Macro Environmental Analysis of Greggs Plc - Case Study Example

Greggs Plc Executive Summary This study contains the macro environmental analysis of Greggs plc by using SWOT and PEST analysis. The market position of the company has been reflected in the analysis. It has also shown the current market position of Greggs plc and how the company has leveraged the market opportunities to develop its core competencies. The study reveals the social and economic structure of U.K and how it has impacted the business operation of the company. The changing consumption pattern and the consumer behaviour have also been discussed in this study; along with how the company has leveraged them to develop its business is included. Furthermore, it also includes the brand audit of the company based on some theories in order to assess the current performance status of the brand. The brand audit has been done based on the popular BAV (Brand Asset Valuator) model. Finally, the recommendation to improve the brand equity of the company has also been discussed.  Table of Contents Introduction 4 PEST Analysis 4 SWOT analysis 6 Building Brand Equity 7 Conclusion 10 Reference 11 Introduction Greggs plc is a baker retailer in U.K. which was established in 1939. The company went through several strategic acquisitions as it took over different regional bakery chains in the U.K (MarketLine, 2014). It has eventually shifted its focus from ‘take home’ retailer to ‘on-the-go’ retailer. As of 2013 financial report, Gregg plc has made total revenue of £762.4 million, which is a 3.8 percent hike from the previous financial year. However, the company’s profit before tax has decreased by 18.9 percent to £41.3 million. Greggs plc has made certain changes in their marketing strategies so that they can focus of their core competency, which is ‘food-on-the-go’ (Greggs, 2014). According to MarketLine (2014), the ‘on-the-go’ food market is worth around £6 billion and almost 75 percent customers of the fast food market visit Greggs for the ‘food-on-the-go’ service. The company has successfully built its brand equity which has allowed them to gain a large customer base and brand preference. Brand equity can be defined as the value which a company realizes by differentiating its products and services by positioning, brand names, product quality and design and even by promotional activities. Building a strong brand value helps a company develop a competitive advantage against its rivals (Kotler, P. and Keller, K. 2011). This paper is focused on the Brand equity and Brand audit of Gregg plc. It also discusses the tactical recommendation for the company which will improve its brand value over the next three years. PEST Analysis Political: The political scenario controlled by the government policies can affect a business operation in several ways. The changing tax policies and business regulations often compel the companies to change their pricing and their business strategies, which at times can prove to be cost incurring. Greggs plc operates in the U.K fast food industry which is regulated by several quality standards (FSA, 2014). The company needs to follow all the regulations in order to avoid getting penalized. The U.K government initiated a pasty tax, because of which Greggs had to increase the prices of the hot serves food products like pasties, sausage rolls, etc. This increase in price eventually infuriated the customers and as a result it affected the sale and brand value of the company (Webb, 2013). Economic: The economic condition of a country largely affects the overall business of the organization. It reflects the affordability and demand of a product or service. The 2008 financial crisis had increased the food prices all over the world. The wheat prices were hiked by about130 percent and the rice prices was hiked by 74 percent. This increased the cost of raw materials, which eventually increased the product prices (foodsecurity, 2014). The current economic scenario is favourable to the fast food industry. The steady prices of raw materials and its increasing supply have allowed Gregg to keep the prices reasonable. This as a result is aligned with the affordability of the UK population (Burks, 2014). The UK government has decided to invest £ 15 million in the food industry to help boost the economy; as a result it will keep the food prices stable and increase the supply of raw materials (GOV.UK, 2012). Social: The social structure, the consumer behaviour and their consumption pattern are of great importance to business operations. Ford (2014) mentioned in his study that the global food consumption pattern has changed over the years. The increasingly busy lifestyle of the U.K population has led more than half of the office-goers to have their breakfast outside their home. This as a result has increased the popularity of the ‘food-on-the-go’ service of Greggs. The company has successfully recognized this changing consumption pattern and has focus on developing their ‘food on the go’ service as their core competence. Technological: Greggs has successfully leveraged the technological advancement of the U.K to improve its services and production processes. The company tracks the consumer search patterns on their websites by using cookies technology (Greggs. 