Strategic Review of Chick-fil-A - Essay Example

Strategic Review of Chick-fil-A Table of Contents Introduction 4 Overview of Chick-fil-A 4 Overview of American Restaurant Industry 5 Strategic Review of Chick-fil-A 5 Identification of Competitors 5 Relative Market Positions 7 Relative Strengths and Weaknesses 8 Current Strategy and Competence 8 Strategic Issues and Problems 10 Viable Strategic Alternatives 10 Recommendations 11 Strategic Position 11 Financial Position 12 Conclusion 13 References 15 Bibliography 18 Introduction Under this section a comprehensive overview of Chick-fil-A as well as that of the American restaurant industry will be discussed in order to facilitate the evaluation of the various aspects of the former in a better fashion. Overview of Chick-fil-A Chick-fil-A®, Inc. (CFA), as the maiden venture of S. Truett Cathy, had started its journey in 1946, under the name of Dwarf Grill which was later rechristened as the Dwarf House®. It was incorporated in the 1960s (CFA Properties, Inc.-website-a, 2010). Among the many accolades that this company has won during its successful corporate journey, the most notable was the credit for “introducing the original boneless breast of chicken sandwich and pioneering in-mall fast food” (CFA Properties, Inc.-website-b, 2010). According to 2009 figures, the company has 1428 restaurants across 38 states as well as Washington, D. C. In terms of annual sales the company ranks second in its category. In accordance with its mission statement which says that the company aims to “Be America’s Best Quick-Service Restaurant” (CFA Properties, Inc.-website-b, 2010), CFA has materialized various innovative business concepts in the forms of Mall/In-Line Restaurants, Stand-Alone Restaurants, Drive-Thru-Only Restaurants, Dwarf House®, Truett’s Grill®, Satellite/”Lunch-Counter”, and various licensed outlets. The company had achieved a 12.17% growth in 2008 and thereby earned sales revenue of $2.96 Billion (CFA Properties, Inc.-website-b, 2010). CFA also fulfills its corporate social responsibilities (CSR) in the form of various sponsorships, charities and scholarships. Overview of American Restaurant Industry The American restaurant industry is currently exhibiting trends of rapid growth. It has a strong employee base of 12.7 million and has operations in nearly 1 million locations. Both these figures are indicative of the gigantic stature of this industry as a significant contributor to the American economy. It has been projected that the combined sales of this huge industry will touch $580 billion in the current fiscal (National Restaurant Association-website-a, 2010). The American restaurant industry has a 49% share in the market pie of the food industry with average daily sales projected at $1.6 billion. Research findings show that restaurants are becoming highly popular among American customers on account of providing hygienic food as well as enhanced services in a time efficient manner (National Restaurant Association-website-b, 2010). American adults are of the opinion that restaurants have them become more productive and a considerable percentage of them have revealed that they find takeaway food to be indispensable. So much is their popularity that they have become “an essential part of daily life” (National Restaurant Association-website-c, 2010). Strategic Review of Chick-fil-A The strategic review of CFA will primarily include the identification of its chief competitors. Subsequently, attempts will be made to evaluate its current business strategy and competitiveness, and the strategic issues and problems that it might be experiencing during the course of its global operations. Identification of Competitors CFA is quite aware of the fact that it has a lot of potent competitors in the ever changing food industry. It faces considerable levels of competition from its rivals who aim at imitating the items on the menu of this Atlanta based food giant (The Ironton Tribune, 2010). Among the chief competitors of CFA are AFC Enterprises, Inc., McDonalds Corporation and YUM! Brands, Inc. (Yahoo! Finance, 2010). The bases of competition are similar categories of products and services, and business/ operational model. AFC Enterprises, Inc. (AFC), like CFA, is an Atlanta based company which is quite new in the industry on account of being founded in 1992. This company resembles CFA by virtue of its business model by which it “develops, operates, and franchises quick-service restaurants (‘QSRs’ or ‘restaurants’) under the trade name Popeyes®” (AFC Enterprises, Inc., 2010). According to 2008 data, AFC had close to 2000 outlets across 44 states and 25 overseas locations. McDonalds Corporation (MCD) has an operational network that comprises in excess of 32000 restaurants in 117 countries and these outlets serve 60 million customers daily. The MCD network heavily employs franchising which helps the company to grow at a fast rate across the globe (McDonalds-website-a, 2010). MCD strives to enhance customer experience by through strategic innovations that include product development, packaging and even free internet connectivity in its restaurants (McDonalds-website-b, 2010). YUM! Brands, Inc. (YUM) ranks globally number one in the food industry by being “the worlds largest restaurant company in terms of system restaurants with more than 37000 restaurants in over 110 countries and territories and more than 1 million associates” (Yum! Brands, Inc., n.d.). It also occupies the 239th rank among Fortune 500 companies