A thorough examination of Azalea Seafood Gumbo Shoppe was done to provide a strategic plan that will enable Azalea to maintain long-term growth and a sustainable competitive advantage. For Azalea to succeed, they need to consider valuable options presented in the following report.
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 ShoppeAzalea Seafood Gumbo Shoppe and the Value-Added Seafood IndustryAzalea 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 the 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 enabled eight-ton-per-day production capacity. It wasn’t long before Azalea was producing more than 45 tons of gumbo and other seafood products each month. Their products were sold in many local restaurants, supermarkets such as Wal-Mart, and other types of food retailers.Driving forces in the industry (Appendix C) are evolving as the Value-Added Seafood Industry begins to looks more and more profitable.
Azalea has dealt well with their uncertainty and is well aware of the risks at hand. Azalea has to expand its production facilities in order to surmount production problems it faces inhibiting larger more profitable accounts. As they accumulate more accounts Azalea will begin to build a strong presence in the market. Once Azalea has reduced perceived risk levels and established itself financially, it needs to introduce new products in efforts to differentiate itself from the competition and increase its customer base.
Once the industry begins to see long-term demand, competition will become a contest of who can capture growth opportunities and distance itself from the other competitors.Porter’s Five-Forces Model of Competition (Appendix B) thoroughly exposes what the competition is like in the Value-Added Seafood Industry. The strongest of these forces is the competitive force of potential entry. Azalea has had great success with its gumbo, but because it only produces gumbo on a large scale, there are many unfulfilled niches left to pursue.
If another company were to enter the industry with its own gumbo, it could be potentially devastating to Azalea if this gumbo was better tasting and competitively priced.This ties directly to pressures from substitute products. Azalea has to work aggressively to develop the revenue to be able to expand its product selection so that it can maintain and expand its customer base. As for the bargaining power of buyers, they have a considerable amount of leverage since their purchases are in such large quantities, and the difficulty of Azalea to sell to individual customers allows buyers to have even more bargaining power.
There are several key success factors (Appendix D) although some are more successful than others. Azalea having its product in over 1,100 supermarket has given it adequate exposure. It needs to keep customers happy through its accurate filling of buyer orders. Its attractive pricing has and taste has been a profitable KSF.
They have a competitive advantage against other competitors with their gumbo because it mostly all they produce and they do it well. Most other companies have many other products to focus on rather than worry about trying to out compete Azalea simply in gumbo.Upon studying the SWOT analysis (Appendix E) it is apparent that the strategy-making efforts must aim at producing a good fit between a company’s resource capability and its external situation. One internal strength is Azalea’s great-tasting award-winning recipes.
Major weaknesses that the company faces are dependence on gumbo sales for the majority of its sales, loss of accounts due to poor quality control, and very low cash to fund future expansion and exploit new market opportunities. Opportunities include product line expansion and better product placement in stores where it is already on shelves. A few of the threats that the company faces are seafood shortages, lower food prices, and the threat of other gumbo producers entering the market with better tasting products at lower prices.There are two major alternatives that can be taken by Azalea Seafood Gumbo Shoppe.
(Appendices F) The first is to implement a plan to help Azalea start to produce much needed capital. Although expansion is necessary, Azalea needs to cut costs in order to produce the revenue needed to expand its production facilities. They should drop etouffee, bisque, and shrimp creole from the product line to reduce costs and focus all efforts on gumbo production since ROE is increasing (Appendices G).This will allow their return on net worth to steadily increase.
Catering should be stopped and more time should be spent trying to find ways to upgrade its facilities. Prices should be raised 2%, which will result in an increase in cash flow and profitability, and Azalea needs to develop more appealing and attractive packaging for its product. As cash increases, they need to begin paying off some debt. Once Azalea can afford to broaden their facilities, they will be able to produce needed volumes so that they can capitalize on obtaining larger accounts.
