The chain of Uncle Sam's Burger Bars has been operating successfully on the UK market since 1977. However, it experienced a number of difficulties in recent years. This report seeks to distinguish majour external and internal factors affecting Sam's business. Having examined and analysed situation of Uncle Sam's Burger Bars, we will give recommendations to the company's Managing Director on how to perform in order to overcome the existing crisis and to operate successfully in the future.
Construct a suitable strategy which would be accepted by all stake holders.
Take all resources into account for developing new strategy.
1: External analysis.
1.1 Industry size
The UK burger bars market increased in value from GBP 1.3 billion to GBP 1.9 billion between 1998-2002 i.e. it has gone up by 48%. However there is an indication that over the last few years this trend has insignificantly slowed down (Mintel, 2003) (see appendix 1).
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It suggests positive conditions for development of Sam's business.
The selection of significant issues relevant to Sam's business are categorized and simplified using a LE PEST C framework in order of priority.
1.2 Social factors
On the one hand, the population of the UK continues to grow i.e. Mintel Report (2003) stated that it grew up by 1.5% since 1998, which accounts for about one million people. The predicted increase in the 35-44 and 45-54 age groups (the main consumers of Sam's production) in 2003-2006 is beneficial for Sam's burger bars. This means there should be more market and opportunities for development.
Mintel Report (2003) states that variety and quality of food become increasingly important for customers. Another Mintel Report (2002) distinguishes that 'caffeine rush' is likely to play an important role in the development of the UK burger market. Julie recognized this opportunity and added the value to Sam's chain by extension of the menu, including low-fat food and coffee options.
On the other hand, Mintel Report (2003) highlighted an astonishing increase in the 55-64 age group by 14,4% along with a decline in 25-34 age group by 10.7% in 1998-2003 (see appendix 2), which shows that the UK population is an ageing one. Taking in account that people aged +55 compose only a small proportion of Sam's visitors i.e. 12%, we can consider this demographic change to be threatening for Sam's business.
According to the information on the UK Vegetarian Society web-site (http://www.vegsoc.org/newveg/) number of vegetarians in the UK has doubled since 1984 i.e. their number rose from 2,1% in 1984 to 5% in 1999. The opposition of non-governmental organizations such as Greenpeace and animal rights campaigners is growing proportionately to the number of vegetarians (Mintel, 2002). In addition, Euromonitor's Majour Market Profile (2003) forecasts that concerns about healthy eating and obesity, especially amongst children, will have a negative impact on sales in the next few years These changes decrease UK burger bar market, and thus represent another threat for by Sam's Burger Bars.
1.3 Economic factors
The Mintel Research (2002) predicts a general increase in the personal disposable income (Figure 1.1) along with the steady growth of customer expenditure (Figure 2.2), which means more money are likely to be spent on leisure, including burger bars sector.
Figure 1.1 Figure 1.2
(Figures 1.1, 1.2 are based on the data retrieved from the Mintel Report, 2002)
AB and C1 socio-economic groups, which compose 60% of Sam's Bars' customers, are likely to rise by 18,5% and 6,2% respectively between 2000-2005 (Mintel, 2003).
These changes might be great opportunities for Sam's business, if he will encourage customers to spend money in his chain e.g. increase number of options in the menu.
1.4 Competition and Industry Structure.
The UK burger and chicken bar industry is an oligopoly dominated by three main multinational companies. According to Mintel Market Report (2002), in order to rise their profiles Burger King, KFC and McDonald's encourage an on-going competition within the sector, in which the weak looses. Unless Sam stops to restrict Julia's innovative ideas for niche marketing, the increasing competitiveness of the industry is likely to become one of the majour threats for his business.
Three main chains seek to rise their sales through the development of new locations, and according to Mintel Report (2003) development of such services as drive-through and home-delivery will be an important factor in this competition for the market share in the rising industry. Having introduced the both services, Sam can take a risk to use the named trend as an opportunity for the niche marketing.
1.5 Technological factors
Always on Time
Marked to Standard
Technological developments of such techniques as breeding the cattle, caused emergence of a number of diseases e.g. Food and Mouth Disease, Bovine Spongiform Encephalopathy, etc. As a result, the burger fast food sector is loosing customers, because for a long time it was "associated with the poorer cuts of meet" (Euromonitor, 1998). Currently it is a minor threat for Sam's business; however any association of his products with the diseases can destroy his reputation.
1.6 Political and legal factors
Due to the UK being a member of the EU, all burger manufacturers, including Sam, have to conform not only to British rules and regulations but also to the European Union
Standards e.g. Food Standards Agency was introduced in 2000 (Euromonitor,2003).
According to Naylor (1999), 'from the strategic perspective', external analysis 'can be categorized into opportunities and threats'.
1.7 Summary of Opportunities and Threats for Uncle Sam Burger Bars
- British and EU rules on food standards
Growing wealth of the UK population
Growth of AB and C socio-economic groups
- Growing population
-customers increasingly appreciate variety and quality
- caffeine rush
- Ageing population
- Opposition of animal rights campaigners
- Customers become more aware of healthy food
Introduction of food scares
- Fight for new locations: rising popularity of drive- through and home-delivery services
- Market is highly competitive makes failure highly possible
2: Internal Analysis.
