South Beauty Group Case Analysis free essay sample

Strategic competitiveness is achieved when a firm successfully formulates and implements a value-creating strategy (Ireland, Hoskisson and Hitt, 2011, p. 4). RCC model Resources Tangible Resources |Observations | |Financial Resources |South Beauty Group’s estimated revenue in 2007 was RMB 384 million. | |Organization Resources |South Beauty Group’s structure has 2 divisions: head office functions and restaurant operations. | | |The head office manages the finances, HR, RD marketing, quality control of food supply and strategy of | | |the company. | |Individual restaurants manage its own operation, and a department specialise in managing and setting up | | |franchises. | |Physical Resources |As at 2007, South Beauty Group owns a total of 20 restaurants, 13 in Beijing, and 6 in Shanghai and 1 in| | |Chengdu. | | |Locations of restaurants are placed at office building in major cities in order to attract its target | | |customers. | |Has a central kitchen to prepare uncooke d raw material and main dish packets, and send to its various | | |restaurants for cooking. | |Technological |Establish its own CRM system to record customer information. We will write a custom essay sample on South Beauty Group Case Analysis or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page | | |Built an ERP system for purchasing process and to control key financial variables. | | |Uses remote conference system to enhance internal communication between all its restaurants. |Intangible Resources |Observations | |Human Resources |Waiters are trained at the company’s training center for a duration of 3 months. Restaurant managers are| | |to undertake a two years on-the-job training program. | | |Recruited Chinese executives from Coca-Cola and MacDonald’s. | | |Engage consulting firm to create new people management system to motivate workers. |Innovation Resources |Has an independent RD team to create new dishes. | | |Combines Chinese and Western cuisine and creates original new flavors. | | |Developing healthy and stylish cuisine. | |Reputational Resources |2007’s top 100 restaurants companies in China, ranked 72. | Capabilities |Functional Area |Capabilities | Distribution |Uses computer software to calculate the amount of raw materials used, the number of dishes sold and | | |check the stocks of materials. | |Human Resource |Employs managers from Coca-Cola and Macdonald’s | | |Engage consulting firm to create new people management system to motivate workers. | |Management Information System |Establish its own CRM system to record customer information. | |Built an ERP system for purchasing process and to control key financial variables. | | |Uses remote conference system to enhance internal communication between all its restaurants. | | Competitor analysis focuses on each company which a company directly competes. South Beauty Group positions itself as a high-end Chinese dinner segment, thus it does not compete directly with ordinary restaurants, fast food chain restaurants and hot pot restaurants. South Beauty Group focus on Sichuan cuisine, therefore it does not compete with other high-end restaurants in term of cuisine. Nonetheless, they are considered competitors. The main competitor is identified; it is the local fast food chain, Kungfu. Currently it has 200 restaurants, and it plans to open 2,000 restaurants by 2012, and establishing three logistics centers in China for raw material procurement, delivery and food processing. In this analysis, we look at the future objectives, current strategy, assumptions and capabilities of South Beauty, and the response of competitors. Future Objectives South Beauty Group seeks to expand its restaurant business domestically and internationally. Emphasis should be placed in its domestic market, which is to expand and create awareness locally, before expanding to the international market. There are risks involved, as expansion requires financing. Currently, South Beauty Group uses its earned profit to reinvest. They are seeking IPO to finance its future expansion. Current Strategy South Beauty Group positions itself as a high-end Chinese dinner segment. The current strategy is to continue creating new and innovative dishes to have competitive advantage over its competitors. They seek to venture to new businesses such as airline catering and to sell semi-cooked frozen food in retail outlets. These are ways to diversify its business. Assumptions South Beauty does not operate under a status quo; they seek to expand locally and to the international markets. Competitors will seek to improve and expand as well. South Beauty must be a market leader to venture into new markets and different businesses to outsmart competitors. Capabilities The strengths of South Beauty are having trained staff and its ability to come out with new and stylish dishes. The weakness is the lack of marketing in creating awareness among consumers. South Beauty Group must continue to build on its strengths, and improve its weakness by having more aggressive marketing strategy. South Beauty is ranked 72 among the Chinese catering industry. It is not a