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The objective of this report, therefore, is threefold. First of all, it will provide a summary and findings of the SWOT analysis, outline the internal resources and capabilities of the company and look at the strategic issues and options, available for Sally´s business in view of changed competitive environment (Mintzberg, Ahlstrand & Lampel 2005). Secondly, it will explore external environment through Porter´s Five Forces Analysis and evaluate the degree of strategic alignment of Sally´s Café long-term plan with a given market. Finally, it will provide specific recommendations for the business to build on its competitive edge and face the competition.
SWOT Analysis is an effective tool of evaluation of the organizational resources and capabilities (Appendix I). An analysis of the Sally´s Café operations allows highlighting several major strengths. On the resource side, the company has two competitive advantages: its expertise in ethnical food and high-quality product offer. While high quality product can be considered as a valuable resource, the expertise in specific ethnical food is a rare asset. These resources are supported by a number of capabilities, which build on the strengths of the company (Taylor & Brown 2003). First of all, Sally´s Café is an asset-light business, which allows the owner to adapt fast to the market demand. Secondly, the café chose to build its market offer not only through the gastronomic experience, but providing the customers with experience of a “cozy” place for chill-out or dining. This embracing approach serves as an additional advantage of the Sally´s Café.
Current market environment places pressure on the cost-side of restaurant strategies. SWOT analysis allows concluding that cost-driven functional strategy is a major area for improvement for Sally´s Café. Given the small size of the company, it is possible to argue that Sally´s Café cannot leverage the cost with the economies of scales and, thus, becomes very vulnerable to the external influences. From the downstream strategy perspective, one of the major considerations is the ability to build customer loyalty through the market offer. It was identified that Sally´s Café has several strengths, which make this business unique and offer competitive advantage through product diversification. At the same time, new dining options, opened in the region, made Sally´s Café lose many customers. This calls attention to the alignment of the market offer with the actual “need” and “desire” of the target market segment.
Sydney market offers a number of opportunities, coming from the growing female business segment and continuous sustainable tourism market. Right strategic focus can help Sally´s Café build on these opportunities. Strategic options of the company, surely, will be limited by the market threats. Market growth and emerging new customer segments inevitably attract new players and, thus, demand responsiveness and further differentiation of the market offer. Given that one of the weaknesses, which were identified in Sally´s Café, is the dependence on upstream costs, change in market conditions, such as an economic slowdown, inflation and other potential socio-economic influences will affect Sally´s business with more intensity than its bigger competitors, who benefit from the economies of scale (Armstrong and Baron 2002).
Porter´s Five Forces Analysis
Porter´s Five Forces offers a coherent tool for evaluation of external influences and understanding of the major focus areas of the generic strategy of a given market player. The framework looks at five elements of the external environment: rivalry, threat of substitutes, threat of new entrants, bargaining power of buyers and bargaining power of suppliers (Porter 1980).
Competitive environment in the industry is increasingly complex as the number of players has increased, outlining product and price competition. The market is reasonably diversified from the perspective of the product attributes, but restaurant segment in general is very homogenous. It is important to mention that Sally´s Café competes on the market through quality and customer experience, which can potentially reduce the pressure of competitive rivalry. With that in mind, it is possible to assume that this force is medium.
Threat of substitutes is reasonably low, as Sally´s Café offers unique food options, and competition is based on the general dining experience, rather than preference for a specific type of cuisine. One of the major alternatives is the home dining, which may present a significant threat at times of the economic downturn. Cost of substitute for the clients, therefore, is reasonably high and given their price sensitivity it is possible to assume that rapid switch to any alternative, rather than home dining is very unlikely.
Threat of new entrants is one of the major influencing forces at the current stage of industry development. It is evident that the openness of the market provides small entrepreneurial businesses and large chain restaurants with easy access to the area. The potential of the market allows both; asset-heavy restaurant concepts as well as small non-capital intensive business models enter the market at a low cost. With that in mind, new entrants represent high threat in the industry.
Bargaining power of buyers is determined by the market offer, which at the moment outlines demand-driven situation. The customers have a number of options, which allows them choosing, based on several “needs”, including price, diversity of food options, proximity to their work or residence and other elements. Direct competition on the market between the food court and Sally´s café makes cost of switching very low and, thus, gives strong bargaining power to the buyers.
Bargaining power of suppliers is based on the economies of scale and scope of operations as well as uniqueness of their service. Large competitors in restaurant market gain advantage by making the cost of change for suppliers relatively high due to the volume of their purchases (Jeffs 2008). Such companies, as Sally´s Café, on the other hand, cannot gain critical volume to influence price decisions of their suppliers. In spite of the fact that Sally´s Café offers a differentiated cuisine, raw materials for European and Middle Eastern food are not differentiated enough to benefit from uniqueness of their demand. With that in mind, suppliers on the local market have medium power, which depends on the size of the restaurants and volume of their purchase,
Strategic Issues and Options
The major strategic issues of Sally´s Café are the lack of alignment between the differentiated market offer and its Brand image. This results in the loss of strategic focus and competition for the customer segments, whose loyalty cannot be built upon the current differentiators of Sally´s Café. With that in mind, the business should re-think its market positioning to focus on market segments, which would value the differential of Sally´s Brand and further build on affiliated relationships with the clients. This leaves Sally´s Café with several strategic options. First of all, target marketing campaign to raise customer awareness of healthy and high-quality food proposition of Sally´s Café. Secondly, market growth, as opposed to market penetration. This switch is explained by the customer “pains”. As such, students segment is highly price sensitive and in order to gain their loyalty, Sally´s should enter price competition. Instead, it could focus its efforts in business and tourist segments, who value ambience and quality. Finally, to address the cost-side of the business, and reduce the bargaining power of suppliers, Sally´s Café could look at bringing in organic and local sourcing to the core of the Brand image and create affiliated partnerships with small local producers (Millmore 2007).
Conclusion and Recommendation
Sally´s Café is under a strong pressure of competition and current state of events requires immediate action to revert the situation. With that in mind, it is recommended that Sally´s Café builds its generic strategy in a three step approach. The near future should consider the investment in marketing and promotional campaign to attract business and tourism segment customers and create loyalty through implementation of a loyalty card. Second stage of the generic strategy should include product differentiation, which will allow Sally´s Café compete on price and increase its sales (Schnaars 1998). Specifically, it is recommended that the Café starts offering take-away and delivery at a lower price. Finally, long-term strategy should address strategic affiliation with the suppliers, through building on integrated supply chain with local suppliers and fair trade producers. This multifaceted strategy will enable building on a competitive edge and develop unique internal capabilities, which will ensure business sustainability.
Appendix I – SWOT Analysis Summary
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Taylor J H, and Brown D R (2003). The Food Service Professional Guide to: Building Restaurant Profits: How to Ensure Maximum Results. Ocala, FL: Atlantic Publishing Group, 2003. Print.
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