Business Strategy: Greene King - Dissertation Example

Page Business Strategy: A case study on Greene King Submitted by: S Business Strategy: A case study on Greene King Executive Summary In this study, the cultural change of behavior is taken as a basis of the influencing factor in the change of business strategy of Green King. Cultural influences changes over time as old patterns gradually give way to the new one. Today, leisure time becomes wider in scope such that the old pattern of spending it in pub houses is slowly changing to home environment and spending time with the family. This study takes into account why it becomes necessary to change marketing strategies, and to define new strategies to continue to support the vision of the company. With these changes, development strategies have to be designed to conform to the changing patterns of consumer behavior of spending their leisure hours and buying behavior. Tactical procedures have to be proposed to hold the strategies envisioned by the management to keep the profitability of the company. Method of research employed in the study is an exploratory case study analysis wherein data has been gathered from secondary sources of published materials and books. Conclusion of the study holds the theory of change management that becomes necessary when customer demands it for their satisfaction, because in business, customers are sovereign. TABLE OF CONTENTS Executive Summary 2 1. Company background 6 Greene King business structure 8 The Pubs and bar sectors in UK 8 2. Discussions The generic strategies of Greene King. 9 Changing situation in pub houses. Market focus development Process of implementation, functional issues and management of strategic change 3. Conclusion 16 References 17 w.c. 2457 Business Strategy: A case study on Greene King Company background. Greene King business structure. Greene King operates in three divisions: first, the brewing company that brews top quality beers and strong brand beers and serves around 3,000 free trade pubs, hotels and restaurants and owned pub companies. Next is the pub partners and pub companies. Pub partners operates under a a Greene King’s leased and tenanted estates with over 1300 outlets across England. Under this set up, tenancies are for 9 years and leases are for 15 years. Pub Company is the managed house division of Greene King, with over 800 pubs and about 15,000 employees and is reported to be the third fastest-growing managed pub houses isin UK (UKSP Resources) The Pubs and bar sectors in UK The business structure of the pubs and bar sectors in UK are divided into the free houses, the breweries and the pubs. Pubs are independent companies that have a chain of pubs under their ownership. According to UKSP, there are about 81,000 public houses in UK that are either owned, managed or leased. Under the free houses, the publican has the choice of the beer and the drinks he is goimg to sell in his/her own pub house. In this arrangement, the pub owner has to invest more time energy and capital, but he/she has no boss and the rewards can be great. Under the breweries and pubs agreement, wherein the brewery or the pub. Co. owns the pub rented by the publican, then publican is considered a tenant. A tenant is bound by a tied-up agreement wherein he should sell the beer and other products made or sold by the owner solely in his pub house. The tied-up agreement is an easier way to enter the business because the tenants do not have to pay the full amount it would take to buy a pub. Under the terms of the tie-up agreement, tenants need only to pay a deposit, and depending on the agreement, a figure to cover fixtures and fittings. Discussions. 1. The generic strategies of Greene King. Greene King is a brewing company that also operates pubs for more than 200 years. The company has a vision “that the Greene King Pub company delivers the best hospitality in the industry.” Following this vision, it has developed generic strategies that support the company’s vision, and this is: “attracting and retaining the very best people to grow our business”. This strategy is achieved by their tactics of training, supporting and encouraging every employee so that Greene King will be able to deliver “excellence every time” to its customers. The company makes it a point that this vision is understood by all the support teams, and lived throughout in all their pubs and hotels (USKP Resources) Generic strategies have been categorized as differentiation, focused and low cost strategy (Business dictionary.com) Michael Porters have added another category to this and have classified the scope of business activities as to differentiation, differentiation focus, cost leadership and cost focus (Strategy competitive Advantage). See Annex 1 for illustration (Quick MBA) According to Porters’ theory, generic strategies provide the company with a devise of making incentive systems, control procedures and organizational procedures. For instance, in In academic terms, the strategy used by Greene King in their operation is a mix of all these strategies because of the following reasons. For instance, in the over-all cost leadership, Greene King has developed policies at making the company the lowest distributor in the industry. The company has developed the pub lease and tenancy where the owners are tied up with the agreement that Greene King is their exclusive supplier for the ales and beers served. Greene King also developed into becoming a big company thru merger and acquisitions of pubs. Under this strategy, it has become a low cost leader and has gained competitive advantage over its