Real Coffee ltd External and Internal Analysis - Report Example

Real coffee LTD Contents Introduction 3 Part External Analysis 3 Analysis of the Macro Environment 3 Industry Analysis 4 Porter five forces model 4 Part 2: Internal Analysis 5 Marketing issues 5 Human resources Issue 6 Operations Issue 6 Financial Issues 6 Part 3: Conclusion and Proposals 7 Proposed Strategy 7 Proposed Implementation 8 References 10 Introduction Real coffee limited is a chain of coffee shops which are based in Oxfordshire and had been operating for the last two decades. The company is run by Adam Franklin, 58 years of age, along with his children Ross Franklin and Alice Franklin. The chain has a total of 6 outlets that cater to the people of Oxford as well as Summertown, Aylesbury, Whitney and Cowley. The company intends to be run by the heirs of Adam. This report intends to analyse the various aspects both internal and external to the business and suggest the suitable strategy that Alice and Ross can take in order to make the business survive in the long run. Part 1: External Analysis The external analysis provides an idea about the issues and the scenario that is external to Real Coffee Limited and may affect the other companies in the same industry as well. A macroeconomic scanning is essential for this process. Analysis of the Macro Environment The PESTEL analysis provides a very clear idea about the macro environment from a 360 degree point of view perceived from outside the organisation (Pearce and Robinson, 2007, pp. 45-52). Political: Though the company is does not face much political problems at present, there are a large number of regulations that the company needs to follow regarding the maintenance of the safety standards and the management of the human resources. There might be issues relating to the labour unions and the problems of staffs across the centres. Economic: The major economic problem of the company is that the other popular coffee chains like Starbucks and Costa Coffee are offering products at much cheaper rates. The company also does not want to get into any partnership even through there may be prospects for the company to grow in the long run. Social: The other coffee shops have a negative impression about this brand as it is perceived to be a laid back and old fashioned one given the old décor and the lack of changes of the interiors and ambience with the time. The other brands like Starbucks and Costa are gaining a better popularity in the present day (Hill and Jones, 2010, p. 43). Though the coffee chains are the destinations of the young people this particular shop is visited mainly by the old people above the age of 55. Technological: The Company detests the use of any modern technology because Adam thinks that it would be a waste of resources. With the advent of the new technology most of the other coffee chains are making use of better processes to serve the best coffee. Thus Starbucks and Costa are able to provide a better quality at a cheaper rate. Industry Analysis Porter five forces model Power of Buyer For Real Coffee Ltd. the power of Buyer is high. Customers don’t come there because Adam doesn’t want to give any discounts to encourage trade and increase the volume. Instead he is adamant that he can’t let reduce the profits any further. Hence the customers are too few in numbers. Power of Suppliers The Supplier has high power because they can increase the cost of the coffee and hence Real Coffee Ltd. had to buy in large quantity so that they could get discount. Hence, if the suppliers increase their price, Real Coffee Limited would be left with no option but to increase the price of their coffee (Porter, 2008, p. 211). This would adversely impact them as the customers number will get reduce even further. Threat of Substitutes The Threat of Substitutes is moderate to high. The Substitutes of coffee are Products like Nestle Caro, BarleyCup etc. But Customers who are willing to drink coffee would only buy coffee. Hence the customers won’t look at other substitutes. But form Health point of view, customers can switch to other related products though the chances aren’t that high. Threat of New Entrant Threat of new entrant is moderate. Though an initial heavy investment is required initially and there are already some established players in the market, any new player can capture the market with their sheer innovativeness and unique taste in the coffee served to the people. This will require investment in R&D so that new taste preferred by the customers can be presented to them. Rivalry within Existing firms It has been said that Real Coffee Ltd. faces tough completion form other established players like Starbucks, Costa who are opening up nearby. Clearly it has been mentioned that they can’t compete with them and they are lacking far behind. Again Costa has opened up their new café store in Aylesbury which have aggravated their problems. Part 2: Internal Analysis This section of internal analysis would provide an insight in to problems and issue that would be unique to the company Real Coffee. Marketing issues The company relies only on word of mouth publicity and does not wish to incur any expense on the advertisement which is essential for the establishment of any brand (Kotler, 1999, pp. 125-146). The company solely relies on the quality of coffee that is served would be the unique selling point for Real Coffee. The company being a market follower of Starbucks and Costa Coffee has accepted the defeat in the promotional spending and therefore avoids indulging in anything on the advertisement of the brand. This kind of attitude is not healthy for the success of any brand (Boone and Kurtz, 2010, p. 453). Human resources Issue The head of Real Coffee had a problem of imposing his decisions on the employees that worked for his company. The people who worked for his company were allowed to express their opinions but their suggestions were never implemented because Adam used to make the final decision. The attrition rate of the company was high. The reason behind this