Pub industry - Case Study Example

Jd Wetherspoon has become one of the most successful pub chains in the United Kingdom. It has an extensive chain of the pubs around the country. The chain of Wetherspoon consists of 640 pubs in England, Wales, Scotland and Northern Ireland. Apart from beer and alcoholic drinks the company provides its customers with meal at the low prices. The company also provides lodging through bars and lodging outlets. The company tries to lure the customers by low prices; however this policy might backfire especially in the long-term. One of the most important threats that the company faces is a new regulatory policy and new legislation that might hamper the business of the pubs. Since 2000, the total revenue of the company has been increasing, thus providing management with sufficient financial resources for further expansions. The sales have been increasing as well, during the year 2004, they increased on 7%, compare with the level of 2003. However, will Wetherspoon be able to survive in extremely competitive environment' In order to answer the question, on has to consider several important factors. Political factors. One can claim that pub industry in the United Kingdom operates in stable political environment. The government is trying to create the condition to support the development of pub industry in the United Kingdom. On the other hand, it is certainly doing its utmost to reduce the number of alcoholic-related crimes or illnesses and resolve the problem of alcoholic drunkenness. It also tries to resolve some of the environmental issues, such as recycling. New environmental legislative initiatives implemented by the government will impact the business of pubs, though the probability that they will seriously affect them is low. Legal factors. There are several new legislations that should be taken into account. First, the new law that allows pub to stay open 24 hours a day. New laws were introduced to make it easier for people to choose the time when they can drink. In spite of the fact that some people asserted that it would lead to the increase in the crime rate, no rise in alcoholic-related crimes has been noticeable; however it has been introduced recently and it is too early to judge about the impact of this measure on the crime rate. Certainly, this measure was applauded by the owners of the pubs and there are good reasons to expect the increase in the number of the customers. Another legislative initiative might more detrimental to the industry of pubs. Labor party has proposed to introduce total ban on the smoking in pubs, though it is still a proposal and is widely debated. In current edition of the proposed legislature smoking will be allowed only in those pubs that do not serve the food. One of the impacts is undoubtedly possible negative consequences for the business of the pubs. If this initiative is accepted, the pub industry will have to adapt itself to new environment and devise new ways to lure their steadfast customers. It can do it either by shifting to new pubs that will provide clients with drinks (new strategy should be devised in this case) or by reorganizing its chain of the pubs ( as Wetherspoon is large company it might try to reorganize its chain by establishing two types of the pubs- those which serve the food and those that do not. This reorganization should be based after thorough investigation of geographical and social factors, once the company has obtained a reliable data on where it would be more appropriative to open the pubs mentioned). Economic factors. The UK has one of the most developed economies in the world, with the annual growth rate of 1.7% percent in 2005. (Prediction). The GNP per capita is one of the highest in the world; it is one of the most important factors as it means high purchasing power of Britons, who enjoy going out and currently have less time, possibilities and inclinations to cook meal at home. Strong economy also means the possibility for expansions on the market and provides the company with stable environment to plan its future operations. Several import restrictions on the technological equipments or raw materials used in the production of the beer, might hamper the development of the industry. The industry might also suffer from low import duties on alcoholic drinks, which encourage customers to purchase the drink abroad. Social factors. Several social factors such as late marriage, increasing number of divorces and growing number of persons with high incomes as well as more hours spent at the workplace might influence the business of the pub industry. More and more people prefer to go out to dine at the pubs; the majority of them simply do not have enough time to cook the meals at home. That is why the company should study these factors thoroughly in order to understand what forces are driving people to dine out. Technological factors. There are no grounds to expect any technological innovations or breakthrough in the industry in the nearest future, neither there is a possibility for the breakthrough in the long-term. However, one should remember that new types of the beer can bring the success to the business of the company. New brand of beers with exotic or new tastes might attract the attention of potential clients. With the growing health-consciousness, new health benefiting brands of the beers might be in high demand as well and might increase the number of potential customers. Some other innovations, such as more convenient and quicker purchasing of alcohol over the internet might in the long-term hamper the business of the industry. Micro environment. The clients. The company has built steadfast and large group of clients on whom it can rely. However there is no reliable data on who constitutes an average