2014c). Greggs uses advanced technology to increase the production efficiency and improve its product quality (Mettler Toledo, 2014). The company has also offered free Wi-Fi to their in-store customers, in order to increase the brand preference (Stones, 2012). Greggs has also launched a mobile app for payments, which will help the customer to make easy payments from their phones, this as a result helped the company to achieve better customer retention by increasing their switching costs (Greggs, 2014d). SWOT analysis Strength Opportunities Largest Bakery Chain High Brand Preference Overseas Expansion Product Diversification Weakness Threats Limited Product Portfolio Government policies Operating in highly Competitive Market Strength: Greggs is the largest bakery chain in the UK. It operates with 1,671 stores and a hundred more has been opened in 2012. The company also holds an integrated supply chain; it allows having full control over the distribution channel. Greggs’ vertically integrated business operation allows it to keep its operating prices low; as a result it is able to offer its products at a competitive price (Greggs, 2014). The low production cost, allows Greggs to have a ‘cost leadership’ position and it also allows the company to have a high profit margin and to invest in service improvements. Greggs have successfully targeted the right customer segment with its ‘food on the go’ service. The company has successfully paced up to its competitors, by repositioning its brand image. The strong brand equity created by the quality food products, which are served fresh is the key image which the company has portrayed to its customers. It has also differentiated itself by offering foods, which are prepared each day, so that the customers can have daily made fresh and healthy products. This ‘fresh and healthy’ image is what has made Greggs stay ahead of its competitors (Greggs, 2014e). Weakness: Greggs only offers bakery products. As a result, the company has a much shorter product portfolio than the other fast food chains like MacDonald’s (MarketLine, 2014). The narrowly focused business operation can easily make Greggs a target for acquisition of other bigger retail companies. Moreover, the company is dependent on only one business operation, so if somehow it underperforms, Greggs does not have any other business to compensate the loss. Opportunities: Owing to the strong brand recognition and financial strength, Greggs has sufficient potential to expand its business in other continents, particularly in America (Kotler and Keller, 2011). As a result, it will help the company to target a much larger customer base and it will also improve its brand preference. Greggs plc has potential opportunities in diversifying its product portfolio. Greggs Moments, which is the stand alone coffee shop of the company, , should be expanded into more locations in order to expand the business comparable to Starbucks. As Greggs already has expertise in selling beverages like coffees and cappuccinos in their stores. Thus it will help the company to rebrand itself as coffee house chain. Diversifying its portfolio will allow Greggs to target more than one segment of customers, which is vital for it growth and long term sustainability. The company’s decision to close off the low performing stores in the high streets and shift them near to the work places will eventually work in company’s favour, as most of the target customers are office goers (Ford, 2014a). Threat: The company although holds the position of largest bakery chain, but still it faces a steep competition from companies like Premier Foods plc, Morrison Supermarkets and McDonald’s in the overall fast food industry(MarketLine, 2014). The wide range of food products in the fast food industry poses a serious threat of substitute to the bakery products of Greggs, as the customers have more options to choose from. Based on the peer analysis by Financial Times, Greggs plc stands at a delicate 5th position in terms of market capitalization (Markets.ft, 2014), which increase the competition Greggs. Building Brand Equity The brand equity is defined as the added value that a product or a service can deliver. It is defined by the way the consumers perceive about the product or service and the way they behave and react with respect to the brand. Measuring the brand equity of a company is the assessment of the differential effect of the brand on the customers is called Customer based brand equity (Kotler and Keller, 2011). The customer based brand equity is positive when, the customers react in favour of the brand, on the other hand it is negative, when the brand recognition is low and the consumers show less preference. In order to assess the health of the brand, Greggs plc needs to perform a brand audit. The brand audit is a series of procedural steps which gives a clear idea of the current performance status of the brand (Chandon, P. 2004). This section covers the brand audit of Greggs plc, followed by recommendations on building strong brand equity. Performance of a brand can be measured through several theoretical models. In this paper Brand Asset Valuator (BAV) model and the Brand Value Chain model has been used. Brand Asset Valuator: This model was devised by Young and