Competitive Marketing Strategy - Case Study Example

COMPETITIVE MARKETING STRATEGY 2005 I. Mitchell & Butler: Corporate Background & Strategy Mitchell & Butler is operator of pubs and restaurants. They provide customers with meals, drinks and entertainment. William Butler and Henry Mitchell built the company in 1898. It has gone through numerous restructuring and acquisitions along its operational years ('Our History', 2005). In 2005, the company owns 1,984 sites of Pubs and Restaurants throughout the United Kingdom, and runs several well known retail brands in UK include the Vintage Inns, Ember Inns, Toby Carvery, etc ('What We Do', 2005). The company is still showing signs of active growth as it continues its rapid rate of corporate acquisitions. II. Discussion: Evaluation of Mitchell & Butler's Corporate Strategy II.1 SWOT II.1.1 Strengths Mitchell and Butler focus mainly on increasing its food line and succeeded at increasing the market share. However the profit resulted from increasing market share and sales amounts are loss in the operation of the company. Diversification strategy is producing good results, but there are several segments where the group is over optimistic and produces over capacity. I believe that the diversification strategy, which is intended to receive gain from many segments, could present a future problem. Corporate strategy of expanding brand lines is proven to be working properly up to today. However, enhanced management capabilities to handle problems of strategic alliances should be developed in order to maintain cooperation and harmony among existing brands. Therefore, the key strengths for Mitchell and Butler in restaurant industry in the U.K. are its diversification strategy and segmental focus. In addition the company is also able to increase market share in certain segments. The company has realized the importance of addressing various customers' demands that I believe will help the company to sustain in today's fierce competition in restaurant business in the U.K. The company says that it will continue to evolve and develop its pubs and restaurants outlets in order to meet the needs and tastes of the British public while strengthening its position as the UK's leading managed pub operator. II.1.2 Weaknesses The major weakness of Mitchell and Butler is the inability of the company to turn the valuable brand equity of Mitchell and Butler into efficient financial performance. I think the cause of the inefficiency in the company is its unplanned diversification strategy. Compares to five major competitors as mentioned above, I can see that its competitors have ability to make profit from its operation. II.1.3 Opportunities There are several factors that influence an opportunities of a business. They include following items: 1. Customers' Confidence 2. Demographic trends 3. European Presence Concerning the issue on operator of pubs and restaurants' business, I see that Mitchell & Butler has great opportunities in providing the business since dance music based nightclubs have been around for approximately twenty years [and still become a profitable business to conduct]. II.1.4 Threats In addition to strengths, weaknesses, and opportunities; I found that Mitchell & Butler also faces potential threats as following: 1. Volatility of Demand Pub and restaurant still becomes attractive business. However, there are times when the would be a shifting from attending Mitchell & Butler-typed business to another hanging out places like cafes. 2. Strong Competition Despite being defined as specialized sector of the leisure services, the pub and restaurant industry is in direct competition with other hospitality services like hotels that also have their own pubs and restaurants. II.2 PEST II.2.1 Political PEST Analysis is a way of dividing the factors influencing businesses into four different groups. The first is Political factors. Political situations have a huge impact on business regulation. The stability of the political environment, international trade agreements, religion, cultural and ethical issues are all political conditions having a great influence on business ("PEST Analysis"). Concerning the Mitchell & Butler's business, I found that in some places, cultural and religion issues will prevent Mitchell & Butler from expanding into some markets. II.2.2 Economical The second factors are Economics that include factors such as interest rates, level of inflation, and long term prospects are a few significance of economic related to our business ("PEST Analysis"). Economy alos influences Mitchell & Butler's business in the way that the downturn in economy will prevent people from attending pub and restaurants. As stated within the literature review, there is a strong relationship between corporate marketing strategy and profitability performance. Thus, the evaluation of Mitchell's and Butler's Pub and Restaurant's marketing strategy would be started by observing the corporation's profitability performance. By assessing the