bad result, but there are rooms for improvement. Yum! Brands is ranked 1st in China’s catering industry, with annual revenues of more than RMB 11 billion (Ireland, Hoskisson and Hitt, 2011, p. 159). South Beauty has a big gap in term of the profit earned. Response Competitors will seek to expand and explore into other businesses. South Beauty should quicken its pace on its new businesses in airline catering and sell semi-cooked frozen food in retail outlets. The objective is to be ahead of its competitors. Question 3 Strengths Making use of technology to enhance the process is a wise choice and is necessary to provide an edge over competitors in many different areas, such as to track sales, procurements and store customers details will prove useful in the long run. South Beauty Group positions itself as a high-end Chinese dinner segment, thus it does not compete directly with ordinary restaurants, fast food chain restaurants and hot pot restaurants. South Beauty Group focus on Sichuan cuisine, therefore it does not compete with other high-end restaurants in term of cuisine. Trainings are procided for staff. Waiters are trained at the company’s training center for duration of 3 months. Restaurant managers are to undertake a two years on-the-job training program. South Beauty Group is able to recruit Chinese executives from Coca-Cola and MacDonald’s, proves that it has positions itself well to attract talents and managers. South Beauty Group has an independent RD team to create new dishes. Under tight assessment, only 2 percent of all new dishes are launched (Ireland, Hoskisson and Hitt, 2011, p. 156). Its cuisine combines Chinese and Western cuisine and creates original new flavors. It also develops healthy and stylish cuisine. Weaknesses The weakness lies in its marketing. South Beauty Group needs a more aggressive and consistent advertising campaigns. South Beauty Group is part of 2008 Beijing Olympics food catering provider. In doing so, it creates more customers’ awareness of South Beauty Group’s restaurants. As the Olympics caters to 13 million athletes, media reporters, support personal and other guests for a duration of 3 months, in which 30 percent is Chinese cuisine (Ireland, Hoskisson and Hitt, 2011, p. 163). This is a very good marketing aspect if they are able to provide good food and service. Not to mention that it will generate additional revenue, this will impact greatly on South Beauty Group balance sheet. Opportunities An opportunity is a condition in the general environment that if exploited effectively, helps a company achieve strategic competitiveness (Ireland, Hoskisson and Hitt, 2011, p. 35). China has the biggest population in the world, and it is a fast developing nation. Judging by the demographics and economics of China, and food being a necessity, it appears to be a good business venture. Annual expenditure per capita on restaurant meals increased from an estimate of USD65 in 2004 to USD105 in 2007. The figures in more advanced cities such as Shanghai and Beijing are higher up to five times national average. And South Beauty Group operates mainly in these two cities. South lay a part in 2008 Beijing Olympics as a Chinese cuisine provider. As a food supplier to Olympics Games, South Beauty Group will undergo a critical technical transition in terms of the food and process standardization and logistics capacity. South Beauty Group needs to upgrade their operations in order to cater to the large scale requirements of the Olympics Games. Through this transition, if successful, it will fare well for South Beauty Group’s position in China’s catering industry in the future (Ireland, Hoskisson and Hitt, 2011, p. 163,164). Threats A threat is a condition in the general environment that may hinder a company’s efforts to achieve strategic competitiveness (Ireland, Hoskisson and Hitt, 2011, p. 35). The threat lies in the legal aspect, whereby copiers enjoy local protection in cities which South Beauty Group has not entered. This is a serious issue, as branding is very important for any company, especially in the food catering industry. Innocent consumers are tricked into going these fake restaurants which may provide poor service, which in turn affects the reputation of South Beauty Group. Using porter 5 forces, we determine that the food catering industry has a very low barrier of entry. Competitor can come in any time with a low budget. The bargaining power of customers is high, as they have many choices even in terms of high-end dinner restaurants. Sichuan cuisine is South Beauty Group’s main focus, although not many high-end restaurants engage in using the similar cuisine, customers have choices of other cuisines such as Guangdong, Jiangsu and Zhejiang cuisines. Conclusion In conclusion, knowing the SWOT, South Beauty Group must continue to build on its strengths of using technology and have trained staff and experienced managers. Staff retention and attract more talents into the company is very important. South Beauty Group must exploit the different opportunities given, in order to gain competitive advantages over its competitors. The threat is a pressing issue, in