rivals. A competitive advantage is achieved by Greene King because by the strategies of tied-up system, the company is able to reduce its cost of distribution to all its outlets. The second strategy as described by Porters calls for differentiation of the product or service. In differentiation, customers have to perceive the product or service as something unique in the industry. Customers should look at the features of the product as service unique to the brand and not found in competing products. As a leader in distributorship, the second strategy of differentiation is tied up with the first, as its distributorship system is unique pattern or the dealer network system. The advantage of differentiation is it encourages brand loyalty that could result in price elasticity. Brand loyalty is established because it has a contract tied up with the tenancy or lease system so that Greene King may reduce of raise its product prices without affecting the sale. As shown, it is really possible to combine generic strategies to achieve competitive advantage in the industry; Greene King is able to become a cost leader in distributorship while at the same time maintained a differentiated style of marketing its products. The company has been able to reduce its costs of distribution by maintaining the ales and pub houses under a contract system that eliminates too many middlemen, and have produced products that attracted many consumers to its tastes. 2. Changing situation in pub houses. The situation in pub houses is changing, such that decline in sales in pub houses are observed. Under this situation, what are the methods adaptable to the situation, should it be product focused or market focused? Relating this theory to the pub market in Britain, we will find a demand change in the market for pub houses. Report of the British Beer & Pub Association (2010) showed that the number of pubs operating in Britain has gone down to 52,500 in 2009 from 58,500 pubs operating in 2005. A total of 2,365 pubs were closed in 2009 and 24,000 jobs lost in this closure, and the government is set to lose ?265 million in revenues in 2009 (British Beer Pub Association, 2010) The change of consumer buying patterns has also been noted in the BBPA report (2010) that showed Britons alcohol consumption falling and a steady shift of buying behavior, with 41% of Britain’s beer now available in supermarkets, stores and shops. Mark Hastings, Director of BBPA commented, "Our drinking patterns are certainly changing, though the numbers show a fall in total consumption on the previous year. It is the increase in drink bought for consumption at home that tells the real story of the nation's changing drinking habits” (BBPA, 2006) From this figure, it is clear that the demand of beer from pub house shifted from pub houses to home-drink consumption. This means a reduction on the distribution of beer on pub houses that will affect the profitability of Greene King if closures of pub houses continue. In another report, (beerworkers.org 12 April 2011), states the continued decline of beer sales of 7.5% and down by over 30% in the last six years (or an average of 5 million pints per day). This report said causes of decline of sales are unfavorable demographics, changing tastes, wider leisure alternatives, smoking ban, increasing regulatory costs and the macro-economic climates. On this, it was reported that pubs close at a rate of 30 per week in 2010, and as such the independent sectors are hardest hit. In 2009, it was also reported that the four major UK brewers made a combined operating loss on beer sales for the third year in succession. From this, it could be concluded that the taste of the consumer did not change and only the buying behavior changed. As such, a market focused strategy is more adaptable here, and by this, Greene King should align all aspects of their business to achieve success of the changed strategy 3. Market focus development. Strategic development selected in 2 – is market focus development. A market focus development is a marketing strategy that requires the business to enter the new segments in the market, to convert non users into users and to increase usage per user. According to Smith, S. E., (n.d.) market development is a technique that aims at increasing the company’s sales by widening its customer base and this can be done by serving the unserved segment of the market. Two studies have proposed market development strategy to leverage the product such as extending into new markets (Planning skills & my strategic plan.com) In market focus development, marketing strategies will be focused on the growth of the unserved population of UK. These are the consumers who have changed their pattern of drinking and have switched to home entertainment instead of the pub house environment. In widening its consumer base, Green King can use marketing tactics of advertising and sales promotions to get customers interested in their beer products that will be launched under a new retail strategy. Such customers can be a potential easy sell because of their existing relationship with pub houses and the products are already familiar with them. We find that Greene King is only serving customers on a given demographic. The company can expand its market by expanding its reach to increase the size of the present market. 