Olive Garden Strategies to Enhance Marketing Concepts at California Branches - Case Study Example

OLIVE GARDEN STRATEGIES TO ENHANCE MARKETING CONCEPTS AT CALIFORNIA BRANCHES of Table of Contents Introduction Environmental Analysis: PESTLE Stakeholder Engagement Organizational Resource Analysis: VRIO Framework Performance Analysis Future Strategic Directions References Introduction Olive Garden is a subsidiary unit of Darden Restaurants. Inc and specializes in Italian and American cuisines (Olive Garden, 2015). The headquarters of Olive Garden is situated in Florida, United States. Olive Garden is one of the largest chains of restaurants operating in the Unites States and is functioning with more than 800 branches for supporting their service structure (Olive Garden, 2015). Olive Garden was launched in the year 1982, the company experienced rapid increase in the number of branches as consumers appreciated the type of services and food being served at the restaurant (Olive Garden, 2015). Olive Garden has successfully developed its unique selling points and differentiated itself from other competitors in the market. The basic strategy of Olive Garden is to keep improving their service structure in accordance with the changes in the needs of the consumers. One of the primary features of Olive Garden is its service differentiation based on the consumer background. This has allowed them to cover both mass and niche market (Olive Garden, 2015). Although, Olive Garden reflects the consumer traditions and preferences in their outlets, they have maintained and evolved their basic Italian cuisine and theme for reflecting the authenticity of the brand. However, some criticisms have caught up with this growing eatery in context of their Tuscany Institute case (Olive Garden, 2015). Olive Garden had reported that they are running a cooking school in Tuscany but on enquiry no such institute was found. This type of incident has harmed the brand equity of the firm (Olive Garden, 2015). This report will focus on the strategy of Olive Garden to improve their marketing functions for the California based branches. Environmental Analysis: The environmental analysis of Olive Garden restaurant for their California branches can be conducted with broad environmental analysis: Broad Environmental Analysis Economic: The economy of California is the largest amongst American states. They have reflected a high Gross State Product of $2.050 trillion in the year 2013 which has increased by 2% (CCSCE, 2014). The total working population of the state is around 18 million which also reduces the operational costs of a company (CCSCE, 2014). The historical development of California has heavily relied on international trade and commerce and hence the economy supports expansion in the concerned sector. According to the report of 2008, almost 18% of the Gross Domestic Product of the state is based on service sector that includes education, health, hospitality, etc (CCSCE, 2014). These facts are supportive towards the objectives of Oliver Garden and can help them in building a new market. However, California is also known for taking heavy debts from other states which often creates chaos in the economic scenario (Dess & Lumpkin, 2009). Also, the tax rates of the state are higher in comparison to most of the other states of the US. These factors will influence the operational processes and revenue earning processes of the Olive Garden. Social-Cultural: California is the third largest state in USA with total population of 38 million (Woodruff, 2010). The population of California represents an array of cultures gathered from the natives and also the immigrant population of the state. The cultural segment of the state is also diversified because of the increasing migration of people from other places in order to be a part of the better life style. California not only highlights the original American culture, but also includes the modern age concepts and open thinking (Heylen, Dawson & Sampson, 2007). This allows international trade to foster in the concerned region. The changes in the demographic segment have also attracted many business houses for operating in the open market place. In context of the food and beverage industry, the scope for Olive Garden can be considered high based on the open market place and variety of population that also increases the target consumers for Olive Garden. The climatic conditions of US, reduces their ability to produce many genres of food and thus the import rate of food products are increasing in the nation. It was noted by Food Availability Data System that almost 17% of the total food of US is imported while rest are locally produced. Almost 80% of the sea foods are imported whereas the 2/3rd of the fruits and vegetables are being imported (USDA Gov., 2012). U.S. Food and Drug Administration that most of the food products imported is hampered during the shipping process and thus every entity engaged in importing food items must be registered with FDA and follow their norms for shipment, storage and quality of foods to be imported in the country. Technological: Technological changes in the 21st century have taken the corporate and the social segments by storm. Beginning from developments in Information and Communications Technology