financial statements of Mitchell and Butler, I found that the company's Return on Equity and most all the Earning per Share displayed significant rise. However, in 2004, Return on Assets (3.12%) and Net Profit Margin (8.01%) displayed a slight downward shift from 3.31% and 8.98%, consecutively. As the amount of net profit (after exceptional items) within the two periods is actually the same, the differences above are due to changes in the amount of assets, equity and sales. The ratios indicated that the company purchased additional assets during 2004, which resulted in the ROA to decrease considerably. In 2004, ROCE of Mitchell and Butler is 8.27% or experiences an increase by 4.75% from 7.89% in 2003. The ratios also indicated that the company has recently distributed significant amount of equity back to its investors. Sales are increasing and the amount of shares issued is decreased. ROCE ratio is an indicator of how well a company is utilizing capital to generate revenue. ROCE should be higher than borrowing rate of a company; the higher ROCE is the better the company's financial performance is. Analysis of the financial statements displayed the fact that the group's market share is expanding and sales number will continue to grow. Nevertheless, costs and overheads are quite high within the period, eating away the supposedly increased profit. Along with expanding the business, we suggest that the group maintain an amount of attention to its efficiency performance in order to create an overall profitable corporation. Below is the figure of profit tree of Mitchell and Butler for the financial year 2004. The profit tree starts with revenue/turnover and end in the net profit. Profit tree is by definition a diagram showing detail information about where the profit comes from. Revenue/Turnover = 1,560,000,000 Operating Profit/Profit before interest = 285,000,000 Profit before taxation= 182,000,000 Net Profit = 125,000,000 Figure 1 Profit Trees of Mitchell and Butler for FY2004 II.2.3 Socio Cultural The third are Sociocultural. Questions like, what are the attitudes toward foreign products How strong are the environmental issues Are they important to address especially if we are embarking on international markets ("PEST Analysis"). Within the past few decades, the terminology "mass customization" has taken off the ground. It is the result of various customers' demands, which need products/services tailored in specific fashion. From outfits to private airplanes and sport club's members to telecommunication services, people are demanding that their products and services exactly fit their specific needs. Concerning the pub and restaurant business, I find that Mitchell & Butler should pay attention to types of services that customers want such as customized beverages and foods that match the customers' needs. II.2.4 Technological The fourth factor is technology. Competitive advantages as weapons toward competition, has made technological issue an important factor. How advance are the country's technology Will it make products cheaper, easier to produce ("PEST Analysis"). The coming of digital technology, marked by the use of two binary digits: '0' and '1', few decades ago has enabled us to convert any kind of information (voice, data, and video) into other forms. As an operator in pub and restaurant industry, Mitchell & Butler should also employs advanced technology such as lighting technology, music requests machines etc II.3 Porter's Five Forces 1. Threat of Substitution The company is facing a very high rate of possible substitution. This is due to the nature of the business as a provider of pub and restaurant service. There are many hotels, which also provide their own pub and restaurants (Leary, n.d). 2. Threats of new Entrants Despite being at its infant stages, analysts believed that the industry is a tough one to enter. This is due to the high initial investment required by the industry and the fact that customers usually chose their pub and restaurant service based on reputation or brands. The threat of new entrants is considered to be at the low or mostly the medium level (Leary, n.d). 3. Rivalry among Competitors Competition is considered the most significant power influencing Mitchell & Butler's managerial decisions. Despite only four main competitors remain worldwide, the intensity of competition has never been this great (Leary, n.d). According to yahoo finance, the group has 4 large competitors, they are: The Laurel Pub Company, the Spirit Group, Punch Tavern, and the Enterprise Inns. In order to compare between the five we should look at the table presented below: Out of five competitors, the most significant competitor is Enterprise Inns. The company has particular characteristics that make it as a serious contender/threat for Mitchell and Butler as following: Enterprise Inns This is the #1 pub company in the UK that has specialization on beer drinking. Currently, the company has more than 8,700 leased and tenanted drinking establishments. The