensive where wages of various workers form a significant part of operating cost. Additionally, the demand for skilled labour in the industry has increased significantly. As a result, the bargaining power of suppliers have raised manifold. Food service industry is largely driven by product quality and therefore, switching cost of suppliers is relatively high for companies. The bargaining power of suppliers increases with supply chain disruption (Market line, 2014c). Threat of substitutes Restaurants are not essential products for consumers; its major substitutes are other leisure sources such as movie and theatre and food choices such as home cooked food. The switching cost in this regard is the time consumed and energy spent in kitchen. Home prepared food was determined to be relatively inexpensive and healthier compared to restaurant food. It has been observed that food from restaurants and takeaway counters contains high level of sodium, fat and salt content. As a result, a large number of consumers are shifting their preference towards fresh salad counters. In recent times, it has also been observed that cuisine specific restaurants are being set in large number so that consumers can enjoy variety of cultures by means of food. Consequently, the threat of substitutes is arguably high (Market line, 2014c). Threat of new entrants The threat of new entry is reasonably high in the UK restaurant industry, as the sector has observed fair growth in recent years and the capital and other requirements in the industry is moderately low. Competitive advantage in the sector is moderately high considering low margin business and high availability of resources. However, the growth of new entrants is deterred by strict governing regulations in the UK restaurant industry. Restaurants in countries within the purview of European Union need to follow specific legislations regarding food safety along with those by the Food Standards Agency in the UK. The legislations often nullify the growth of new entrants (Market line, 2014c). Rivalry among existing competitors The presence of multinational and a number of domestic restaurant chains have increased the level of rivalry in the industry. However, majority of competitors are small and medium scale businesses. Since there is negligible switching cost for consumers in the industry, the rivalry is further enhanced by this notion. The exit cost is very high in the restaurant industry therefore it can be assumed that the level of rivalry is fairly strong (Market line, 2014c). Analysis of micro-economic factors The microeconomic factors mainly focus on the type of markets, scope of supply and demand, market structure and existing competition spectrum. Types of market: In economics, market is defined as any physical or virtual place where buyers and sellers meet and conduct transactions. Marketplace can be classified with respect to geography, physical existence and financial activities. Restaurant industry is considered under physical market as it requires various physical resources to set up business (Sutton, 1991). Supply and demand: Production process is driven by supply and supply cost is determined by various external costs such as tax, subsidies, technologies and others. In restaurant industry of the UK, supply chain is very crucial for meeting existing demand of consumers (Sutton, 1991). Market structure: There are four kind of basic market structures, namely, perfect competition, monopoly, oligopoly and monopolistic competition within which various industries operate. Restaurant industry operates in monopolistic competitive environment where all the organisations are selling similar product (food) in differentiated form and in different locations (Sutton, 1991). Competition spectrum: The level of competition is moderately high in the UK restaurant industry as the exit barriers are relatively high while entry barriers are relatively low. It was also gathered that a large number of local and international firms are operating in this sector (Sutton, 1991). Assessment of future strategy of the firm Brewers Fayre mainly is a casual pub restaurant that offers food and alcohol to consumers (Market line, 2014a). Being a fast food diner, the restaurant mostly offers fast food that contains limited nutrient value. The current political development in the UK suggests that the government is taking measures for minimizing obesity and alcohol related problems. The company must devise its strategies accordingly so that its consumers are offered with healthier choices by means of fresh vegetables and fruits. The economic environment of the UK is improving gradually since the recession and it was observed that the GDP and inflation rate is stabilizing. Furthermore, the service industry is in its most lucrative phase compared to other sectors. This opportunity should be utilized by the firm for business expansion within the country and in international market. Brewers Fayre operates mainly in the UK; as a result, the present opportunities can be utilized for expansion in other European countries (Pearce & Robinson, 2000; Ansoff & McDonnell, 1990). Social and technological environments are currently developing in a parallel manner and considering tech-savvy nature of consumers, technological development is essential for meeting certain aspects of social environment. The restaurant can make maximum use of hard and soft technologies for consumer awareness and for being a part of consumers’ social life. The UK present strong growth prospect for restaurants and cafes and as a result, large number of competitors are entering the sectors. Brewers Fayre need to evaluate its competitive spectrum very carefully so that strategies are framed for achieving competitive advantage. If the company fails to incorporate the external changes in its strategies, then there are several possibilities that its competitors will perform better by grasping the opportunities (Pearce & Robinson, 2000; Ansoff & McDonnell, 1990). Recommendations and conclusion Brewers Fayre operates in a monopolistic competitive market and consequently, its offerings are not different from that of its competitors. In this respect, the company should adopt product differentiation strategies for increasing its market share. The current offerings of the restaurant can be considered as unhealthy and expensive by most consumers. In this context, the firm can offer healthier choices to consumers and increase their awareness regarding health issues. Such a strategy will make consumers realize that the company is concerned about them and profit is not the only motive for the business organizations. Considering various food regulations, Brewers Fayre should make effort to minimize sugar, salt and fat contents in food products. One important recommendation with respect to company’s future strategy is better supply chain management. Supply chain management mainly comprises creation of a link between inflows of resources to delivery of final goods to consumers. Strong supply chain management will benefit the firm in the long run as supply disruption result in production halt and increase cost thereof. Additionally, the firm should adopt strict measures to increase environmental sustainability practices so that it complies with government regulations prescribed by the UK government. References Ansoff, H. I. & McDonnell, E. J. (1990). Implanting strategic management. (Vol. 2). New York: Prentice Hall. Baldwin, C. (2013). McDonalds to engage with tech-savvy customers in restaurants. Retrieved from http://www.computerweekly.com/news/2240208563/McDonalds-uses-innovative-technologies-to-engage-with-tech-savvy-customers. Caldwell, A.K. (2013). Employment Law in the United Kingdom. Retrieved from http://www.lexisnexis.com/legalnewsroom/labor-employment/b/labor-employment-top-blogs/archive/2013/04/09/employment-law-in-the-united-kingdom.aspx. Market line. (2014a). company profile: Whitbread PLC. Retrieved from http://www.marketline.com. Market line. (2014b). Hotels and motels in the United Kingdom. Retrieved from http://www.marketline.com. Market line. (2014c). Restaurants in the United Kingdom. Retrieved from http://www.marketline.com. Pearce, J. A., & Robinson, R. B. (2000). Strategic management: Formulation, implementation, and control. New Jersey: Irwin/McGraw-Hill. PWC. (2014). UK Economic Outlook November 2014: Summary report. Retrieved from http://www.pwc.co.uk/the-economy/publications/uk-economic-outlook/ukeo-summary-nov-14.jhtml. Sutton, J. (1991). Sunk costs and market structure: Price competition, advertising, and the evolution of concentration. Massachusetts: MIT press. UK Government. (2014). Policies. Retrieved from https://www.gov.uk/government/policies?departments%5B%5D=department-of-health. Read More