According to Palmer (2000), 'internally, the structure and politics of an organization affect the manner in which it responds to environmental change'. Thus we need to asses strengths and weaknesses in the internal operations of Uncle Sam's burger bars in order to give realistic recommendations how to overcome the recent crisis.
2.1 Summary of Uncle Sam's Burger Bars' strengths and weaknesses.
well developed public relations
burgers and service are regarded for the high quality
family owned business
the management skills of Julie
introduction of new services e.g. 'ride through', home-delivery
the best financial staff
company's profits and turnover are falling
Sam's inability to recognize necessity of the business revision in response to environmental changes
poor HRM i.e. lack of HRM department; high staff turn-over (most importantly - among managers)
falling quality of service
Since the very beginning in 1977 Sam's business was customer orientated; its style and brand based on 'All American' theme have been loved by customers. Accompanied with Sam's participation in media promotions, all these factors helped to establish good public relations, which appeared to be one of the majour strengths of Sam's business.
Secondly, burgers and service were regarded for their high quality for a long time, which outweighed relatively high prices. According to Mintel (2003) customers agree to pay more for these characteristics.
Thirdly, despite a part of the shares were sold to the InVest, 63% of the company are still owned by the family, which leaves to Sam with high degree of independence in decisions and high degree of commitment to the chain as to his only source of income.
Then Sam introduced such new services as 'ride-through', home-delivery, etc., which added the value to the firm within competitive environment. However, a lot of innovations would not have appeared without Julie, who is able to assess the external changes and to respond to them. The last, but not the least strength of the firm is the great financial staff, which allowed minimizing financial problems.
Over the last few years a number of weaknesses result in the declining profitability of Sam's business. The best way to illustrate it is to asses business's turnover, sales and profits.
(Figures 2.1, 2.2 are based on the data given in 'Uncle Sam Burger Bars' case study (2003).)
Figures 2.1 and 2.2 clearly show steadily falling turnover and pre-tax profits since 2001. Consequently, the first weakness of this business is concerned with a declining amount of money available for expansion, introduction of innovations or redevelopment.
Strength in the past, Sam's almost authoritarian position within the 'power culture' (Naylor, 1999) of his chain becomes the second majour weakness. Up to last senior management meeting he was unable to recognize deep core problems e.g. increased competition, which caused the recent decline. He rejects to listen to the ideas of personnel and Julie on niche marketing in the changing environment.
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Poor HRM is one of the majour weaknesses in operations of Sam's Burger Bars. Sam overestimated his abilities by abandoning HRM department. His attitude to the staff as to working resource i.e. Taylor X manager according to Naylor (1999), resulted in negative atmosphere and high labour turnover e.g. 52% in 2003. Consequently quality of service declined, and customer satisfaction rates started going down (appendix 3).
Uncle Sam's Burger Bars operate on expanding and highly competitive market with many opportunities. However Sam's business' potential for growth is limited by a number of external factors and strong weaknesses in company's internal operations. If it manages to improve its strengths and diminish its weaknesses it has all the chances to overcome the existing operational crisis.
Taking in account high competitiveness of the market, Sam should consider retrenchment of the least profitable burger bars in order to minimise losses and to free finance and time for redevelopment.
Sam's marketing initiatives should focus on the +55 dramatically growing market, while the majority of brands are currently focusing on the decreasing age-groups i.e. those below 35. In order to encourage elderly people to visit Sam's chain, he can introduce "Friendly to any age" program, which would suggest 5-10% discount to those over 55. This will bring grandparents with grandchildren to Uncle Sam's Burger Bars. Being constrained in resources, Sam can limit the advertisement to bright transparencies, posters and leaflets on his Bars' territory.
Keeping in mind that the given business is constrained in financial resources, we shall advise Sam to consider any relocation of financial resources with his highly professional financial department. For example, Uncle Sam's accountants will straightforwardly abandon expansion on international level to Northern France, suggested by Sam. It will take too many financial resources away, while they are needed to build up the lost strength in the UK.
Having succeeded with home-delivery service, Sam should try to develop his 'ride-through' idea, because market for this service is predicted to rise dramatically. This expansion with constrained financial resources is highly problematic, however franchising is likely to be effective. Sam can offer his brand and machinery (left from the closed burger bars) to small food services along majour motorway. Burger Bars with 'ride-through' service along busy roads should be much more successful than similar bars within such city as Edinburgh. In order to minimise risk, a careful market research should be performed to choose the best locations.
Sam is highly advised to accept InVest's idea to bring two new non-executives into the Board of Directors. They are likely to balance Sam's periodical stubbornness, which is the one to be blamed in the current crisis. They will also bring more expertise and professionalism and take some burden away from Sam, who wishes to retire soon. Probably, they will make greater use from one of company's strengths: Julie's management skills.
Sam should consider creation of at least a small HRM team, which originally would be aimed at the reduction of labour turnover. This team should travel from one bar to another not only to control staff, but also to create more positive atmosphere within the chain e.g. encourage social events with participation of managers and staff. In the long run Sam must plan his budget to increase salaries. This will save huge money on training and bring the service back to the higher standards, which is crucial.