is the fact that the employees were either temporary or worked part time. The students comprised of the labour force. They did not want to continue their career as the employees of Real Coffee. The company also faces trouble to retain the senior staff. The main reason behind this is that they are not involved in the decision making process and also the way the recruitment of the senior management is undertaken. Operations Issue Real Coffee prefers not to incur any expenses on the interiors and the furniture of the outlets. Adam claims that the customers prefer the simplicity, which characterises the outlets. The number of frequent visitors in the coffee chain is quite less. Adam does not want to spend much time on the training of the employees with soft skills that are essential for the business. There are several issues with the quality of services. Mistakes in the orders and slow delivery are some of the key issues that the customers complain about (Lovelock and Wirtz, 2011, pp.78-91). Financial Issues The head of the company claims that it is fighting to earn some profit for the company. The company is in the habit of maintaining a very high level of inventory. This is proved from the high current ratio of 2.0 and a low quick ratio of 0.24. This means that the company has a huge amount of money locked up in the stocks as inventory. This would lead to cash management and liquidity issues for the company. The creditor’s turnover period for the company is also quite high and is more than a month. It is not healthy for any company that depends on only one business. The other financial ratios like the ROCE, Net Profit Margin show that the company does not make profit enough to help it in its probable expansion plans. The level of gearing is only 4% which means very little section of the capital is in form of debt. The amount of money allotted for the promotional budget also extremely low. Part 3: Conclusion and Proposals Proposed Strategy For Real Coffee Ltd. they need to put of an efficient strategy which will help them make their business turnaround so that customers throng at their coffee shop. First the company must understand why the rate of employee turnover is high. For any business whose rate of turnover is high employee satisfaction is the key issue. Hence here the company must hold talk with the employee and understand why they are leaving the organisation. As explained that whenever any new vacancy comes up, Mr Franklyn only decides how to fill those up. Most of the time only internal recruitment happens and it is filled by friends or relative. External selection process should be conducted so that they can get quality employees having the right attitude and proper frame of mind (Fifield, 2012, p. 241). Real Coffee Ltd. has to have a sense of direction. Clearly both Ross and Adam have different strategy and ways to carry out their business. It is seen that Adam wants to set things his way. Clearly it’s not helping the company. He must sit down with Ross and sit and discuss important issues regarding this. They need to clearly define each other role and work in that direction. Personal goal setting should be done. There is also lack of any promotional budget in the company. Branding and advertisement is key marketing strategy for any company. They must advertise their company to potential customers so that they get to know their verities of flavour which the shop has to offer. Again the employees need to be given proper training of how to serve the customers. They must recognise that customers don’t come only to drink coffee. They want to experience the ambience of having a coffee. There have been incidents of complaint from the customers about lack of proper manner of the staff. The Company hence needs to give proper training to the staff and ensure that the order is taken correctly and coffee is served at the right time without much delay. Sometimes it is advisable to offer discounts to the customers so that revenue gets increased in lean periods. Such strategy helps the Company to retain customer base. The Company needs to invest in the furniture and design. Customers who get the right ambience for having their coffee remember it’s and enjoys such an experience. The company can play soothing background music and the walls can be filled with images of important dates and achievements that the company is proud to share with. This is will help the customers get to know the glory of the company. Proposed Implementation Real Coffee Limited should first be clear of what they want to achieve in say next year. After having set their target, goals and objectives then they must strategies as how to achieve them. They must first start with the employee retention strategy. They must make sure that employee retention is low and recruit proper candidate. Then they must be given proper training through real life experience of how to serve and delight customers. Adam, Ross and Alice must sit together and decide on how to carry out their task. Adam needs to be flexible and change the strategy according to changing business scenario. They must also consider diversifying their operations into business like pizza, pasta restaurants etc. They can also consider selling the property to Susan at a good price. References Boone, L. E., and Kurtz, D. L., 2010. Contemporary Marketing. Mason, OH: South-Western Cengage Learning. Fifield, P. 2012. Marketing Strategy. Woburn: Routledge. Hill, C. and Jones, G. R., 2010. Strategic Management - Theory: An Integrated Approach. Mason, OH: South-Western Cengage Learning. Kotler, P., 1999. Kotler on Marketing. New York: The Free Press. Lovelock, C. and Wirtz, J., 2011. Services Marketing – People, Technology, Strategy. New Jersey: Prentice Hall. Mullins, W. and Larreche, B. 2006. Marketing Strategy. New Delhi: Tata McGraw-Hill Education. Pearce, J. A. and Robinson, R. B., 2007. Strategic Management. New York: McGraw Hill Publishing. Porter, M. E., 2008. Competitive Advantage: Creating and Sustaining Superior Performance. London: Simon and Schuster. Read More