term of the legal aspect in China. The company must continue to explore ways to protect its branding, such as entering into different markets in other cities, to get hold of its branding rights. The weakness lies in the marketing aspect, which South Beauty Group must be more aggressive in promoting its restaurants. It has to come out with a good marketing plan to build on its branding as high-end restaurants. Question 4 A business level strategy is an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product market (Ireland, Hoskisson and Hitt, 2011, p. 90). There are five business level strategies, and from my analysis, South Beauty Group uses the differentiation strategy. This strategy has a board target in competitive scope, and focus on uniqueness in competitive advantage. The differentiation strategy is defined as an integrated set of actions taken to produce goods or services at an acceptable cost that customers perceive as being different in ways that are important to them (Ireland, Hoskisson and Hitt, 2011, p. 102). Taken from the case study Ireland, Hoskisson and Hitt 2011, Luo Yun explained that: We focused on brand differentiation to cater to a wide range of customers. Thus, South Beauty Group target business people aged 30-45 years. LAN Club targets successful businesspeople aged over 45 years. SUBU targets younger and more fashionable office workers (p. 56). The value chain is used to determine if a firm is able to link the activities required to create value by using the differentiation strategy (Ireland, Hoskisson and Hitt, 2011, p. 103). Below are the value-creating activities associated with differentiation strategy: |Primary Activities |Value Created |Analysis | |Inbound Logistics |Yes |Have 2 central kitchens (Beijing and Shanghai) to prepare uncooked raw material and main dish packets. | |Operations |Yes | Individual restaurants manage its own operation. |Outbound Logistics |Yes |Food menu are standardized mainly due to central kitchens. | |Marketing and Sales |No |In need of more aggressive and consistent advertising campaigns. | |Service |Yes |Trained Staff. | |Secondary Activities |Value Created |Analysis | |Procurement |Yes |System to track sales and procurements of raw materials | |Technological |Yes |Establish its own CRM system to record customer information. |Development | |Built an ERP system for purchasing process and to control key financial variables. | | | |Uses remote conference system to enhance internal communication between all its restaurants. | |Human Resources |Yes |Waiters are trained at the company’s training center for duration of 3 months. Restaurant managers are| |Management | |t o undertake a two years on-the-job training program. | | | |Recruited Chinese executives from Coca-Cola and MacDonald’s. | |Firm Infrastructure |Yes |South Beauty Group’s structure has 2 divisions: head office functions and restaurant operations. | | |The head office manages the finances, HR, RD marketing, quality control of food supply and strategy | | | |of the company. | | | |Each restaurant manages its own operation, and a department specialise in managing and setting up | | | |franchises. | The five forces of competition is used to explained how South Beauty Group uses differentiation strategy to position itself to earn above-average returns. |Function of Five Forces |Threat |Case Analysis | |Threat of New Entrants |High |Low barrier of entries, competitors are able to join the industry easily. |Bargaining Power of |Low |There are many suppliers, thus South Beauty Group is able to negotiate for better prices due to | |Suppliers | |its large orders | |Bargaining Po wer of Buyers |High |There are many restaurants, and customers have choices. | |(Customers) | | | |Product Substitutes |High |There are others Chinese cuisines not served in South Beauty Group’s chain of restaurants. Serves| | | |mainly Sichuan cuisines. | |Rivalry among Competing |High |There are many high-end Chinese restaurants. | |Firms | | | Using differentiation strategy, there is a risk that customers may decide that the price differential between the differentiator’s product and cost leader’s product is too large (Ireland, Hoskisson and Hitt, 2011, p. 105). In view of this, South Beauty Group may be offering differentiated features that exceed target customers’ need. South Beauty Group will be vulnerable to competitors if the competitors are able to offer a combination of features and prices that are in line with customers’ need (Ireland, Hoskisson and Hitt, 2011, p. 105). There is risk that the differentiated product becomes less valuable if imitation by competitors causes customers to perceive that they offer the same service and goods, but at a lower price (Ireland, Hoskisson and Hitt, 2011, p. 106). The customers’ experience may narrow their perceptions of the value of the differentiated features (Ireland, Hoskisson and Hitt, 2011, p. 106). Counterfeiting is another risk. Counterfeits may bear trademark that is identical to South Beauty Group. South Beauty Group spent highly on the restaurants interior design. They acknowledged that customers come to their restaurants not just for