In order for Azalea Seafood Gumbo Shoppe to achieve long-term growth and maintain a sustainable competitive advantage, a comprehensive analysis was conducted. The findings presented in this report offer valuable recommendations that Azalea should consider to ensure success.
Included in the analysis is the following information that comprises the complete proposal:
- Analysis of the current market
- Analysis of forces that drive the industry
- Description of Azalea’s strengths and weaknesses
- An identification of the opportunities and threats that face Azalea Seafood Gumbo Shoppe
- Analysis and proposal of possible options for Azalea Seafood Gumbo Shoppe
Azalea Seafood Gumbo Shoppe and the Value-Added Seafood Industry
Azalea Seafood Gumbo Shoppe was established in Mobile, Alabama in 1971. The company changed hands once before Mike Rathle, John Addison, and Bill Sibley (who would soon sell his part of the company to Mike and John) took over ownership. Mike and John had to move the business due to lease issues and since the new location was too isolated to support retail sales, they would have to focus on commercial accounts for future business. They now had a clear vision of where Azalea was headed.
The facility had the capability of producing eight tons of gumbo and other seafood products per day. Soon after, Azalea began to produce over 45 tons of these products every month. Their products were distributed in various local restaurants, supermarkets like Wal-Mart, and other food retailers. The driving forces in the industry are changing as the Value-Added Seafood Industry becomes increasingly lucrative.
Azalea is handling their uncertainty effectively and understanding the risks involved. It is necessary for Azalea to expand their production facilities to overcome production issues that are hindering the pursuit of larger and more profitable accounts. As Azalea acquires more accounts, it will establish a solid presence in the market. After reducing perceived risk levels and achieving financial stability, Azalea should introduce new products to distinguish itself from competitors and attract more customers.
Once the industry starts witnessing a sustained demand, competition will transform into a competition to identify and capitalize on growth opportunities and differentiate from other competitors. Porter’s Five-Forces Model of Competition (Appendix B) extensively examines the competitive landscape in the Value-Added Seafood Industry. Among these forces, the most powerful one is the potential entry of new competitors. Despite Azalea’s remarkable success with its gumbo, there are numerous unexplored market segments due to its focus solely on large-scale production of gumbo.
If another company were to enter the industry with better tasting and competitively priced gumbo, it could potentially devastate Azalea. This is directly linked to the pressures from substitute products. Azalea must aggressively generate revenue to expand its product selection in order to retain and grow its customer base. Furthermore, buyers wield significant leverage due to their large quantity purchases, and Azalea’s challenges in selling to individual customers further amplifies buyers’ bargaining power.
There are multiple key success factors (Appendix D), with varying degrees of success. Azalea has achieved sufficient exposure by having its product in over 1,100 supermarkets. To maintain customer satisfaction, it must accurately fulfill buyer orders. Additionally, its profitable key success factor has been its attractive pricing and taste.
Having a competitive advantage over other competitors, Azalea focuses on producing gumbo as their main product and excelling at it. Unlike other companies that have multiple products to manage, Azalea can solely concentrate on outperforming them in the gumbo market. After analyzing the SWOT analysis (Appendix E), it is clear that the company’s strategy-making efforts should prioritize aligning their resource capabilities with their external circumstances. Azalea possesses an internal strength in the form of their award-winning recipes, known for their delicious taste.
The company has a few notable weaknesses. These include depending heavily on gumbo sales as the main source of revenue, experiencing customer attrition due to insufficient quality control measures, and lacking adequate funds for future growth and exploring new markets. However, there are also opportunities for the company. It can broaden its product range and enhance product placement in current stores. Conversely, there are threats to consider such as seafood shortages, declining food prices, and competition from other gumbo producers who offer tastier products at lower prices. Azalea Seafood Gumbo Shoppe must evaluate two primary alternatives.
(Appendices F)
The first plan is to assist Azalea in generating essential capital. While expansion is vital, Azalea must reduce costs to generate the revenue required to expand its production facilities. To achieve this, they should eliminate etouffee, bisque, and shrimp creole from the product line. By focusing all efforts on gumbo production, where return on net worth (ROE) is increasing (Appendices G), Azalea can steadily increase its return on net worth.
The focus should be shifted from catering to improving facilities at Azalea. It is recommended to increase prices by 2% to improve cash flow and profitability. Additionally, Azalea should work on developing more appealing packaging for its product. With the increase in cash, it is important to start paying off debt. As soon as Azalea has sufficient funds, they can expand their facilities to meet the demand and secure larger accounts.
