Introduction 3
Overall Analysis 3
SWOT Analysis 4
Marketing Mix 7
Financial Position 9
Conclusions 10
Recommendations 11
References 13
Strategic Management at Café de Coral Holdings
Introduction
The food industry is a promising one with growth potential. This is even same in the case of the fast food industry. The concept of eating out has established itself all over. One reason for this is the fast-paced life of the modern world. People are becoming more adventurous in terms of trying out newer cuisines and constantly looking for variety.
The Strategic Management of one such company, the Café de Coral Holdings Limited (Listed on the Main Board of The Stock Exchange of Hong Kong Limited Stock Code: 341) is analysed in this paper. The report begins with the main analysis using the management concepts of SWOT Analysis and the marketing mix. This also involves a brief financial discussion and recommendations offered thereafter.
Overall Analysis
Company Overview
Café de Coral was established in 1968 in Hong Kong. It is the largest fast food brand in Hong Kong and has a reputation of its own. It has four strategic units viz. Quick Service Restaurant which focuses on fast food, Institutional Catering which offers catering services in Hong Kong and mainland China, Fast Casual & Casual Dining which caters to specialty dining etc. and Food Processing & Distribution which caters to the preparation of different processed items (Interim Report, 2016). The company ventured into mainland China in 1992.
Fast Food Industry
The local fast food industry existed in Hong Kong from a very long time. It was Kentucky Fried Chicken (KFC) and Mc Donald’s which brought western fast food to Hong Kong in the early 1970s. Their success prompted the local restaurants to start fast food joints by the late 1970s. This industry has seen various difficulties since then.
Customers look for quality in fast food joints. They judge the joint by the quality of food served there. Location is the next factor since customers prefer the joint to be in a convenient location for them. Price is the next criterion for customers. The price should be competitive if people are to patronize the joints. The joints are kept clean and customers are served well.
SWOT Analysis
Strategic Management is an established concept and is undertaken by every firm, small or large. It is beneficial for companies to formulate strategies so that they can plan for their operations both in the short and long term. Strategic management concerns itself with creating strategies and putting them into action (Hill, Jones, 2009, 4).
SWOT (Strengths, Weaknesses, Opportunities and Threats) Analysis is an implement that helps a firm understand its present and predict the future. Strengths and weaknesses, known as internal factors, are the inborn qualities of a firm. However, opportunities and threats are known as external factors over which the company has no control; and depending on the situation, one can manipulate these elements of SWOT (Dyson, 2002, 632). Taken as a whole, these four aspects give a company the complete picture of its situation.
1. Strengths
Inventory management – The company has tried to upgrade its existing technology to take advantage of new developments in supply chain management (SCM). It introduced the Branch Management System (BMS) which is a SCM, to take care of inventory issues in every branch of the company. BMS intends to computerise the process of procuring raw materials and collecting and storing data. The benefit of this system is that customers would get safe products and the system would be highly responsible. Moreover, tracking raw materials and their status becomes an easier task. This system took over a year and half of R&D and integration into the existing system.
Sustainability - is the cornerstone of the company’s management. The four aspects of committing to sustainability in case of the company are as given. Customer satisfaction is paramount. The customers should be satisfied with the food that is offered. People are another aspect. These could mean the employees, shareholders, suppliers etc who are given due consideration. Community is not neglected either. The company strives to give back to the community at large by supporting it wherever possible. Resource is the final aspect. Resources are scarce and every effort is made to use the available resources judiciously without any wastage.
Smooth handing over – Usually when professionals leave an organisation after a long period of time, they would have left their imprint on the company. Their experience would have made them invaluable to the company by then. There would even be a comfort zone in working with such professionals. The lacuna created by their absence takes a long time to fill. However, in this case, new and energetic professionals have effortlessly taken over the role of the old guard. This succession was built into the strategies of the company and has been completed.
Human Resource – There is a shortage of manpower in the food industry in general. The company seeks to recruit competent staff with good compensation packages so that the risk of turnover can be reduced. The company has different means to source out its manpower. The selected employees would be trained accordingly so that they can be valuable assets to the company. They can create a good rapport with customers, thus booting customer satisfaction and employee morale itself.
2. Weaknesses
The company has incurred costs in developing an inventory system. However, this may be at the expense of its competitiveness. It cannot afford to increase the price of its products, since the customers are price sensitive. If it attempts to reduce the price of its products, the apprehension would be that it would compromise on its quality or service. Both of these are suicidal to the company. Quality is the first aspect that customers look at in the fast food industry. Similarly, if the service rendered suffers, it will give the company a bad reputation.