and had earned revenues of $11 billion in 2009. YUM’s strengths can be estimated from the fact that among the restaurant brands that it owns four prominently stand out as global leaders. These brands, viz. “KFC, Pizza Hut, Taco Bell and Long John Silvers – are the global leaders of the chicken, pizza, and Mexican-style food and quick-service seafood categories” (Yum! Brands, Inc., n.d.). It can be observed that these companies (AFC, MCD and YUM) resemble CFA in terms of products, i.e. they have a menu that is predominantly chicken based. Moreover all these companies have incorporated in there operational models a network of quick-service restaurants. Thus, the overall climate that exists among these companies is that of stiff competition. Relative Market Positions According to market data, YUM is currently the number one restaurant company in the world, its most powerful brand being KFC (Lockyer, 2009). The Atlanta based CFA stands at the second position and is expected to overtake YUM within a span of ten years. Given the scale of operations that YUM enjoy through an arsenal of globally appreciated brands like KFC and Pizza Hut, it is quite tough to forecast such an occurrence, but in reality the figures have been quite pessimistic for YUM. Popeyes®, the stronghold of AFC has also been exhibiting slump in its figures despite being at the third position (Lockyer, 2009). It has been observed that over the last few years the sales figures of KFC were declining and this had forced the company to upgrade its product range. Similar trends were also shown by Popeyes®. Compared to these companies, CFA’s performance was better under circumstances of similar business environment. It is worth noting that CFA has managed to achieve financial growth without penetrating the highly populated locations. Thus, it can be safely projected that CFA will rise to the top slot in the American restaurant industry (Lockyer, 2009). Relative Strengths and Weaknesses It has been found that at CFA the management is pretty aware of the organizational competence. According to Dan Cathy who is the president as well as the chief operations officer of the company, “The typical Chick-fil-A restaurant will do more business in six days than many of our competitors will do in seven” (Knowledge@Emory, 2002). It is quite surprising and praiseworthy that CFA has achieved this feat by working six days a week unlike its competitors. The company ensures active participation of the top management in enhancing customer interface and maintains great levels of personal touch in its activities. In an astounding coherence with Christian faith, the company allows its employees to pray on Sundays and tries to achieve a remarkable and aesthetic purpose which is “To glorify God by being a faithful steward to all that is entrusted to us. To have a positive influence on all who come in contact with Chick-fil-A” (Cathy, n.d.). Owing to these philanthropic business policies CFA enjoys a significant competitive advantage over its rivals. Current Strategy and Competence CFA has been successful in remaining unaffected during the global recession and, unlike major players of the restaurant industry, had exhibited positive growth in 2009. Despite the fact that the financial crisis had taken a toll on many of its peers, the company had successfully managed to grow in terms of sales for the 42nd year at a stretch (Chick-fil-A, Inc., 2010). The strategic highlights of CFA are discussed below. The company had been observed to have embarked on an expansion mode. During the last fiscal, it had added 83 new outlets to its network. Most of these new additions were stand-alone restaurants. Few outlets were strategically located at college campuses, airports, etc. The company had given significant efforts to enhance its already efficient customer satisfaction initiatives. This is a significant strategy that requires regular development given that the company has a high customer interface. CFA aims at attaining sustained success by efficiently blending creativity with effectiveness in terms of advertising activities. The company couples these with an aggressive marketing policy that helps it maintain its sales momentum. Other important aspects of its business strategies include awarding the employees to enhance performance and profitability, and philanthropy. The company is likely to take certain strategic initiatives in the current fiscal. It plans to add new products to its existing portfolio in order to satisfy changing trends of customer requirements. Though the company is largely conservative in terms of its products, it will take such a drastic step to match up with increasing competition. The company has already started to expand its business network and is most likely to add more outlets to its operational chain. It will add at least ten new licensed outlets. Moreover the company will also venture into new markets. CFA has plans to renovate its existing restaurants through reinvestment of resources in order to substantially enhance customer experience and to increase its sales volumes. In accordance with its outstanding CSR activities, CFA “will award $1.9 million in scholarships to its restaurant employees – up from $1.4 million awarded in 2009. The 35 percent increase is the highest year-over-year increase in chain history” (Chick-fil-A, Inc., 2010). These strategies collectively speak about the company’s foresight with respect to business growth and excellence. Its CSR activities and renovation plans