client of Wetherspoon. It may be assumed that people of different social backgrounds, professions as well ages visit J.D Wetherspoon; in spite of the dearth of information there is one factor that can indicates what habits an average client of Wetherspoon has. The company has introduced smoking ban in several of its pubs, however Williams de Brue in the analysis of JD Wetherspoon of 2005, claimed that the like-for like sales had bend dropped by 7%, after no-smoking policy had been implemented. SWOT Analysis. SWOT Analysis represents the weakness and strengths of the Wetherspoon. Internal factors. Strength. Weakness. Marketing. The company has the pubs throughout the whole territory of the United Kingdom, and has been constantly expanding in 2004(the company has opened 28 pubs in this year). Present concentration of Wetherspoon on the market of the British Isles might hamper the possibility of successful expansion in other countries, so far there are no indications that it intends to expand there, however foreign markets in my opinion represent ones of the most attractive markets. Offerings. The company emphasizes on traditional brands of the beer, such as Burton Beeter and Marston's Pedigree. The company provides its clients with meal. The company should conduct more aggressive expansion in the meal sector. Various competitors as well as new players on the market might experiment with new tastes and new brands. As the beer market is saturated, the companies will be able to sustain their business if their products stand out from the products of the competitors. New brand of health-benefiting beer and offering of organic, health-benefiting meal might be popular in the pubs. Some expenditure on R&D might be necessary; the company may introduce some new services as well. Prices. The bar prices of the company are lower than the prices of the competitors. With increasing competition, lower prices provide the company with an edge over its rivals on the market. Low prices might frighten some of the old or well-to-do clients who might shun the potential type of the client that company targets. It might also have some negative psychological effect, especially for those people who associate the level of the prices with the quality and level of the services that the company provides. Some of the clients, especially those who know little about the company might think that the company provides low-quality services or products. Personal and management. The personal and management staff of the company is well-educated highly experienced and highly-skilled. These people have had numerous years of employment in the company. With constant expansion of the company, the personal might be reassigned and reeducated. Expenditures on reeducation and reassigning may be required. Personal and management might not be flexible enough in highly competitive and changing environment and traditional methods might hamper new visions. External factors. Opportunities Threats. Growth in the number of restaurants. Number of people dining out at the restaurants has been rising constantly, more and more people prefer to eat at the restaurants, pubs and caf's rather than preparing meal at home. The company can use this trend by expansion on the market and providing their customers with high-quality meal. With the expenditures on dining-out on the rise, competition among pubs, restaurants and caf's intensifies. There is a possibility of new players, entering the market, especially if they devise some new effective innovative marketing and advertising strategy. No-smoking policy. No smoking policy might attract people who are more self-conscious and do not like spending their time in smoky environment. In this case new marketing strategy should be devised as the company targets new segment on the market. It should study how people, who have never visited pubs can be lured to visit them and what services they can expect to receive there. The company should have studied the habits of its steadfast clients more thoroughly. There are some indications that the no-smoking bar policy has entailed slight reduction in sales. Smoking clients might go to other pubs with more liberal or less strict no-smoking policy. The company will have to adapt itself to the new environment especially if the total ban on smoking becomes obligatory. Decreasing demand on beer. Consumption of the beer has decreased by 13%.(Between the years of 1990 and 2000). There are some possibilities to expand in more health benefiting products, as Wetherspoon offers its clients not only the beer but the meal as well. More aggressive marketing policy in explaining the health-benefit features of the beer and meal should be implemented. According to some researchers, the decline in beer consumption will continue which in turn might entail the huge difficulties for the pubs and beverage industry. The company will have to devise new marketing approach if this trend continues. New expenditures on R&D in the research of beneficial features of beer and meal products might be required. Besides, new type of the pub that offers meal is a comparatively new niche for Wither spoon and it will have to compete with other more experienced companies in the market. Transformation of pub culture. Pub culture in the UK might be declining due to several factors; most important of them is the possibility to travel and purchase large quantities of beer abroad. There are several possibilities to countervail this tendency by targeting more young and active people especially during some notable sport events. Emphasize on socializing during this type of the events should be emphasized, especially if the national team participates. No music policy must be reconsidered, especially in today's era of new building materials that