to innovation in the infrastructural and hardcore technologies has changed the functions between the various variables of the buyer and seller relationship (Corstjens & Lal, 2008). Hardware developments for the food and beverage industry include cooking equipments and service themes which has accelerated the service generation process of the business houses. In context of California, changes in technology have allowed the consumers of the state to have market information with the help of internet facilities such as social media and search engines (Kotler, Gregor & Rodgers, 2007). This has also helped the consumers in acknowledging the quality of services and to recognize brand equity and brand value of the firms. Olive Garden can consider online promotion for utilization of the technological resources of their businesses. Nevertheless, implementation of technology may have reduced the operational expenses of the business in the long-term but installations of technological equipments are costly and may disrupt the capital management process of business houses. Legal/Political: The legal structure of California is mainly focused on the responsibility of the business houses towards the nation, state and the society. The duties of a business firm towards the nation include various functions such as generating employment, improving the standard of living and also boosting the economy of the nation (Agrawal & Lal, 2007). The responsibilities towards the state are part of the tactical planning processes of the firms and include taxation, regulatory bindings in relation to their financial activities, following the quality standards set by the state and the nation (Schulze, Skiera & Wiesel, 2012). The duties towards the society of the firms mainly focus on creating an opportunity to conduct fair transactions and also in meeting the expectations of the consumers without harming their sentimental values. With a more direct approach, the operations of Olive Garden will also be influenced by the medical and healthcare laws which will measure the standard and quality of services being provided to the consumers. The legal requirements of the restaurants operating in USA are mainly to ensure that the quality of food being served to their customers is suitable for human consumption and the trade is being made in ethical manner. Aspects such as “Truth in Menu” are being followed by the restaurants in regards to their service structure and legal obligations. The mandatory legal framework for restaurants and hotels operating in USA is mainly governed by the Article 2 of the Uniform Commercial Code. Part 2 and 5 of the article are related with the operational functions of the restaurants and includes factors such as shipment by seller, insurable interests in goods, risk of loss in absence of breach, buyer’s right to goods, etc (Matsuno & Mentzer, 2009). Competitor analysis: Figure 1: Competitor Analysis (Source: Yahoo Finance, 2013) The above given diagram highlights the position of Olive Garden against other major competitors operating in the concerned industry. Olive Garden has been aligned with the fine dining segment of the restaurant industry but, they also have a favorable position to be treated as a cheap alternative to other high brands such as Joe’s Crab Shack, Brio Tuscan or Longhorn Steakhouse. On the other hand, the low pricing and limited options are reducing their ability to be one of the top notch brands in the functional markets (Baker, 2007). Industry Analysis: The restaurant industry of US is flourishing with the growth of the travel and tourism segment of the country. Eg gert & Ulaga (2006) mentioned that the changing life style of the people have also increased the need for fast services which has indirectly enhanced the scope of business for restaurants. According to the National Restaurant Association, the number of restaurants in the year 2013 was 65094 in California (National Restaurant Association, 2015a). The overall sales generated from the restaurant industry were $72.3 billion and also created 1605300 jobs in the state (National Restaurant Association, 2015a). The dramatic growth in the price of restaurant menu also highlights that despite increase in price consumers are still preferring restaurant food. Figure 2: Restaurant Menu Prices (Source: National Restaurant Association, 2015b) The key trends in the US restaurant industry are being influenced by the changes in the customer taste and preferences. The growth in the number of Asian dishes in the menu cards such as Dim Sum and Tapas have heavily influenced the consumers. Spicy dishes are increasing in the menu cards and this is also reducing the preference of other continental cuisines. Also consumers are more health conscious in the contemporary scenario which has increased the focus on quality of services being provided and other associated factors such as ambience, environment and hygiene of the eateries (Finish, 2008). Stakeholder Engagement The role of the top management will be to formulate the strategic objectives for the marketing plan and also align them with the organizational goals. The top management of the firm will also be responsible for overseeing the progress of the marketing plan and its contribution towards organizational growth and development (Baker, Nancarrow &Tinson, 2009). The role of the market research team will be to gather information from the concerned zones by communicating with their consumers. The primary objective of the information gathering process will be to assess the needs and expectations of the customers, their affordability and the potential brand loyalty among them (Bottomley & Doyle, 2008). The market research team will also put forth surveys for the competitors in order to assess their strategies and also utilize their market experience for framing the service structure of Olive Garden. Based on the information of the market research team, the promotional team will develop the public relation networks and also the advertising process of Olive Garden for the California market place (Reid, 2009). Apart from this, setting up communication platforms for connecting with the customers will also be a key function of the promotional team. Organizational Resource Analysis: The organizational resource analysis of Olive Garden will be conducted with the help of a VRIO analysis that will evaluate the resource analysis and also the strengths and weaknesses of the internal factors of the company (Eggert & Ulaga, 2006). A performance analysis of the company will also help in revealing the sustainability of the strategic approach of Olive Garden in context of their marketing enhancement plan in California and help in evaluating the gaps in their future decisions. VRIO Framework Value: Value for Olive Garden mainly reflects their ability to design unique products and service themes. They have focused on the individual needs of the consumer groups and hence also created a related approach based on the emotional aspects of the consumer psychology. Another factor adding value to the service structure of the Olive Garden is their cost competitive advantage (Finish, 2008). The company has focused on managing their internal functions with the help of a stable and connected supply chain which allows them to streamline their functional departments and reduce the lead time for service (Schulze, Skiera & Wiesel, 2012). The internal network among the functional departments of the company has helped Olive Garden in minimizing miscommunication and also to generate greater efficiency in terms of quality. Rare: One of the rarest aspects of the Olive Garden restaurant is their diversified themes and the reflection of their Italian culture in each of the service themes. The company has stayed loyal to their core strength which has gained them a competitive advantage in context of differentiation. Also the nature of services being provided in the service has been designed on the basis of technical rationality (Kotler, Gregor & Rodgers, 2007). Use of technical rationality in the strategic decision making process can be considered old school but it has helped Olive Garden in reducing the gaps in their service structure. However, as competition is increasing in the food and beverage sector, the aspect of rarity is failing. Difficult to Imitate: The aspects of Olive Garden that are difficult to imitate are their strategic responses to the market challenges and the dense financial support from Darden. This has also helped the company to develop expensive service structure which cannot be imitated by small and medium scale firms looking to enter the market with high service quality and structure (Reid, 2009). Also, Olive Garden’s strategy to focus on being the early entrant in new market places has helped the business to outshine its competitors and also generate a loyal consumer base. Schulze, Skiera & Wiesel (2012) noted that the service structure of Olive Garden also includes an in-depth relationship buildup with their customers and reflects their core values by maintaining a transparent service theme. Organizational Support: Organizational support reflects the ability of a firm to utilize the three preceding factors of the VRIO framework. The organization will have to ensure that their resources are being used optimally and are aimed towards the fulfillment of the organizational objectives (Woodruff, 2010). The consideration of Olive Garden in this context can be stated as excellent. Although the company has refrained from making huge diversifications in their service structure, they have utilized their core strengths for developing their position in the market. Performance Analysis The performance of Olive Garden over the years has remained consistent in terms of their service quality and also their financial stability. As per the annual report of Darden, the performance of Olive Garden has faltered in the year 2014 as the overall sales came down by 3.4% (Darden Restaurants Inc., 2014). Contradictorily, Olive Garden remains the most appealed brand under the umbrella of Darden despite the falling financial standards (Darden Restaurants Inc., 2014). In order to manage the financial shortcomings of Olive Garden, Darden also announced to reduce the capital investment in the restaurant and limit the opening of new branches (Darden Restaurants Inc., 2014). Furthermore, one unit of Olive Garden was also closed by Darden in the year 2014. However, Darden remains confident that Olive Garden will make a turnaround and generate an estimated 1% increase in their annual sales by the end of