Broadway Café Case Study

Broadway Café Case Study

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Porters Five Forces Model

As strategy consultants of McCormick & Associates, we use Porters Five Forces Model as a framework when making a qualitative evaluation of a firm's strategic position (Appendix 1.2). These five forces determine the competitive intensity and therefore attractiveness of a market. These forces affect the ability of a company to serve its customers and make a profit. A change in any of the forces normally requires a company to re-assess the market place.

Bargaining Power of Customers

Is high when buyers have many choices of whom to buy from and low when the choices are few. By offering your customers high quality fresh food, they will come to your café instead of your competitors. One way to reduce buyer power is to implement Loyalty Programs. A Loyalty Program that can be implemented in the Broadway Café is to have a customer purchase card. Every time a customer makes a purchase, this card gets "stamped" and after 7 purchases of a sandwich, their 8th one is free or 50% off.

Bargaining Power of Suppliers

The Broadway Café will want its supplier power to be low. The Café should seek out and search suppliers that will offer the lowest price. Since there are many suppliers of basic commodities (e.g., flour, sugar, bread) they all will be vying for your business. A private exchange or a reverse auction could be done in order for you to get the best possible price from your suppliers.

Threat of Substitute Products

Ideally, you would like to be in a market where there are few substitutes for the product or service you offer. It is true that a potential customer can ultimately make their own sandwich or cup of coffee. Yet do these customers have the time and resources to do it? Most likely this will not be the case. The Café can reduce the threat of substitute products by lowering its switching costs. Customers may be more reluctant to switch to a different product if the competitors sandwiches are not as fresh or homemade. Customers place a higher value on fresh, homemade breads and ingredients.

Threat of New Entrants

In your industry, an entry barrier is to provide customers with high quality, fresh, homemade products. With the surge of the health craze, more people are likely to go to a Café type establishment, than go to a fast food restaurant. Health-conscious customers have come to know and expect this from any café/restaurant trying to enter this market.

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Rivalry among Existing Competitors

In most industries, competition is fierce. It's always important to look at your competitors. We have established that your biggest competitors in this industry are: Starbucks, Atlanta Bread Co., Panera Bread, Subway and Dunkin Donuts. All of these competitors offer the same type of products that your Café does. Since these are well-known establishments, it is always best to analyze their trends and movements in the market. Companies that do well are always the one to model your business after.

Competitive Advantage

A competitive advantage is a position that a firm occupies in its competitive environment. A company is said to have a competitive advantage over its rivals when its profitability is greater than the average profitability of all other companies competing for the same set of customers. It also means when customers place a greater value on your product or service than your competitors. A company must not only have a competitive advantage (CA), but a sustainable competitive advantage. Firm posses a sustainable competitive advantage (SCA) when it has value-creating processes (products & services) that cannot be duplicated or imitated by other firms which lead to above normal profits. A SCA is more than a CA, because it provides a long-term advantage that is not easily replicated. This is also known as a core competency. To be sustainable the advantage must be 1) Distinctive and 2) Proprietary. Competitive advantages vary from situation to situation. They can be divided into 4 main areas:
1. Cost: Low Cost Operations
2. Quality: High Quality, Consistent Quality
3. Time: Delivery Speed, On-Time delivery, Development Speed
4. Flexibility: Customization, Volume Flexibility, Variety

Michael Porter suggested four "generic" business strategies that could be adopted in order to gain competitive advantages (Appendix 1.1). The four strategies relate to the extent to which the scope of business activities are narrow versus broad and the extent to which a business seeks to differentiate its products. The differentiation and cost leadership strategies seek competitive advantage in a broad range of market industry segments. By contrast, the differentiation focus and cost focus strategies are adopted in a narrow market or industry. The Broadway Café would fall into the strategy of Cost Leadership. With this strategy the objective is to become the lowest-cost producer in the industry, with the emphasis being placed on minimizing costs. If the achieved selling price can at least equal (or near) the average for the market, then the lowest cost producer will (in theory) enjoy the best profits. The Broadway Café will benefit from identifying and implementing a competitive advantage over its competitors. This will lead to increased sales and customer retention.

Since there has been no analysis of your business and where it stands in the market today, we need to take a look at the environment to keep your business afloat and profitable at the same time. As discussed earlier, in order to gain a CA, the four main areas to focus on are Cost, Quality, Time and Flexibility.