allow building premises with effective sound isolation. A typical pub can be divided in two halls with music and no music policy. With new legislation that allows pubs to stay open 24 hours day, a typical pub can be transformed into small night club. The expansion of new pubs should be implemented in geographical areas where more active and young people live. In other areas with high concentration of old people traditional types of the pubs might be maintained. If the tendency of shunning the pubs continues, it might entail some problems and difficulties for the pubs that operate on the market. The industry will have to adapt itself to this tendency by transforming traditional services that the pub provides. Neither it is possible to predict how successful the transformation into new types of pub will be. One should not forget that this is a new niche for Wetherspoon and strong competitors exist in the market. Legal. Recently accepted legislative initiatives allow the pub to stay open 24 hours a day and provide its clients with breakfast and meal. If the company designs and develops new innovative approach in targeting of individuals who are potential clients of the pub, it will be able to enhance its business on the market. Besides new licensing might eventually reduce the number of competitors. If legislation banning smoking is accepted, it will inevitable lead to the reduction in sales , as experience of Witherspoon has vindicated. Apart from the legislation mentioned the company also faces high tax rates. Introduction of excise duty in 2001 costs the company 7 million GBP. Threats. In my opinion no smoking policy and transformation of the pub culture are two major challenges that the company faces. One has to bear in mind that no smoking policy will eventually reduce the profit of Wetherspoon, if more liberal and less strict policy is not implemented. Wetherspoon has always been innovative in design, the buildings of Wetherspoon are attractive and charming. With modern building technologies and materials it is possible to divide more efficiently smoking and no-smoking areas in order to retain the returning clients and enhance the business of the company; this kind of policy would be more efficient one than a total ban of smoking at the premises. Otherwise, smokers who represent substantial portion of the customers of Wetherspoon, might head to other pubs. It is not clear whether total ban will be obligatory in the nearest future, in my opinion strong opposition to this ban will not allow it to be implemented in its current edition. However if it is implemented and the company will not adapt itself to the non-ban policy, it will negatively affect the business of the company. Transformation of the pub culture in the United Kingdom requires more thorough study. However, based on the information obtained I can assume that people shun the pubs because they have possibility to import beer from foreign countries. In order to attract more clients to the pub, the company should implement more aggressive advertisement and marketing policy. More TV sets should be installed at the pub especially during some notable sport events, such as football matches or Olympic Games. The company should also shift from its current no-music policy, which certainly does not attract young people. It is my contention that it is possible either to divide the hall, where music is plaid from the hall with "no music' policy, or have several Wetherspoon pubs even in one small town with different policies on the issues mentioned. This type of strategy is more effective and efficient especially in today's highly competitive and constantly changing environment. If however, the company does not change its policy and the trend mentioned continues (there are reasons to believe that it will), then the company might suffer some substantial financial loses in the long term period. Opportunites. Continuing growth in the number of people who prefer to dine out as well as benefits from the legal initiatives, implemented by the government represents two major advantages for Wetherspoon. In order to survive in highly competitive environment, one should study the demographic pattern and its influence on the business of the industry the company operates in. The company provides its customers with new meal and light breakfast; however it should understand what type of meal its average customer is willing to purchase. Is he looking for the traditional meal, cooked at his home or something more original' Should menu differ among the pubs or should it be typical like in McDonalds' What type of the customer is most likely to dine out' How old is he' If the population of England is aging, how does it affect the demand on the beer' Once these questions have been answered, one can start to develop sound policy based on the answers obtained. New laws that allow pubs to stay open 24 hours a day and require licenses from the pubs will undoubtedly benefit Wetherspoon at least in the nearest future. However, in my opinion in order to benefit from them the company should reconsider its non-music policy. New legislation which requires the licensing of the pubs may entail the reduction in the number of the pubs (though one can not be certain whether this reduction will be permanent), and thus the number of existing competitors. However, in order to gain advantage on the market the company should study its potential client and understand how it can lure the clients who used to visit other pubs. It also should be more flexible and adaptive and understand the changing market environment. Works cited. Smoking ban proposed for England available from Swot analysis of JD Wetherspoon available from < www.datamonitor.com> Wetherspoon JD, Williams de Broe available from Read More