company also has extensive business support services (planning, marketing, and promotions) that help to maintain its competitiveness in the market. Enterprise Inns also owns a 17% stake in Unique Pubs; a chain of more than 4,000 leased and managed pubs ('Enterprise Inns', 2005). Unfortunately, I cannot calculate the Enterprise inns' ROE, ROA, and Return on Common Equity since in the company's 5-year financial report (http://www.enterpriseinns.com/investor_zone/invest_index.asppg=1) there is no data about the company's net profit and net profit after taxes. However, I found that Enterprise inns' gross profit margin (29.87% in 2004) is much better than that of Mitchell and Butler (18.27% in 2004). This situation is the results of the company's strategy on encouraging the integration of the business operation focus on quality services and the strategy to provide fastest rate of profitability growth. Therefore, Enterprise Inns is the really competitor for Mitchell and Butler since Enterprise Ins does excel Mitchell and Butler not only in marketing strategy but also in financial performance. 4. Power of other players (buyers and suppliers) The company, as the largest enterprise in the industry holds a significant influence toward its customers and supplier. But due to the intensity of competition inside the same or different industries creates a significant buyer power over food and beverages prices. Analysts measured the power of supplier and customers to be at their medium or high level (Leary, n.d). II.4 Product Life Cycle By meaning, PLC (Product Life Cycle) concept has become a central element in marketing theory since its development in the 1960s. PLC was technically developed by Vernon in 1966. In general, Product Life Cycle Have four distinct stages (Gorchels, L) as following: 1. Introduction Stages is a period of slow sales growth as the product is introduced in the market. Profits are nonexistent in this stage because of the heavy expenses of product introduction. 2. Growth Stage is a period of rapid market acceptance and increasing profits. 3. Maturity Stage is a period of slow down in sales growth because the product has achieved acceptance by most potential buyers. Profits level off or decline because of increased marketing outlays to defend the product against competition. 4. Decline Stage is the period when sales fall off and profits drop. Concerning the Mitchell & Butler, I find that the company's services are still in growth stage since the PEST factors of the company suggests that pub and restaurant business still has huge demands. II.5 Positioning Map As mentioned above, strategic positioning is a general indication of business behavior in attempt to achieve its overall mission by securing competitive advantages. The simplest form of strategic positioning is to concentrate to a particular product or market. The benefits of having focused product service or market position are: 1. The company will be doing what it does best 2. Owners and managers are dealing with issues they are experienced with 3. Allowing management to deeper understand the competition condition 4. Creating competitive advantages over larger companies ("Strategic Positioning," n.d) Generally, Strategic Positioning involves three major issues; corporate position, market position and product positioning. The corporate position refers to the single item which significantly differentiates a company from its competitors. It involves company's image or commitment toward its customers. For example, Mitchell & Butler is known for its quality of customer services. In practice, we can achieve a good strategic position by performing different activities to satisfy our customers, or doing similar activities with different manners in order to create a distinct service image. The steps of implementing this strategic position applied by first defining the strategic values, work them to produce strategic processes and support those underlined processes with simple rules and strategic principles (Serb, 2002). III. Recommendations Based on the business and financial analysis, I would suggest Mitchells & Butlers to take benefits of their competitors such as provide integration of business operation and focus on quality services. In addition, the weakness of Mitchells & Butler, which are low profitability, according to financial analysis, should be overcome by increasing the faster rate of profitability growth. The company should rebound any financial performance that experiences downturn such as gross and net profit margin. This is important for further improvement since investors assess a company's performance based on this data. Mitchell & Butler should also pay attention to competitive strategy issue in which they should find what make the company stands out the crowd of restaurant business. Once they find their strength, they should make it as their competitive advantage to surpass the competitors' performance in other competences. 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