Competitive Business Environment - Case Study Example

Competitive Business Environment of the of the Table of Contents Introduction 3 PEST Analysis 3 Political environment 3 Economic environment 4 Social environment 4 Technological environment 4 Porter’s Five Forces Analysis 5 Bargaining power of buyers 5 Bargaining power of suppliers 5 Rivalry among existing competitors 5 Threat of substitutes 5 Threat of new entrants 6 Scrutiny of Micro-Economic Factors 6 Market structure 6 Types of market 6 Scope of supply and demand 7 Competition range 7 Evaluation of future strategy of Brewers Fayre 7 Conclusion and Recommendation 8 References 9 Introduction Whitbread Plc is the leading hospitality company in the United Kingdom (UK). It operates series of hotel, restaurants, and coffee businesses. The well-known brands of Whitbread Plc comprises of Beefeater Grill, Premier Inn, Taybarns, Table Table, Brewers Fayre, Costa, and Hub by Premier Inn (Whitebread, 2013a). The largest division of the company is the Premier Inn. Among all the brands, Costa is the only coffee business which is also the second-largest global coffee chain in the world. Over the last five years, the company has generated 15,000 jobs in the United Kingdom by adding 96 additional restaurants, 1535 extra coffee shops, and 137 additional hotels. Whitbread Plc and its brands mainly operates in the United Kingdom, however Costa operates in more than 30 countries by means of their coffee shops as well as self-service espresso machines (Whitbread, 2013b). In the latest years, the hotel industry in the United Kingdom has shown noteworthy fluctuations with respect to development and turn down and one major reason for this fluctuation is referred to the changing food habits of the consumers around the globe. Brewers Fayre is present in almost 154 locations in the United Kingdom and its offerings encompasses smothered chicken, Ale pie, Gammon Steak, mixed grill, beef, and New Yorker burger (Whitbread, 2013a). The purpose of the report is to focus on the external environment of Whitbread Plc and particularly on Brewers Fayre. The impact of economic, political as well as other external factors on Brewers Fayre has been analysed in the long and short run. The future strategy of the brand and the company has also been considered with reference to the economic and political changes. PEST Analysis PEST analysis of the hotel and restaurant industry in the United Kingdom has been analysed by focusing on the political, social, economic, and technological factors. Political environment The political environment of the United Kingdom lays stress on several fiscal and governmental measures in the regions where the company is functioning. It encompasses taxes, health regulations, environmental regulations, employment law and trade restrictions. Environmental regulations are quite strict in the United Kingdom and it ascertains that all companies are engaged in sustainable practices (Caldwell, 2013). It is analysed that more than 10000 deaths takes place yearly in the United Kingdom due to the alcohol consumption, whereas the cost which is paid by society in this regard is as high as £20 billion. The employment law indicates that several rules has been sanctioned in order to reduce the workplace discrimination, endure equal and fair practices, as well as prevent unlawful activities. The health regulations involve implementing control on food which can cause several disorders in life style such as obesity. Therefore, local as well as national authorities have been allowed to take essential measures to reduce obesity among children as well as adults (UK Government, 2014). Economic environment The current development in the market volume and supply has increased significantly as top operators are occupied in a frenzied scramble for the market supremacy. The recent economic or financial recession is considered as a chief reason of concern for the hospitality sector. Though, substantial decline in the rate of interest helped to reduce further increase in the unemployment during the year 2009. Due to these measures of government, it was assumed that the consumer’s spending power will be increased. The economic environment of Whitbread Plc mainly considers those factors that may augment its costs. The main economic factor which has an impact on the company is the financial crisis, and the other factors are inflation rate, growth rate of the industry, exchange rate, consumer spending, and the cost of raw materials. The economy of the UK is recovering progressively post financial crisis. It has been observed that the purchasing power on consumers has improved significantly. The gross domestic product (GDP) of the UK is comparatively low but is demonstrating positive growth. It has also been observed that the service sector is the major driver of employment and development in the United Kingdom (Pwc, 2014). Social environment The social environment of the company is chiefly driven by population growth rate, ethnicity, consumer needs, age distribution, and health consciousness. In the UK, the restaurant industry has shown a