Roast Plc - the UK Coffee Chain - Research Paper Example

Marketing Introduction Roast plc, the UK coffee chain, is plagued with falling growth and profitability issues and that has worried the company management and its investors. Pete McCarthy, the newly appointed Managing Director, is now in the process of sorting out major issues that the company is facing since last few years. Currently, Roast owns over 200 outlets across London and South East Locations. Pete does not want any overseas expansion right now but wants to expand on domestic turf because he believes that the company has not yet fully exploited the local market. He is planning to double the outlets mostly through franchisee partnerships in next five years and now in the process of identifying various issues in the functional areas such as marketing, operations, finance and, of course, in the field of human resource management. Marketing Issues and Solutions Over time, due to lack of innovation in product offerings, Roast plc has lost its old sheen and image of serving premium coffee at its outlets and that can be easily noticed from the reduced customer ratings. The reduced customer rating is also due to poor services and venue as Pete points out. When customers start perceiving the company’s products as commodity offerings then the company tends to lose its market share impacting its profitability and sales. Currently, the company’s products are not distinguishable from competition and secondly, the products are not targeted on a specific class of customers. These two are the marketing issues that the company is now facing with in the current business environment. If Roast has to refurbish its business then the company needs to first focus on two marketing concepts – Product Positioning and Product Differentiation. Product Positioning As Pete, the new Managing Director, points out customers do not find even venue enticing anymore. Before shops are given a fresh look to make them more attractive, it is essential to decide which class of the customers, the company wants to target at – such as business class or young couples who want to pass leisure time or ‘as a local community store working closely with neighbourhood partners as Pete points out. Kotler (2001) describes ‘product positioning’ as an essential marketing tool to carve a suitable niche as the company cannot hope to serve all segments of the market simultaneously. Product positioning will also help decide advertising campaign and brand positioning keeping in mind the targeted class of customers using scarce resources most judiciously. Product Differentiation As Kotler (2001) emphasises that the company needs to shift its focus on buyer wants rather than its needs. Product differentiation is a key strategy that the Roast needs to adopt in its services, product offerings with numerous varieties in its menu so that customers have several options to choose from. Thus, distinguishing company’s product line from the competition is a key marketing strategy that can play a pivotal role to attract targeted customers. Services also play an important role in differentiating with the competition so the company must focus on it as an integral part to the product differentiation strategy. Human Resource Management Issues and Solution Employees are considered a biggest asset in any organization and they play a pivotal role in success or failure of any organization (Schofield, 2006). Roast is known in the market as a large coffee chain where people come to enjoy and pass either their leisure time or for important discussion over a cup of coffee. In a way, it becomes imperative on part of Roast not only to serve them a good refreshing drink but serve them in a good time and in a courteous manner. High employee turnover and lack of training and development are the two major issues noticed at Roast. Training Is Crucial Reducing training expense cannot be a plausible solution as Schofield (2006) argues that training is not a luxury and that cannot be delayed until better times. The point is that a lot of staff happens to interact with customers directly and it is highly important how they deal with them for the sustenance of the business. It is crucial for the management of the company to understand this aspect while recruiting staffs such as service persons who deal with the customers face-to-face as they create a lasting impression among the customers about the company. Schofield (2006) states that companies need to focus more on the long-term objectives of the training aspects so as to increase its effectiveness for the improvement of business. Strong HR Policies Necessary Storey (2007) proposes in his HRM model that "it is the human resource which gives competitive edge" (p.9). However, at Roast, there appears to be a great inconsistency between compensation policy and high employee turnover. Roast pays higher then competition yet employee turnover is high; this clearly indicates that the employees are not satisfied with the company HR policies. A full-fledged HR department needs to be in place that can identify all HR policies to be integrated with the business strategy of Roast that can motivate employees through training and development (Storey, 2007). This will also ensure the places where part timers or temporary workers need to be replaced with permanent staff to meet with the long-term objectives of the company. Operations Issues and Solutions On operation side, the company is facing two major issues: (1) high stock wastage; and (2) the timing of deliveries. High stock wastage is a serious issue and it is a drain on profitability of the company and needs to be resolved at the earliest. A Sophisticated IT System Necessary Operationally, first of all, it is necessary to establish a strong IT based reporting system that will give idea about the wastage generated. Banks (2012) emphasises that IT based management information system (MIS) is the best way to generate all information regarding business processes and resources that are deployed. Roast has several key manufacturing operations before finished good is produced. In the absence of proper IT system, it is difficult to identify operational inefficiencies at various levels. IT based MIS will provide all necessary data on real time basis and thus, it would be possible to identify the causes behind high wastage and help managers