the food, but the ambience as well. They employ well-known interior designers to create different decoration for each restaurant, spending of an average USD 1 million for each restaurant. The luxury LAN club which targets high-end customers has a total investment of USD 13 million on the restaurant (Ireland, Hoskisson and Hitt, 2011, p. 156). Meal prices are more expensively priced to cover cost, and restaurants are placed in high-end office buildings. This combination develops the upper middle-class brand image (Ireland, Hoskisson and Hitt, 2011, p. 156). South Beauty Group has an independent RD team to create new dishes. Under tight assessment, only 2 percent of all new dishes are launched (Ireland, Hoskisson and Hitt, 2011, p. 156). Its cuisine combines Chinese and Western cuisine and creates original new flavors. It also develops healthy and stylish cuisine. South Beauty Group uses technology to further differentiate itself. They established its own CRM system to record customer information. They built an ERP system for purchasing process and to control key financial variables. They use remote conference system to enhance internal communication between all its restaurants. They use system to track sales and procurements of raw materials for better control of cost of raw materials. South Beauty Group must continue to differentiate herself and providing services and food products that create value for customers, in order to retain and attract more customers. Question 5 South Beauty Group has ventured into different segment to test the markets, which is the correct approach. Firstly, they cooperate with Air France and KLM Royal Dutch airlines to provide business travelers with South Beauty-branded Chinese dishes (Ireland, Hoskisson and Hitt, 2011, p. 156). Secondly, they planned to open 2 restaurants in Hong Kong and test the market in United Arab Emirates (Ireland, Hoskisson and Hitt, 2011, p. 165). They planned to have 30 restaurants in short term and 100 restaurants within three years. 35 restaurants will be located in china, and 65 in international market, in cooperation with partners in New York, Tokyo and other major cities (Ireland, Hoskisson and Hitt, 2011, p. 165). Thirdly, they plan to supply semi-processed food to retail outlets in the domestic market (Ireland, Hoskisson and Hitt, 2011, p. 165). This is a way to diversify its business of partially cooked frozen foods such as dumplings. Different flavors should be offered. To do this, South Beauty needs to expand its RD. Chengdu is the birthplace of Sichuan food, and it is perceived the Sichuan food offered is not as spicy as the original cuisine, thus not a genuine Sichuan food restaurant. But customers are pleased of South beauty’s wide range of innovative dishes (Ireland, Hoskisson and Hitt, 2011, p. 163). South Beauty needs to continue to improve their food and process standardization and central logistics capability. The 2008 Beijing Olympics will be a good test for South Beauty Group, testing the standardization and logistic capability. South Beauty must build on the experience in order to achieve quality logistics and standardization of products for future development. South Beauty must continue to engage itself in such international events. As international events such as the Olympics has a wide range of customer base in almost all countries. South Beauty can use the events as a stepping stone to create more awareness. South Beauty Group is able to achieve annual growth of 55%, and claim a niche market share of more than 7% (Ireland, Hoskisson and Hitt, 2011, p. 154). Thus it is able to fund its own growth plans by reinvesting its profits (Ireland, Hoskisson and Hitt, 2011, p. 166). This attracts the attention of private venture capitalists and investment banks such as Credit Suisse and Citibank, expressing interest in financing with South Beauty (Ireland, Hoskisson and Hitt, 2011, p. 166). There is plan to develop a franchising system to expand on its restaurant chain in China (Ireland, Hoskisson and Hitt, 2011, p. 165), South Beauty has an existing department specializing in franchising, and should build on it. One of South Beauty key strength lie in the RD department, which design new dishes. Under tight assessment, only 2 percent of all new dishes are launched (Ireland, Hoskisson and Hitt, 2011, p. 156). Its cuisine combines Chinese and Western cuisine and creates original new flavors. It also develops healthy and stylish cuisine. To order to have a competitive advantage, South Beauty must continue to create new and creative dishes. There is planning to go IPO. This is a big step in raising funds to finance all its operations and penetrating to new markets. From the analysis, the key weakness is in its marketing strategy. South Beauty Group needs a more aggressive and consistent advertising campaigns. As it expands and goes into other markets in different part of the cities or countries, creating awareness of its branding is equally important. In conclusion, to provide good and quality food is an advertisement by itself and the restaurants’ ambience will be a value added points to enhance customers’ experience.