significant growth between the years 2009 to 2013. However, the restaurant industry is experiencing structural change due to the changing food habits as well as issues such as obesity and disorders in the life style of human being (Papp, 2001). Technological environment Several fast food chains are including technologies in their business operations for attracting more customers as they are becoming technology savvy. Nowadays, Wi-Fi is provided by various restaurants to draw more customers. Technologies are being used to replace several manual activities like processing, cooking, and cleaning (Papp, 2001). Porter’s Five Forces Analysis The analysis of five forces has been executed in relation to the restaurant industry in the United Kingdom so as to have better knowledge of the position of Brewers Fayre. Bargaining power of buyers The switching cost for customers with respect to the low cost restaurants as well as fast food centres is very low which consequently strengthens the purchasing power of customers. As people are more concerned towards their health and the obesity issue so, they have reduced their footfalls. It has been also observed that certain customers have shown their loyalty towards specific restaurants (Enz, 2009). Bargaining power of suppliers It has mounted due to the reason that the requirement for skilful workforce has increased drastically in the restaurant or food service industry. It is mostly driven by the quality of product and as a result, suppliers’ switching cost is comparatively high for the companies (Enz, 2009). Rivalry among existing competitors The existence of various domestic and international restaurant chains have augmented the rivalry level in the industry. Most of the competitors are medium and small scale businesses. In the restaurant industry, the exit cost is extremely high and thus it can be understood that the degree of rivalry is moderately strong (Barringer & Ireland, 2008). Threat of substitutes As restaurants businesses are considered as the leisure business therefore its key substitutes are other leisure sources for example theatre as well as food choices like home cooked food. Home prepared food is considered healthier and also inexpensive in comparison to the restaurant food. Nowadays, people are more conscious of their health so, they are shifting their preference towards home prepared food and fresh salad counters. It has been also analysed that food from restaurants contain high level of salt and fat contents. As a result, the threat of substitute is high (Kwansa & Parsa, 2014). Threat of new entrants In the food service or restaurant industry, the threat/risk of new participants is extremely high as there are very low obstacles towards entry. This is the reason of high level of fresh/new entrants in the restaurant business. In the UK restaurant business also, the threat/risk of new participants is high. This is due to the reason that the restaurant industry has seen a moderate growth and development in the recent years as well as the capital requirement is also low. In this sector, the competitive advantage is relatively high because of the high accessibility of resources. Conversely, the progress of new participants is dissuaded by strict laws and regulations of government in the United Kingdom restaurant business. The restaurants have to follow the legislations regarding the food safety otherwise there is no way out for them. The laws often invalidate the progress of the new entrants (Kwansa & Parsa, 2014). Scrutiny of Micro-Economic Factors The microeconomic factors chiefly focus on the market structure, types of markets, scope of supply and demand, and prevailing rivalry range in the marketplace. Market structure There are mainly four kinds of market structure that exists which are perfect competition, monopolistic competition, monopoly, and oligopoly within which several industries functions. Restaurant industry functions in monopolistic competition market structure where entire companies are selling similar product in dissimilar locations in differentiated form (Wilkinson, 2005). Types of market Usually, market refers to a place where seller and buyers meets together to continue transactions of services and goods. However, in economics, market can survive even without the direct contact of seller and buyer. Here sellers and buyers contact each other indirectly or directly in order to sell or buy goods. Markets are categorised with respect to financial activities, physical existence, and geography (Hunter, 2008). The restaurant business is regarded as under physical market because it necessitates several physical resources in order to commence the business (Wilkinson, 2005). Scope of supply and demand The process of production is driven by supply of materials and the supply cost is determined through various external costs for example subsidies, technologies, tax, etc (Rimmington, Williams & Morrison, 2009). The supply chain is very vital for meeting the prevailing demand of customers in context of restaurant industries in the United Kingdom. Competition range A large number of domestic as well