Instant Coffee Industry in UK:
Coffee is considered as one of the well-renowned beverages in the world. According to research by Mintel in 2012, the retail market of UK reached 1 billion pounds for the first time (H&CNews 2014). The people living in UK consume about 2.8 kg of coffee every year (IBIS 2014). However, people do not consume much coffee in UK as they do in other European countries like France and Germany. The coffee market of UK is of only 33% of German and 50% of French coffee market (H&CNews 2014).
The coffee market in UK is mainly dominated by the instant coffee segment. In 2011, instant coffee considered to be 72% of total coffee sales by volume in UK (H&CNews 2014). However, instant coffee does not enjoy much success in other European countries. UK coffee consumer has not yet enjoyed quality coffee stuff in terms of quality as compared to the other countries. The coffee industry has posted strong revenues growth despite facing challenges of financial slowdown in the country. The consumption of coffee has been on a continuous rise as customers have switched from traditional beverages like tea, and make coffee an important part of daily routine (IBIS 2014). In order to analyze the instant coffee market for Cenlow, PESTLE and Porter’s five forces model will be used.
This framework evaluates the factors in the external environment to detect general opportunities and jeopardies of different strategies. The changes occurring in these variables can lead to substantial transformation industry sectors in the long run. This analysis covers political, economic, social, technological, environmental and legal variables affecting a business (Hitt, et al. 2011).
Political and Legal:
Cenlow limited has been selling coffee for the past two years in UK. However, with increased competition, the company has planned to expand business in the country. Every country has its set of circumstances that the company has to take in account. Political events can create problems for the company. Legal considerations in the country can also impact operations of conducting business. The political situation in Britain is stable with continuation of good policies from one government to another. The British government has made legislation provide favorable business environment to coffee companies and, therefore, Cenlow would not face any difficulty in expanding business of coffee across the country (Smith 2014).
Economic conditions relate very directly with the instant coffee businesses. The consumption of instant coffee depends upon the available disposable income. Increase or decrease in income can impact sales of instant coffee producing companies. The financial crunch of 2008 has squeezed the living standards and income of the people. However, in the contemporary years it has been seen that economic conditions in U.K. are recovering well from that incident (Economist 2013). According to international coffee body, the sales of instant coffee will increase by four percent during 2012 to 2017 (Smith 2014 a).
It has been the tradition of United Kingdom that people work hard during the whole week and, therefore, do not have time to make energy drinks. Instant coffee has provided the option to people to have instant energy in quick time while working or relaxing at home. According to recent statistics of 2013, there were more than 12 million heavy instant coffee consumers in Britain (Statista 2014). The figure below depict the figures for light, medium and heavy instant coffee users in U.K during 2013 (Statista 2014). Cenlow limited can take advantage of this consumer trend and expand business in the country.
Figure 1: Instant Coffee Users in U.K. Source: (Statista, 2014)
Technological developments have given rise to new extremes in the world of business. Energy drinks like coffee have transformed with respect to shape and ways of usage. Nobody would have thought about consuming coffee instantly but at present it has become thinkable due to technology. Consistent quality is the most important factor in attaining customer satisfaction (GEA 2014). Cenlow can take advantage of consumer’s acceptance to instant coffee by offering different packaging and flavors by using technology.
Companies nowadays focus on using the machinery that can produce limited waste and less harmful for workers. Coffee manufacturing does not produce any such issues with respect to waste, and the machines are very effective in providing safe and healthy environment to operators. Cenlow being a coffee manufacturer does not face the opposition of organizations and pressure groups working for a clean environment.
Industry analysis is a critical factor in determining the profit potential of the business. There are various strategic analysis tools available for analyzing the industry. However, porter’s five forces model is considered as the most effective tool. This model will be used in order to analyze the instant coffee industry in U.K. for Cenlow limited. It will help the company to develop a comprehensive plan to minimize the loopholes and extraction of maximum benefit from profit areas (Arons and Waalewijn 1999: 2).
Barriers to Entry:
Companies operating in the industry try to use structural mechanisms to stop or limit the entrance of new competition. These mechanisms can be like economies of scale in which companies use experience, mass production and learning to stop new entrants. Huge entry and exit costs, patents, differentiation factor (due to brand loyalty and image), distribution channels and much more. Instant coffee processing industry needs a moderate level of capital investment, however, it is highly labor intensive (IBIS 2014 a).