3. Opportunities
Tourism – The global tourism industry is booming. The number of people arriving in China from Europe and America is increasing day by day. There is a spillover of this section to Hong Kong also. Hong Kong has the infrastructure to cater to global tourists. The company specializes in fast food especially Chinese fast food, which it can offer to the tourists from the west, since they would prefer to try out something different from what KFC and McDonald’s have to offer.
Transport – There are fast and good transport facilities due to improved infrastructure, both in Hong Kong as well as in the mainland. This means that raw materials can be dispatched to various branches in a timely manner. Since the amount of wastage is reduced, the loss due to it can be significantly reduced.
China – Though the company started in Hong Kong, it had branched out into China since 1992. With the craze for fast food increasing in China, the company has an opportunity to grab there. Though Western fast food chains are also growing in China, the preference for fast food is still Chinese among the majority of people. This is evident from the fact that more than three quarters of fast food joints serve Chinese as compared to Western fast food.
Prosperity – The income of the Chinese in general is increasing and as a result, they are ready to spend on food. China is the world’s largest economy, which is growing at a tremendous rate. Hence, the company can expect more customers to patronize it.
4. Threats
Competition – The company has mainly two types of competitors, namely the Western and Chinese fast food chains. KFC and Mc Donald’s are the western competitors whereas Fairwood and Maxim Catering are the Chinese ones. Of these, the first two indirectly affect the business of the company in that they are not directly competing with the company. The other two offer the same products that the company offers. Hence, these companies undercut each other such that the market share is restricted for each fast food chain. Moreover, the number of chain stores of such competitors is much higher than that of McDonald’s or KFC.
Labour Issues – Due to a Minimum Labour Wage law, the company cannot reduce salary to below prescribed levels. There is also the allegation that the company has increased the work hours of employees. If labor issues are not sorted out immediately and amicably, it can snowball into a larger problem with its effect on various groups.
Marketing Mix
Marketing mix refers to the four basic concepts of marketing viz. product, place which stands for distribution, price, and promotion which together help elaborate the marketing strategy of a firm. Hence, the marketing mix is also known as the 4Ps of marketing.
Product
Kotler (2000) is of the view that a product is an item which can satisfy a person’s needs or wants. The company primarily offers Chinese fast food items as its products. It tries to change the menu regularly so that there is an element of novelty. With more income and awareness, customers want to increasingly try out healthier options in food. The western fast food chains like Mc Donald’s are at the receiving end due to the campaign for healthier foods. Hence, the company should take the lead and change its products to adjust to this reality. It can also highlight its other dining options and increase its presence there.
Place
The company has its joints located in various places for e.g. in shopping malls, business and mixed use areas, industrial areas etc. The company has changed the inner ambience of its joints to reflect a new look. The SCM of the company has been revamped with the use of automation which has helped cut production costs.
Price
The company is right in offering a lower price as this will attract customers from the mainland. However, a balance should be sought between inexpensive and premium products to cater to that segment which could otherwise go to competitors. Moreover, a premium price can entail a superior quality, which tourists from Europe and America in the higher end segment may prefer. This is significant due to the fact that business travel to and from Hong Kong is quite large.
Promotion
The company promotes itself through advertisements given both in Hong Kong and in China. Relevant ads in Chinese and/or English can be displayed based on whether the place in question is Hong Kong or the mainland. The company also uses sales promotion where loyalty points can be gathered and redeemed at the next purchase from the company.
Financial Position (according to Interim Report, 2016)
Salient Features
The popularity of brands led to the quick service restaurant (QSR) and institutional catering business performing well, mainly due to good revenue and increased sales in same-stores. The fast casual and casual dining segment also had greater revenue. Updating the menu led the revenues in China to stabilise. For the first half of FY2016/17, the group made a turnover of HK$3.89 billion which was a 4.3% increase over the same period the previous year. The half yearly net profit was HK$232 million which was an increase of 11.8% over the previous year. The interim dividend declared is HK 18 cents per share which was the same the previous year.
QSR And Company level Catering
The Group's QSR and company level catering business in Hong Kong increased by 7.7% in revenue year-on-year. Value meals and product innovations led to the increase in Same-store sales as part of Café de Coral fast food by 5% and that of Super Super Congee & Noodles by 4% in the first half. As of 30th September 2016, the group operated 288 QSRs and company level catering outlets. To expand the fast food network, the Group took soft leases in prime locations. Four new outlets were added to Café de Coral fast food and seven to the Super Super Congee & Noodles shops. Asia Pacific Catering and Luncheon Star are growing.