will definitely add fillip to its operations and profitability as it has been found through a survey that American customers are more likely to admire restaurants that fulfill their social commitments and at the same time address to the aesthetic delight of their patrons (National Restaurant Association-website-c, 2010). Strategic Issues and Problems CFA has a spawned its business into a huge network over the years and hence it is quite obvious for the company to face certain problems which might arise from its operations or the strategies. The foremost problem that CFA faces is that of imitation of products by competitors. Owing to the fact that it has a large number of outlets, maintenance is also a major concern. It has been lately observed that the major competitors of CFA, such as KFC, are innovating new products in order to achieve industrial leadership in terms of customer delight and revenue (KFC, 2010). Hence, this adds to the issues faced by CFA in the recent times. The latest addition to CFA’s line of products is “Kids & Family”, a whole range of products and services that particularly aim at the kids (CFA Properties, Inc.-website-c, 2010). Though it apparently a harmless and a fantastic business strategy keeping in mind the potential of child customers, it has drawn some amount of criticism (Graham, 2010). It is natural for large companies to face such problems but they really cannot afford to tolerate them for long as they might turn out to be potent enough to snatch away the organizational goodwill and competitive advantages. Viable Strategic Alternatives CFA has already been shortlisted by analysts as the next market leader in the American restaurant industry based on its unparalleled performance both in terms of revenues and CSR. As a matter of fact the company has strong quotients of competitive advantages as compared to its nearest competitors. CFA has, from the time of its inception, never included beef in its operations and hence have successfully carved a niche for itself in the customers’ psyche. They should continue with this line of thought as one their strongholds. When it comes to imitation by rivals, CFA should try to protect its recipes through proper trademarks as it has been doing for its specialty dishes. It should also diversify its product portfolio by adding novel recipes from all over the world. Owing to its appeal to the public, especially the Christians, it should refrain from any activities that might hurt their sentiments. Finally, CFA should expand into foreign markets as has already been done by its major rivals long back. Recommendations In this section a set of business strategies will be recommended to CFA with respect to its strategic position as well as financial position in the American restaurant industry. The strategies will be recommended by considering both its immediate and future requirements. Strategic Position From the research it is apparent that CFA is quite strong with respect to its current strategic position in the American restaurant industry. However, in order to remain ahead of its rivals it should adopt certain necessary measures. Though it is doing really well in the backdrop of the American market, CFA is yet to tap foreign markets unlike MCD and YUM. Both these companies have a wide network of outlets in overseas markets and hence they have a stronger global appeal. As a way to enhance its current position CFA should expand its business map and venture into diverse markets. Simultaneously, the company should renovate its existing outlets in order to attract more customers, and add new outlets in the domestic market. It should continue to place outlets at strategic locations, e.g. college campuses, which guarantee higher usage rate. The company should also take into consideration the industrial best practices through benchmarking and continually upgrade its competence as well as operational excellence. Since it has a strong network of franchisees/ licensed outlets, it should regularly check for quality compliance by them. The top management should be involved in enhancing communication within the business chain and the employees should be upgraded in terms of their knowledge, skills and abilities (KSAs) owing to the breakneck competition with the players. The company should also enhance its CSR activities to enhance patronization by the public, and it should also augment its image as a believer in God. Quite obviously CFA has a unique corporate image and that is perhaps its greatest strength. So far the company has not expanded beyond its domestic market and even then it is currently enjoying the number two position, and speaks a lot about the company’s image. Even if CFA does not incorporate major strategic interventions, in its business processes, it should religiously ensure that it sticks to its socio-religious foundations. Financial Position Financial position of a company depends directly on its business volume. In terms of sales revenue, CFA trails YUM and is currently at the second position. It can be forecasted that once it successfully implements its futuristic strategies, its financial figures will definitely become healthier. As of now, the company should develop premium priced products and market them strategically with the aim to skim the market. It may also develop a range of accessories that may be bought from its kiosks. The company should enhance the sales figures by bringing dynamic changes in its channel management system. It should also keep proper note of