Rivalry among Existing Competitors:
The rivalry among the existing companies plays an important role in determining the profit potential in it. More companies’ means there will be strong competition present in the market that can hinder a company from enjoying good profit (Porter 2008: 9). Companies operating in instant coffee market in UK have strong competition between them. Strong competition has forced Cenlow to revisit the strategy of doing business.
Threat of Substitutes:
These include products that can provide same features to customers. In terms of instant coffee, the nearest substitute is tea and coffee available in coffee shops. High threat of substitute can limit industry’s profits (Porter 2008: 8). Cenlow face high threat of substitute in the market as consumers can easily switch from consuming instant coffee to tea. In order to cope with this threat, Cenlow will have to increase consumer’s switching cost. It can be done by providing quality coffee product to consumers.
Power of Buyer:
The powerful buyers in the industry can force companies to lower down prices. Price sensitivity can give rise to increasing in power of consumers. Cenlow does face this powerful consumer in instant coffee industry. Rise in prices of coffee has made the consumers look for other options to reduce anxiety.
Power of Suppliers:
Presence of powerful suppliers in any industry can result in limiting the profit potential of businesses operating in it. In the case of coffee, the world production of coffee beans is very susceptible to climate conditions. There are only limited states in the world which produces coffee beans (ITC 2011). The power of a supplier in terms of instant coffee industry is high.
Elements of Relocation:
Cenlow has been in business for the last two years. However, due to increasing competition, the management has decided to introduce a new package size of a similar value but at a lesser price. New product package will result in an increase in operational capital of the company. Therefore, it would be best in the financial interest of the company to relocate to other places well. However, the decision to relocate can have a reverse effect on the business too. Relocation can result in a decrease of market share, loss of customers to competitors, and workforce issues. The management should consider the following factors thoroughly from every aspect and decide on any location which can bring positive outcomes (Hu, et al. 2008: 68).
Workforce and Facility:
Rising cost is the foremost concern that can result in a decision of change location of the business. Costs vary from one place to another. Companies try best to choose a location in such a manner that they remain close to market and at the same time control operational and other related costs of the business. Another cost that can result in relocation is of quality of life. The staff and other workers require other facilities like recreational, health, climate and education to be nearer to them when working at a place. Therefore, companies like Cenlow facing rising costs issues would look to a place to relocate to control costs (FCEDA 2014).
Another element that can force a company to relocate is of customer base. Businesses frequently introduce new products and relocate in order to reach a maximum number of customers for new products. Cenlow has decided to change package size and as a result of it, the customer base of the new package size might be placed in other cities. In order to reach customer’s base, Cenlow has to move to a new place in the country (Brown 2013).
Governments sometimes take initiatives and announce tax breaks to attract business in some areas of the countries. Tax breaks represent a good opportunity to any business. It can increase profit margins substantially (Jenkins 2014). Cenlow can also look for such areas where it can enjoy tax breaks to control costs and other issues.
Cost of Relocation:
The decision of whether to keep the business at the same location or shift to a new location seems an easy one. However, in actual, this decision can either make the business a huge success or a disaster. The location of the business remains an important variable in order to achieve the desired competitive position targeted by the company. Cenlow’s management also realized that current location is bringing about an increase in operation cost of the new package instant coffee pack. As a result of it, the management attempt to evaluate the hazards and benefits of relocating along with the expenditures to determine the practicality of relocation.
The most important risk associated with the relocation decision of the coffee business is the possibility of business disturbance. Relocation decision if not taken with care can result in loss of quality staff members, disruption from business operations while planning, implementing, and customers. Relocation decision making can impact the motivation of the workforce as it wait for the outcome of that decision can result in quality compromises. Therefore, Cenlow has to keep in mind all these negative implications while deciding to go for decision making. With the help of better communication with the employees, management can make sure that quality and staff motivation remain intact while final decision of relocation of Cenlow’s operations (Carucci 2014).