as global firms are functioning in hospitality sector. It has been analysed that the level of competition is comparatively high in the restaurant industry of the United Kingdom because the exit barriers are high and the entrance hurdles are low. Evaluation of future strategy of Brewers Fayre Brewers Fayre primarily is a pub restaurant which provides food as well as alcohol to the customers. Their aim is to serve the customers in a friendly environment and at affordable prices (Brewers Fayres, 2014). The firm mostly offers fast food to their customers which include limited nutrient value. Now the customers are more conscious about their health so, they are avoiding fast food. The current political environment in the United Kingdom advocates that the UK government is taking measures for reducing alcohol related problems as well as obesity. Therefore, Brewers Fayre should formulate strategies consequently so that the customers are presented with healthier food. At present, technological and social environments are developing in a corresponding manner and deeming the tech-savvy behaviour of the customers, technological advancement is crucial for meeting definite aspects of the social environment. The restaurant business can make utmost use of hard as well as soft technologies for the awareness of customer and also for being a part of social life of customers. After the recession, the economic environment of the United Kingdom is improving progressively and it was analysed that the gross domestic product and the inflation rate is steady. The service industry in the United Kingdom is in its most profitable phase in comparison to other sectors. Brewers Fayre should utilize this opportunity for the expansion of business in the global market. The firm functions mostly in the United Kingdom hence; it has opportunities or chances to extend its business in other countries. Brewers Fayre are required to assess its competitive range very cautiously so that the strategies are structured for attaining the competitive advantage. The United Kingdom presents great growth prospects for restaurants as well as cafes and therefore, several competitors are making an entrance in the sector. Thus, the firm must include the external changes in its strategies otherwise there will be possibilities that its rivals will do better by seizing the prevailing opportunities. In order to perform better than its competitors, Brewers Fayre should implement differentiation strategies in order to perk up its market share. Conclusion and Recommendation The hotel business in the United Kingdom has revealed noteworthy variations because of the changing food habits of the people around the globe. It has been analysed that Brewers Fayre operates in a monopolistic competitive market therefore it should adopt product differentiation strategy to remain ahead of its rivals and to augment its market share. The present offerings of the firm are considered as unhealthy therefore the firm should offer healthy food to the customers. By adopting this approach, they can convince the customers that they are concerned about the health of customers and will also result in more footfalls. It is recommended to Brewers Fayre that they should make an effort to reduce the contents of fat, sugar, and salt in their products. With respect to the future strategy of the firm it is suggested that they should adopt better supply chain management practice. Better management of supply chain will benefit Brewers Fayre in the long run by preventing the commotion which results in increase cost and production halt. They should also comply with the government regulations to carry the business smoothly and fairly. References Barringer, B.R. & Ireland, R.D. (2008) Enterpreneurship: Successfully Launching New Ventures. New Delhi: Pearson Education India. Brewers Fayres. (2014). Brewers Fayre: About Us. Retrieved from https://www.brewersfayre.co.uk/Generic-pages/About-us.html. 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. Enz, C.A. (2009). Hospitality Strategic Management: Concept and Cases. New Jersey: John Wiley & Sons. Hunter, N.A. (2008). The market definition paradigm. Ann Arbor: ProQuest Publication. Kwansa, F.A. & Parsa, H.G. (2014). Quick service restaurants, franchising, and multi-unit chain management. New York: Routledge. Papp, R. (2001). Strategic Information Technology: Opportunities for Competitive Advantage. United States of America: Idea Group Publishing. 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. Rimmington, M., Williams, C. & Morrison, A. (2009). Entrepreneurship in the Hospitality, Tourism and Leisure Industries. New York: Routledge. UK Government. (2014). Policies. Retrieved from https://www.gov.uk/government/policies?departments%5B%5D=department-of-health. Whitbread. (2013a). Whitbread: Our Brands. Retrieved from http://www.whitbread.co.uk/our-brands/brewers-fayre.html. Whitbread. (2013b). Whitbread: About Us. Retrieved from http://www.whitbread.co.uk/about-us/index.html. Wilkinson, N. (2005). Managerial economics: A problem-solving approach. New York: Cambridge University Press. Read More