competitive pricing by rivals and take remedial steps in the form of discounted pricing and/ or complimentary gifts. Conclusion We have observed that Chick-fil-A® is among the most popular companies in the economically significant American restaurant industry. In a gigantic industry whose combined sales revenue is projected to reach $580 billion in the current fiscal, this company enjoys the second position, preceded by Yum! Brands, Inc. undoubtedly, these data make a lot of sense because the restaurant industry constitutes 49%, i.e. nearly half, of the American food industry. CFA has around 1500 restaurants across 38 states and it continually strives to be the best among American quick-service restaurants. The company has a strong religious philosophy, in accordance with which it does not operate on Sundays in order to allow its employees to go for prayers. The company also enjoys a strong support from the Christians. The chief rivals of CFA are AFC Enterprises, Inc., McDonalds Corporation and YUM! Brands, Inc. Among various ways of competition that it faces from these three giants, the most interesting is the imitation of products. CFA has been engaging itself in new product development in order to address to changing customer demands and moreover, the company is in a growth mode, on account of which it has been adding new outlets as well as franchisees to its business network. The company is also planning to penetrate into new markets to enhance its market share as well as revenues. It has been projected through industrial analysis that CFA will overtake YUM in the near future and will be placed at the top of the ladder. CFA should stick to its religious beliefs and continue with its CSR activities in order to enjoy high levels of support from the customers and at the same time it should employ certain strategic interventions to improve its operations and escalate them to greater heights. It should also start planning about expanding into foreign markets. From the trends of incremental growth that CFA has been exhibiting since its inception, it can be concluded that this American restaurant giant will outperform its rivals and win the topmost position in its sector, by virtue of its religious philosophy, healthy business practices coupled with aggressive marketing style and genuine commitment to the society. References 1. AFC Enterprises, Inc. (2010). Our Company. Retrieved February 26, 2010, from http://www.afce.com/our-company/ 2. Cathy, T. S. (No Date). Chick-fil-A’s Closed-on-Sunday Policy. Retrieved February 26, 2010, from http://www.truettcathy.com/pdfs/ClosedonSunday.pdf 3. Chick-fil-A, Inc. (February 2, 2010). Chick-fil-A Marks 42 Years of Annual Sales Growth in 2009. The Earth Times. Retrieved February 26, 2010, from http://www.earthtimes.org/articles/show/chick-fil-a-marks-42-years-of-annual-sales-growth-in-2009,1147725.shtml 4. CFA Properties, Inc.-website-a. (2010). The Chick-fil-A® Story. Retrieved February 26, 2010, from http://www.chick-fil-a.com/#story 5. CFA Properties, Inc.-website-b. (2010). Company Fact Sheet. Retrieved February 26, 2010, from http://www.chick-fil-a.com/#facts 6. CFA Properties, Inc.-website-c. (2010). Kids & Family. Retrieved February 26, 2010, from http://www.chick-fil-a.com/#kidsandfamilyzone 7. Graham, T. (January 16, 2010). Hypocrisy! PBS President Lectures: Media Should Serve Kids, Not Sell to Them. Retrieved February 26, 2010, from http://newsbusters.org/issues/education 8. KFC. (2010). KFC Grilled Chicken. Retrieved February 26, 2010, from http://www.kfc.com/nutrition/grilled.asp 9. Knowledge@Emory. (November 20, 2002). Are Customers Hungry For Old-fashioned Values in Todays Quick-Service Restaurant Era? Retrieved February 26, 2010, from http://knowledge.emory.edu/article.cfm?articleid=598 10. Lockyer, E. S. (November 25, 2009). Analyst: Chick-fil-A may rule the roost. Nations Restaurant News. Retrieved February 26, 2010, from http://www.nrn.com/breakingNews.aspx?id=376380 11. McDonalds-website-a. (2010). Getting to Know Us... Retrieved February 26, 2010, from http://www.aboutmcdonalds.com/mcd/our_company.html 12. McDonalds-website-b. (2010). McDonalds History. Retrieved February 26, 2010, from http://www.aboutmcdonalds.com/mcd/our_company/mcd_history.html 13. National Restaurant Association-website-a. (2010). About Us. Retrieved February 26, 2010, from http://www.restaurant.org/aboutus/ 14. National Restaurant Association-website-b. (2010). Facts at a Glance. Retrieved February 26, 2010, from http://www.restaurant.org/research/facts/ 15. National Restaurant Association-website-c. (2010). Pocket Factbook. Retrieved February 26, 2010, from http://www.restaurant.org/pdfs/research/2010Forecast_PFB.pdf 16. The Ironton Tribune. (March 20, 2009). Ashland businessman awarded Chick-fil-A’s highest honor. Retrieved February 26, 2010, from http://www.irontontribune.com/news/2009/mar/20/ashland-businessman-awarded-chick-fil-s-highest-ho/ 17. Yahoo! Finance. (2010). Chick-fil-A, Inc. Company Profile. Retrieved February 26, 2010, from http://biz.yahoo.com/ic/51/51077.html 18. Yum! Brands, Inc. (No Date). Yum! Brands. Retrieved February 26, 2010, from http://www.yum.com/company/ourbrands.asp Bibliography 1. Hattwick, E. R. Dr. (May 3, 2005). THE CHICK-FIL-A-STORY. Retrieved February 26, 2010, from http://www.anbhf.org/pdf/truett_cathy.pdf 2. Miller, J. J. (November 1, 2008). Service with a Smile. Retrieved February 26, 2010, from http://www.philanthropyroundtable.org/article.asp?article=1553&cat=147 Read More