The second option is to increase demand for its other products by allocating more funds towards advertising and product demos. Azalea should proceed with implementing the boil-in bag for all container sizes. The heightened advertising and demos will enable supermarkets to be acquainted with the other products, leading them to display them on their shelves.
There is a need to place greater emphasis on increasing restaurant sales, as they are projected to increase by $178 billion by the year 2010. Boosting food service sales is essential for establishing a more reliable revenue stream. Additionally, efforts should be made to expand catering services and cultivate more business opportunities in this area. This will not only generate great advertising for Azalea, but also through word-of-mouth.
These are the proposed measures for Azalea Seafood Gumbo Shoppe to determine the most precise actions to gain a competitive edge in the Value-Added Seafood Industry.AppendicesA: Evaluation of Key Economic CharacteristicsExtent of Competition: Moderate. Competitors strive for prime shelf space positions in supermarkets. Certain more assertive rivals are ready to allocate fees for preferred shelf space and increased visibility.
However, there is a lack of competition in seafood gumbo products. In the value-added seafood industry, there are numerous companies (although only around four or five producing gumbo). As of 2000, the customer base consists of supermarkets, which make up a $494 billion industry, restaurants projected to experience a $178 billion growth from 2001 to 2010, and food services, which is a $175 billion industry. The degree of vertical integration in this industry is moderate.
Azalea Seafood Gumbo Shoppe operates its own production facility, where it manufactures and packages all of its products. The level of entry into this industry is low to moderate, making it relatively easy to exit by selling the operation to a larger corporation aiming to become an industry leader. The products within this industry are diversified in terms of their characteristics.
There is a wide variety of products in the value-added seafood industry, but Azalea has carved out their own niche with their delicious gumbo. The scale economies in this industry range from moderate to high, as obtaining the necessary production facilities and equipment requires a significant amount of capital to produce large volumes and attract larger accounts, resulting in higher revenues. The industry itself is very profitable.
There are numerous products available in this industry, making it highly attractive for food product companies seeking to introduce appealing new products. B: Porter’s Five-Forces Model of Competition
1. Rivalry among competing sellers (Moderate)
– Customers have low switching costs.
– Demand for products is beginning to increase.
– They compete aggressively for favorable product placement in supermarkets.
2. Competitive Force of Potential Entry (Moderate-Strong)
– The economies of scale required to enter the market as a value-added seafood producer are relatively low.
– Customer loyalty and brand preference are high.
If initial customers are pleased, they are probable to become returning customers. The field is growing and there are multiple unexplored prospects to investigate. There exists a moderate rivalry from alternative products. Other reasonably priced options are readily available. There is minimal competition specifically for gumbo. Azalea must contend with all other items in the store, such as steak, fish, chicken, etc. Clients encounter no major obstacles when switching between products.
The Bargaining Power of Suppliers is high as there is considerable flexibility in the choice of suppliers for raw seafood, raw vegetables, and packaging, which are readily available from multiple suppliers5. On the other hand, the Bargaining Power of Buyers is also high due to their ability to make purchases in large quantities, low switching costs, and the difficulty for suppliers to sell value-added seafood products directly to individual customers. The overall conclusion of the Five-Forces Model is that it thoroughly exposes the competition in the market. The three most significant challenges facing the Value-Added Seafood Industry are the Competitive Force of Potential Entry, Substitute Products, and the Bargaining Power of Buyers. In terms of driving forces in the industry, a reduction in uncertainty and business risk is a common factor for emerging industries, which often face unknown cost structures, uncertain market sizes, production problems, and distribution channel preferences.
As experience accumulates and perceived risk levels decline, companies will start to establish strong competitive positions in the market. Successful new product introductions can strengthen the market position of innovating companies, often at the expense of companies that continue to stick with their old products or are slow to adopt their own versions of new products. Product innovation leads to a wider range of differentiated products among rival sellers and can expand the customer base within an industry. When there is a surge in long-term demand, established firms and newcomers are motivated to compete for growth opportunities.
The competition in any industry is determined by who can seize the growth opportunities and establish themselves as a leader. Analyzing the driving forces within an industry is essential for developing a successful strategy. In the Value-Added Seafood Industry, three significant driving forces are reductions in uncertainty and business risk, product innovation, and changes in long-term industry growth rate. These driving forces have a significant impact on the industry’s structure and environment, leading to various changes.