Rubicam, to measure the performance status of a brand based on four parameters: Differentiation, Esteem, Relevance and Knowledge (Y&R, 2014). Differentiation: This parameter measures the level to which a particular brand is distinguishable from the peer brands. Greggs plc has differentiated itself by projecting the ‘freshly baked’ idea in the market. Unlike its rivals, Greggs plc prepares their foods on a daily basis, thus providing a healthy image to their products. Moreover, it has also differentiated itself by catering to the busy customers with their ‘food on the go’ service. Esteem: Energy defines how efficiently the brand is appealing to the customers. The company’s image as the number one caterer of ‘food on the go’ service has proved to be favourable for the company. According to market line data around 75 percent of the customers prefer to have ‘on the go’ service (MarketLine, 2014). This suggests that the company has successfully developed its core competence and it is reflected in the brand preference among the consumers. Relevance: Relevance measures how appropriate the brand is for the company. Since Greggs’ core focus is targeting the customers near their work place, so keeping that in mind it has successfully positioned its brand image as the number one ‘on the go’ bakery retailer. Thus, it can be rightly stated that Greggs’ brand image is quite relevant to its business operations (Greggs, 2014). Knowledge: This parameter measures how well-known the brand is to the customers. The recent growth in sales of the company suggests that the brand familiarity is on the rise. The launch of the new sandwich line has increased the brand preference even more. Thus based on these facts, it can be stated that the brand knowledge among the customers is quite high (Ruddick, 2014). The BAV model puts these parameters in to the “Power Grid” to measure the current performance level of the brand. Based on the power grid and the four parameters it can be stated that Greggs falls into the category of Aspiring Brand. The Power Grid suggests that the Aspiring Brand category is at a growing phase of its life cycle, which eventually will take the Leadership position in the “Power Brand” category (Y&R, 2014). Figure: Brand Asset Valuator Model Source: (Y&R, 2014) A brand’s status can also be evaluated by its “point of parity” (POP) and “point of difference” (POD). The POD is defined as the attributes of a product or service, which differentiates the brand from others. POD is the unique value proposition which is not available in any other brands. The consumers often identify a brand with this aspect. For Greggs plc, the POD is ‘serving freshly baked foods’ and the ‘food on the go service’. The POP on the other hand is the attribute which is shared by other brands. In case of Greggs plc, the POP is the standardized product line and business operation in the bakery industry (Kotler and Keller, 2011). Recommendation In order to build strong brand equity Greggs should concentrate in expanding its brand. So it should improve the brand image of ‘Greggs Moments’. This can be done by establishing more Greggs Moments store within next three years, followed by extensive campaigning and promotional activities, like television commercials and billboards. This will not only help to expand the business of the company, but it will also help to increase the brand equity in the near future, by increasing the brand breadth. In the coming three years the company should focus more on its core competence by adding more value to the office goers. The brand image of the ‘food on the go service’ can be strengthen by designing advertisements specifically targeting the busy professionals, who can have a health breakfast without compromising on time. Following these strategies will shift the company from an Aspiring Brand to a Power Brand, which will give the company a competitive edge over its rivals. Conclusion Greggs plc is currently in its growth phase. Although it is facing competition from rival brands like MacDonald’s, Premier Foods, etc., but it has successfully differentiated itself in the bakery retail industry. This is reflected in the growing sales of the company in a challenging quarter of 2013 (Greggs, 2014). The company’s core strength is the ‘on the go food’ service, and in order to further strengthen its position, Greggs has decided to make big investments in refurbishing its business. Based on the high brand awareness it can be stated that Greggs has all the potential to take its business in other continents and thereby expanding its business further. Therefore, Greggs plc has developed as a strong brand equity which will help the company to drive itself into the leading position in the fast food industry. Reference Burks, F., 2014. Types of Economic Factors That Can Affect the Fast Food Industry. [online] Available at: [2 December 2014] Chandon, P., 2004. How to Measure Brand Awareness, Brand Image, Brand Equity and Brand Value. INSEAD. France. Foodsecurity, 2014. UK Threat. [online] Available at: [2 December 2014] Ford, C., 2014a. Greggs announce £25m investment plans. [online] Available at: [2 December 2014] Ford, R., 2014. Bread and Baked Goods. Mintel. September. FSA, 2014. 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