Companies are facing issues related to scheduling staff in such a manner that it fulfills demand requirement. For that purpose, companies now work in two shift that is morning and evening (Seranevijaikitkhan, et al. 2008: 108). Cenlow has opted to relocate in a different location in order to keep the workforce happy, flexible staff scheduling will be done. In this manner, workers can enjoy the fun to work both at day and night shift at some days of the week. By keeping in mind the flexibility to work, staff scheduling for the Cenlow workers has been done as follows:
Once a staff schedule has been finalized, the next step involves the allocation of resources to the team members. Cenlow’s management will allocate resources to the team to ten staff members. However, in order to effectively utilize the team, the management will take help of staff loading technique (Schwalbe 2009: 226). In staff loading, resources will be provided to the staff members by keeping in mind the monthly and quarterly sales target of Cenlow instant coffee packs (Beta 2001:9). However, over a period, resource loading can result in over-allocation of resources to the staff members. These problems can be fixed by means of a technique called resource leveling. The main purpose of resource leveling is to level the distribution of resource for staff usage. The management can cope with issues of resource over or under allocation by rescheduling the tasks to the staff members (Schwalbe 2012: 383).
Human Resource Issues in Relocating Business:
It takes time for the businesses to establish smooth operations of the newly formed venture. After that, it is not easy managing any change within business operations. It takes time for employees to manage any change while staying within the same location of the business. Any major change like complete shift of business operations to a new site can create a huge number of issues for human resource managers and as well as top management. Upholding employee’s momentum during relocation is very easy. Companies often fail to recognize the impact that business relocation can have on workforce (Munde 2010). Some of the problems that a human resource manager can face being as follows:
Business often decide to relocate the business if it could not get a good resource pool of employees. However, the relocation decision if not taken properly can create skills deficiencies for the business. It became difficult for human resource manager to find the right kind of employee for the desired job (Robinson and Garton 2008: 97).
Balance between Work and Life:
It is crucial for a company to place in a location where it can give employees a work/ life balance. There should be enough facilities available for employees in the new location which can make life easy and enjoyable. Failing to provide a balance can create problems for managers in the long run (Beauregard and Henry 2009: 4).
Acquiescence with Local Laws:
When businesses relocate to new places, they hire people from the local area. It is crucial for the enterprises to keep in mind any local state or town laws and taxes. Unable to compliance with local laws can create problems for human resource manager and also for the company (Munde 2010).
Every place has cultural history. UK is a country with people from well diverse cultures. Maintaining a cultural balance in the new location became an issue for the HR manager if an imbalance is created. Unable to manage cultural diversity can later on result in inter and intra-group conflicts, and consequently business performance suffers (Cunningham and Green 2007: 51).
Compensation and Remunerations:
Compensation are remunerations critical part of managing a strategy of human resource. It became more substantial when enterprises relocate. HR managers are required to give employees a complete set of compensation and benefits of shifting to a new place in order to maintain work-life balance. Initiatives such as health care, flexible work hours, holidays, paternity leave and some of the benefits that are given to employees to compensate them (Yaseen 2013:143). Unable to do so can cause problems for the human resource manager.
Relocation of business can result in hiring new staff for running operations. New staff do not possess the same level of efficiency as the other people already working. Therefore, trainings are given to new employees by HR in order to bring them to a level of uniformity with other workers (Bradley 2014).
Change in working conditions can create problems for existing employees to work. Relocation of business can create problems for human resource manager regarding employee motivation. Employees working in one environment find it difficult to perform at the same level after shifting to a new location. HR manager has to take certain steps to keep the motivation level in accordance with business targets (Chiu 2013).
Relocation often results in hiring new staff by the HR department. However, relocation can result in the creation of groupthink among the existing staff members. The existing workforce do not let the new entrants break that groupthink (Rose 2011: 37). It can create a problem for the human resource manager. He has to take steps to end that groupthink and gel together old and new staff.
Businesses find it difficult to retain employees while relocating. Relocation can result in loss of quality staff members from the company. These employees want an improved package from the company in order to stay with it. It creates problems for the human resource manager as he has to keep the best employees and also balancing the costs associated with it (Futuretrends 2014).
When companies are in the decision face of relocation, workforcece can become a victim of lack in motivation to work. Fear of job security arises in the employees as the companies want to control and lower down costs. It can become a problem for HR department. The human resource manager has to give employees reassurance to restore motivation (Dowling, et al. 2008: 97).
Contracts and Agreements:
Companies like Cenlow that did not have any plan to relocate can find issues related to employees contracts for the jobs. When such business decides to relocate, such contractual agreements can create a hurdle for them to move without compensating the employees (Plessis and Beaver 2008: 172).
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