fiscal year 2015 (Darden Restaurants Inc., 2014). Figure 3: Number of Units, Olive Garden USA (Source: Darden Restaurants Inc. 2014) The above figure shows the increase in the number of branches of Olive Garden in the past three years. It has to be noted that the increase in the number of branches has slowed down between the periods of 2013-2014 in comparison to that of 2012-2013 (Darden Restaurants Inc., 2014). The annual report 2014 of Darden also reflects that the number of stores of Olive Garden in Canada has remained the same (6) in the past three years (Darden Restaurants Inc., 2014). The total amount of sales generated by the restaurant in the year 2014 was $3.64 billion which was reduced by 1.1% in comparison to that of 2013. The average annual sales of Olive Garden for each restaurant had also reduced from $4.6 million in 2013 to $4.4 million in 2014 (Darden Restaurants Inc., 2014). The percentage of sales has also diminished subsequently on a year-on-year basis i.e. the increase in sales of Olive Garden was 2.9% more than that of 2012 (Darden Restaurants Inc., 2014). From the given facts, it can be assessed that although Olive Garden has successfully enhanced its brand equity with the help of Brand Renaissance project, the financial performance of the company has failed to generate a positive growth. As suggested by its parent company Darden, high capital expenditure for extending the operations of Olive Garden is one of the primary reasons behind the losses incurred in the year 2014 (Darden Restaurants Inc., 2014). Future Strategic Directions Based on the current position of Olive Garden in context of both financial and managerial aspects, the firm should focus on reducing their operational and capital expenses which would allow them to improve their revenue generation process. In context of the marketing strategies of the business, Olive Garden has the means of engaging in high profile marketing strategies such as events or pricing discounts to generate market buzz. But, they also focus on improving their relationships with their customer base by engaging in direct communication processes with the help of online platforms. The Brand Renaissance program can be an effective step towards building a steady consumer base in the market of California. It can also be suggested that Olive Garden should focus on diversification of their service base for attracting new and potential customers. In order to manage their service quality issues, Olive Garden should try to design their service structure in alignment with their resource capability. The primary factors related with service improvement will be to train their employees so that they can easily identify the customer requirements and meet. One of the key approaches adopted by other service based firms will be to reduce the lead time of the service structure. Reducing the time of functional activities will also help them in enhancing resource utilization for the firm. Apart from this, inclusion of additional services based on the customized requirements of the businesses will help in gaining a differentiation competitive advantage. Olive Garden has to highlight the unique selling points of the service structure to their customers. Entering the emerging markets of world will be good option once the financial complicacies of Olive Garden are solved. The strategic option for Olive Garden will also depend on the changes in the consumer taste and preferences. As observed in the industry analysis that sales of Asian dishes are increasing in the US restaurant industry; Olive Garden should try to concentrate on diversifying their customer offerings from only Italian to other trending cuisines such as Asian. This will also help them in developing their service base and sustain in the competitive industry by generating greater brand equity. Thus the strategic option for Olive Garden will be to engage in product diversification and utilize it for market development. References Agrawal, D. & Lal., R., (2007). Contractual Arrangements in Franchising: An Empirical Investigation, Journal of Marketing Research 32(3), pp. 213–221. Baker, C., Nancarrow, C. & Tinson, J., (2009). The mind versus market share guide to br& equity. 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Retrieved from: http://www.restaurant.org/Restaurant/media/Restaurant/SiteImages/News%20and%20Research/Industry%20dashboard/Menu-Prices-for-Dashboard-Dec.jpg Olive Garden. (2015). About Us. Retrieved from: http://www.olivegarden.com/about-us Reid, R., (2009). Hospitality Marketing Management. 3rd ed. London: Thomson. Schulze, C., Skiera, B. & Wiesel, T., (2012). Linking Customer & Financial Metrics to Shareholder Value: The Leverage Effect in Customer-Based Valuation. Journal of Marketing, 76(2), pp.17-32 USDA Gov. (2012). Import Share of Consumption. Retrieved from: http://www.ers.usda.gov/topics/international-markets-trade/us-agricultural-trade/import-share-of-consumption.aspx Woodruff, R.B., (2010). Customer Value: The Next Source for Competitive Advantage. Journal of the Academy of Marketing Sciences, 25(2), pp.139-154 Yahoo Finance. (2013). Darden Analysis: Darden brands are losing guests to competitors. Retrieved from: http://finance.yahoo.com/news/darden-analysis-darden-brands-losing-130003776.html Read More