4. Process of implementation, functional issues and management of strategic change. Implementation process. From the situation above, we see that the pub houses business has reached maturity, and is now experiencing a decline period. Our product life cycle (PLM) tells us that at this point, a re-direction or change in strategies and tactics are needed in order to regain the market. (See diagram at annex 1). We see the problem as the change in buying patterns of consumers, as now; they prefer the convenience of home atmosphere in drinking. With the trend of closures of pub houses, it is about time that Greene King focuses on a change of strategy that will require a major overhaul of resources and personnel in the process. With the 3Cs model for marketing strategy, there is a need to look at the resources of the company, the customers’ demands and completion in the change of business strategy.(“Sec. 2” & Dynamic Integration, n.d.) The company should keep in mind five key principles in planning for the impending change, these are: “different people react differently to change, everyone has fundamental needs that have to be met, change often involves a loss, and people go through the “loss curve”, expectations need to be managed realistically, and fears have to be dealt with” (Change Management) Functional issues. The changes that are needed under the situation are the improvement in the distribution system. For the company, resources are needed to be channeled to distribution in supermarkets, stores and other distribution outlets. The impact of change to personnel are loss of income, transfer and movement which may cause inconvenience to personnel, re-training for the new culture of business and budget for payment of retirement and pensions. The company should also look at their system of mergers and acquisition on a long term basis as this is one of its strategies for growth. At the present state, should Greene King still pursue buying of closed pubs? In terms of resources: Assuming that the company owned pub is 800 and the annual revenue generated is ?80,000, the amount of loss to Greene King is ?6,400,000 annually. In terms of lost job: 15,000 employees will lose jobs and income with closures of pubs. The change will benefit the not only the customers whose demand for the product will be satisfied when the product will be sold at the convenience stores and supermarkets but also Greene King. Profitability is defined by the demand of the product (Melvin & Boyes, p. 76). It could be explained that while the demand for drinking beer in pub houses is changing, so is the market beer sold in stores is rising. People substituted drinking beer at pubs with drinking at home. If Greene King does not change its marketing strategy, Greene King would soon enough find it losing to rivals and competitors who will take advantage of the rising demand. Management of strategic change. By responding to the increasing demand for home consumption drinking, rivals and competitors will see this as an opportunity to have a share of the beer market. On this, different marketing tactics are needed to attract customers to the product, such as sales promotion and advertising. Sales promotion might include discounts, corporate gifts and other promotional gimmicks to create interests on the product (Phillips & Duncan, 1968 p, 753). Oktoberfest is one example of creating awareness and interest. Conclusion This study has been directed by elements of business strategy: the strategic analysis, strategy alternatives, evaluation of alternatives and strategy implementation. In the strategic analysis, the product life cycle guided the analysis as it responds to the influences of the environment that affects the operations of Greene King. For long years, the company has established its leadership thru a distribution system of tied-up business pattern. It has been successful for 200 years, but times are changing and there is an urgent need for re-direction of strategies to cope up with the demands and behavior of consumers. Under this situation, strategy alternatives have been studied, that led the need for Greene King to come up with development of strategic marketing approaches and tactics that still conforms with the vision of the company “to deliver the best hospitality in the industry”. In the evaluation of the strategies, the impetus of change has to support the employees which is the core of service in implementation and has to design a strategy that will provide solutions to problems brought about by the change. Finally, in the strategy implementation, the distribution system has to be re-directed, company resources are needed to be devoted to the new scheme, the need to satisfy consumer demands and to be able to compete with rivals in the industry. Also in the light of the combined losses of the 4 large breweries, Greene King has to suspend its policy of merger and buying of closed pubs as a means of growth, as it will only contribute to operating loss to company. Summing up, this is an appropriate time to redirect Greene King’s market strategy for product distribution as all factors indicate that the time is ripe for a change. Annex 1 Fig. 1 Michael Porter’s Generic Strategies Fig. 2. Product life cycle Source: Sec. 2 : Strategic Development Frameworks REFERENCES 3Cs Model (2011) Ohmae. 12 Manage Viewed 12 May, 2011 http://www.12manage.com/methods_3C's.html Beerworkers.org. 12 April 2011 Interesting Read About How Duty Effects Beer. Viewed 12 May 2011 http://www.beerworkers.org/blog/interesting-read-about-how-duty-effects-uk-beer. British Beer Pub Association. 02 April, 2010 Pubs still closings, but at a lower rate. 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Viewed 12 May 2011 http://www.wisegeek.com/what-is-market-development.htm Strategy-Competitive advantage . Viewed 12 May 2011 http://tutor2u.net/business/strategy/competitive_advantage.htm Read More