Cost

The Broadway Café can gain a competitive advantage over its competitors by bringing down the cost of its operations. You will want to operate at a low-cost, so that your revenue will exceed your expenses. Some cost cutting techniques would be to buy in bulk for your ingredients to your sandwiches and breads. Buy in bulk for "basic" ingredients, such as sugar, flour, salt and soup mix (i.e. non-perishable items). This will definitely be a cost-saving mechanism. It is always cheaper to buy in bulk. Obtaining a Sams, BJ's, or Costco card would be beneficial to your Café. Another cost-cutting technique is when you have slow-days or non-busy hours, you can limit the amount of employees that you have to cut down on the salary expenses. This can be one person at the cash and another one in the back making the orders.

Quality

Customers appreciate good quality items. Once you display to your customers that you have a consistent high quality item, they will keep coming back and choose your product over your competitors. In offering specialized coffees, teas and a full service bakery, the Broadway Café should focus on premium ingredients. Product quality goes a long way in increasing profits, while having repeat and loyal customers.

Time

Once you get into the swing of your business, you can start to eliminate inefficiencies and decrease the wait time for customers placing orders. Looking at the time it takes to make certain sandwiches and breads will decrease the customer wait times. Customers want their products & services quicker. They are always on the go. This is known as hyper competition. Most customers will be either on their way to work (in the morning) or on their lunch break (in the afternoon), so time is of the essence.

Flexibility

All organizations should always be open to change. Since McCormick & Associates has taken over the task of analyzing your company, you have taken the first step in changing the way your business has been done in the past. With the new systems in place, strategies to guide you to the next level, you've shown that being flexible will pay off in the end.

People

This last competitive advantage is in addition to the four that was previously discussed. In stating "people" as a CA, we mean employees. Without good, hard-working employees your business will not survive. Retaining good talent is key in this business. You should make your employees a priority. Rewarding good behavior, ex. Employee of The Month, paid day off or 50% discount on the food from the café. These are just some of the ways that employees can feel that they are appreciated. They will in turn produce to the best of their capabilities, which can only lead to increased sales and therefore profit.

Business Intelligence
Business Intelligence is a process for increasing the competitive advantage of a business by intelligent use of available data in decision making. This process is pictured below.
The five key stages of Business Intelligence:
1. Data Sourcing
2. Data Analysis
3. Situation Awareness
4. Risk Assessment
5. Decision Support


Extracting electronic information from text documents, databases, images, media files and web pages.
Synthesizing useful knowledge from collected data using data mining, text understanding and image analysis techniques.
Linking the useful facts and inferences and filtering out irrelevant information.
Identifying reasonable decisions or courses of action based on the expectation of risk and reward.
Employing semi-interactive software to identify good decisions and strategies.

Data sourcing
Business Intelligence is about extracting information from multiple sources of data. The data might be: text documents - e.g. memos or reports or email messages; photographs and images; sounds; formatted tables; web pages and URL lists. The key to data sourcing is to obtain the information in electronic form. Typical sources of data might include: scanners; digital cameras; database queries; web searches; computer file access; etcetera.
Data analysis
Business Intelligence is about synthesizing useful knowledge from collections of data. It is about estimating current trends, integrating and summarizing disparate information, validating models of understanding, and predicting missing information or future trends. This process of data analysis is also called data mining or knowledge discovery. Typical analysis tools might use:
• probability theory - e.g. classification, clustering and Bayesian networks;
• statistical methods - e.g. regression;
• operations research - e.g. queuing and scheduling;
• Artificial intelligence - e.g. neural networks and fuzzy logic.
Situation awareness
Business Intelligence is about filtering out irrelevant information, and setting the remaining information in the context of the business and its environment. The user needs the key items of information relevant to his or her needs, and summaries that are syntheses of all the relevant data (market forces, government policy etc.). Situation awareness is the grasp of the context in which to understand and make decisions. Algorithms for situation assessment provide such syntheses automatically.
Risk assessment
Business Intelligence is about discovering what plausible actions might be taken, or decisions made, at different times. It is about helping you weigh up the current and future risk, cost or benefit of taking one action over another, or making one decision versus another. It is about inferring and summarizing your best options or choices.
Decision support
Business Intelligence is about using information wisely. It aims to provide warning you of important events, such as takeovers, market changes, and poor staff performance, so that you can take preventative steps. It seeks to help you analyze and make better business decisions, to improve sales or customer satisfaction or staff morale. It presents the information you need, when you need it.

Business Intelligence in the Broadway Café
Although Business Intelligence is an expensive business tool and mostly used in bigger companies and in the corporate industry, the Broadway Café can also use it in the process of its business upgrade. When the goal of this upgrade is to bring the Café from past times to a modern business environment that can compete with other competitors who use all kinds of modern facilities to reach today's customer expectations. In fulfilling this goal of an upgraded system, it can use a part-time business expert who will aid in this process when deemed necessary. As explained above, according to this process, the expert will follow the five chronological task,
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