Fast Casual and Casual Dining
The Group grew by 14.4% in revenue in this segment. Shanghai Lao Lao, the brand in catering has performed well and has eight outlets. Two new outlets were opened in this segment. Mixian Sense will be promoted to give more revenue. Spaghetti House and Oliver's Super Sandwiches have grown to Western proportions. Japanese and Korean-style franchise operations are in the investment stage.
Functioning in China
In China, competition was tough, the customers’ response was lukewarm and consumer habits had changed. As part of consolidation, loss-making outlets were closed down and profitable ones were strengthened. Local talent which was experienced in the local market was hired. The menus were revamped based on tastes and preferences. Due to the efficiency and products offered, the profit margin increased. With lower break-even point, the business in China grew. Same-store sales increased by 1.2% but its segment revenue decreased by 16.3% compared to last year due to closing down of non-performing stores.
(Source: Interim Report, 2016)
Conclusion
The company has come a long way from its inception in the late 1960s. The company braves the odds while competing with multinational giants like KFC and Mc Donald’s. At the same time, it leaves local competition firmly behind. Product innovation and quality at reasonable prices have given it enough maneuvering power in the market. Since, it brings out innovative products, people flock to it in spite of the presence of foreign giants.
The company should strive to offer healthy alternatives to as many fast food products as possible. The future is pointing to health foods and people will slowly make the switch. The company’s forays into uncharted waters should be lauded in this context. It should grow to become a multinational corporation (MNC) in itself. It can become the harbinger of Chinese cuisine in the international setting, which is currently dominated by western offerings. The company should keep up with the times and remain ahead of the race in future.
Recommendations
1. Firm’s standing – The firm has a good reputation for quality and price in the market. This should be leveraged through consistent advertising using different media like newspapers, television, social media etc. Intermittent institutional advertising can also highlight the company’s standing.
2. Famous Dishes – Pork Chop with Rice, Shanghai Style Spare Ribs etc. are famous dishes of the company. They should be modified to meet customer expectations. Hence, customers get newer dishes with no boredom at all.
3. Cost Control – Food Processing Plants are a good example through which the production costs can be curtailed. Though the initial costs have to be borne, the subsequent savings in production will cover the cost of the plants and finally lead to savings. Such plants also lead to reduction in wastage of perishable raw materials.
4. Product Differentiation – The company can provide different products, which are not easily replicable by competitors. Even among the company’s own products, there is variety provided. This gives customers with varied tastes an opportunity to savour the products of the company.
5. Training – Those in the service industry should be trained professionally so that their prestige in the industry grows. Through training, standards and norms for the service industry can also be formulated. This can create generic standards for the fast food and general dining industries thus making the movement from one to the other possible.
6. Forays into China – are necessary given the huge market available. The standard of living in China is also high, offers a captive market given that the company is culturally Chinese, and has an affinity with the mainland.
7. Other Markets – Any market will eventually saturate. It is easier to enter a virgin market, as there is no competition to reckon with. If the company wants a global presence such as that of Mc Donald’s, KFC etc., it will have to break into Europe and North America to begin with.
8. Customer’s Requirement – The customer is king. According to the change in customer’s taste, the company also should flow. The company cannot always stick to a product, which had clicked once. Modification should always be done to old dishes and new dishes should be constantly introduced.
9. Modified Preferences – If customers become health conscious, the company should eschew fried products. It should go for steaming as a healthier option. Green vegetables should replace meat and fish wherever possible. The calorie content should be toned down.
10. Chinese Customers – The mainland does not always look at Hong Kong with starry eyes. With better technology and awareness, even the mainland Chinese can emerge as competitors to the company. Hence, the Chinese should be given products such that they need not think of a mainland option to the company.
References
Hill, C & Jones, G. (2009). Strategic Management Theory: An Integrated Approach. US: Cengage Learning.
Cafe De Coral Holdings Limited. (2016), Interim Report 2016. Unlocking our Potential. Retrieved from http://www.cafedecoral.com/eng/investor_relations/reports/images/IR2016_2017/(1)%20e201617%20Interim%20Report.pdf
Dyson, R.G. (2002). Strategic development and SWOT analysis at the University of Warwick <retrieved from> http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.101.5093&rep=rep1&type=pdf
Kotler, P. (2000). Marketing Management. Millenium Edition. Retrieved from http://dl.ueb.edu.vn/bitstream/1247/2250/1/Marketing_Management_-_Millenium_Edition.pdf