to take corrective action accordingly. Once IT system in place, it will be easier for management to maintain proper inventory levels of raw materials, finished stock based on average daily or weekly sales achieved. This will also provide better control on timely delivery of the products. Delivery Issues The company outsources logistics; ordering and delivering is done at local levels and that creates all delivery issues. Efficient logistics reduces cost and time taken for the delivery and Roast needs to look at them freshly (Wisegeek, 2013). With the full-fledged IT system in place, a centralised ordering and delivering system will be much efficient for the company saving time and costs both. The company needs to sort out all logistic issues by taking in-house control to it; this will vastly resolve various delivery issues of Roast. Major Financial Issues and Solutions On financials issues, while calculating Roasts current ratio, it is revealed that it has worsened over last five years and that clearly shows that the companys financial management needs a lot of improvement. Secondly, the profitability ratio (profit/ revenue) of the company is constantly declining, in spite of the increased sales between the year 2009 and 2012. Short-term Debt Needs to be Reduced Current ratio is given as, Current assets/ current liabilities and it is a measure of the company’s liquidity; it is company’s ability to pay short-term liability (payables and debt) with short-term assets (cash, receivables, inventory). The higher the ratio, the better it is for the company. For Roast, the current ratio < 1.0 reveals that the company is not in good financial health (Investopedia, 2013). (Year ended for 12 months period) 31/05/2012 31/05/2011 31/05/2010 31/05/2009 31/05/2008 Current Ratio 0.89 0.87 0.99 1.09 1.21 In the year ended 31/5/2008, current ratio was greater than 1.0 but it has consistently fallen since then with slight improvement in the year ended 31/5/2012. This does not augur well with the company. The company management needs to look into and correct this anomaly. Short-term debt content of the company must be reduced to a reasonable level so that current ratio is improved to at least 1.0. High stockings of raw materials than required will also deteriorate current ratio of the company and that needs to be corrected. Profitability Ratio The below-mentioned table calculates and reveals the profitability ratio of Roast for the last 5 years. 31/05/2012 % 31/05/2011 % 31/05/2010 % 31/05/2009 % 31/05/2008 % Profitability Ratio (Profit / Revenue) 8.25 8.58 9.90 10.52 8.57 From profitability ratios of the Roast, it is quite clear that it is following a declining trend for last four years. While reducing short-term debt of the company, interest burden will reduce resulting into increase in profitability of the company. Long-term debt (non current liability) shows over tenfold increase in last 5 years – not consistent with increase in sales of the company and that needs to be reduced by retiring long-term debt. This will also improve profitability of the company. Franchising Issues and Recommendations Pete’s strategy is to grow Roast plc rapidly via franchising arrangement because that will require little capital investment for future growth; however, this is likely to raise several issues (Broadhurst, 2012). Committed Franchisee Necessary The company management has to be extremely cautious while selecting franchisee partners. Non-committed partner can create a negative impact on the reputation of the company and send a wrong message to the customers. Limited Margin for Roast In franchisee arrangement, Roast will have a limited margin to earn, often restricted to a certain percentage of the franchisee’s gross revenue; usually, they range from 10 to 15 percent. Value Creation through Focused Advertisement The firms would like to become franchisee of the Roast when they see value in its products and in order to create value, Roast will need to do a lot of advertisement for its products. The company will need to innovate significantly continuing with the philosophy of value creation for its customers and franchisee partners. Management Skill A franchisor needs to deploy a strong dedicated team of personnel to create and monitor uniformity among its franchisee partners and to ensure compliance of the basic rules so that customers do not get confused from the differing set of values and services emerging from various franchisee partners. Flexibility Issue Often, franchised shops are slower to introduce changes needed time to time and in view of this, Roast has to strike a delicate balance between company-owned shops and franchised outlets while introducing new products or making any changes so that uniformity is maintained among all Roast shops (Broadhurst, 2012). Conclusion Pete and his team needs to put concerted efforts on several fronts to bring changes and improvement in the company and above all, these efforts should be well coordinated across several functional areas so that scare resources of the company are not wasted. While a strong monitoring and control system in place, it will be possible to measure these changes over time and take further corrective action as and when necessary. Bibliography Banks, L. (2013). Importance of the Management Information System. Chron.com. [Online] Available from http://smallbusiness.chron.com/importance-management-information-system-5256.html [Accessed 25 March 2013] Broadhurst, N. (2012). What are the advantages and disadvantages of a franchise business opportunity. [Online] Available from http://sellingafranchise.co.uk/what-are-the-advantages-and-disadvantages-of-a- franchise-business-opportunity/ [Accessed 25 March 2013] Investopedia (2013). Current Ratio. [Online] Available from http://www.investopedia.com/terms/c/currentratio.asp [Accessed 25 March 2013] Kotler, P. (2001). Marketing Management.10th ed. Prentice-Hall. New Jersey. Schofield, A. (2006). Why you shouldn’t cut training. Extensor Ltd. [Online] Available from http://www.extensor.co.uk/articles/dont_cut_training/dont_cut_training.html [Accessed 25 March 2013] Storey, J. (2007). Human Resource Management: A Critical Text. 3rd ed. Thomson Learning. London. Wisegeek (2013). What is Business Logistics. [Online] Available from http://www.wisegeek.com/what-is-business-logistics.htm [Accessed 25 March 2013] Read More