The second option is to try and develop demand for its other products. Azalea needs to increase spending on advertising and product demos in order to boost sales. They should move forward with the boil-in bag for all container sizes. The increased advertising and demos will allow supermarkets to be exposed to your other products so that they can begin to place them on the shelves.
There needs to be more emphasis on increasing restaurant sales since they are increasing $178 billion by the year 2010. Greater food service sales are necessary to create a more stable revenue stream. Also they need try to expand their catering and develop more business from it. It will provide Azalea with great advertising through word-of-mouth.
These are the recommended strategies to help Azalea Seafood Gumbo Shoppe identify the most specific course of action to obtain a competitive advantage in the Value-Added Seafood Industry.AppendicesA: Assessment of Chief Economic CharacteristicsScope of Competitive Rivalry: Moderate. Rivals compete for the most favorable shelf space locations in supermarkets. Some more aggressive rivals are willing to pay slotting fees to gain favorable shelf space and exposure.
However, there is little competition in seafood gumbo products.Companies in Industry: There are a vast number of companies in the value-added seafood industry(although only about four or five producing gumbo).Customers: Supermarkets which as of 2000 are a $494 billion industry, restaurants whose sales are projected to grow $178 billion from 2001 to 2010, and food services which is a $175 billion industry.Degree of Vertical Integration: Moderate.
Azalea Seafood Gumbo Shoppe owns its production facility where it produces and packages all of its products.Ease of Entry/Exit: The level of entry in this industry is low to moderate. It is much easier to exit this industry by selling your operation to a larger corporation looking to be an industry leader.Product Characteristics: Products within this industry are diversified.
There are many different products out there in the value-added seafood industry, but Azalea has their own niche of this industry with their tasty gumbo.Scale Economies: Moderate to High. It requires a good bit of capital to obtain the production facilities and equipment needed to produce the volumes that will allow you to acquire larger accounts which result in much higher revenues.Industry Profitability: This is a very profitable industry.
There are a wide variety of products in this industry making it extremely attractive for food product firms looking to introduce appealing new products.B: Porter’s Five-Forces Model of Competition1. Rivalry among competing sellers (Moderate)* Customers switching costs are low* Demand for products is starting to grow* Compete aggressively for favorable product placement in supermarkets2. Competitive Force of Potential Entry (Moderate-Strong)* Economies of scale are fairly low to initially enter the market as a value-added seafood producer* Customer loyalty and brand preference is high.
If first-time customers are pleased with their experience, then they are likely to be repeat customers.* The industry is beginning to grow* Many unfilled niches to pursue3. Competitive pressures from Substitute Products (Moderate)* Attractively priced alternative products are rapidly available* Very low competition for gumbo* In a sense Azalea has to compete with every other product in the store such as steak, fish, chicken, etc.* Customers have low switching costs4.
Bargaining Power of Suppliers (High)* Considerable latitude in the choice of suppliers since the purchase of such items as raw seafood, raw vegetables, and packaging are commodity-like in nature and are available from multiple suppliers5. Bargaining Power of Buyers (High)* Buyers have higher leverage since they make their purchases in large quantities* Buyer’s switching costs are low* Buyer’s have bargaining power due to the difficulty of value-added seafood products to sell directly to individual customersOverall Conclusion of Five-Forces Model: The Five-Forces model thoroughly exposes what competition is like in the market. The three most pressing forces facing the Value-Added Seafood Industry are (1) The Competitive Force of Potential Entry (2) Substitute Products and (3) Bargaining Power of Buyers.C: The Most Common Driving Forces of the IndustryReductions in Uncertainty and business risk- Emerging industries are generally characterized by unproven cost structure, much uncertainty over potential market size, how much time and money will be needed to surmount production problems and what distribution channels to emphasize.
As experience accumulates and perceived risk levels decline, they will begin to build strong competitive positions in the market.Product innovation- Successful new product introductions strengthen the market position of the innovating companies usually at the expense of companies that stick with their old products or are slow to follow their own versions of new products. Product innovation can widen the degree of product differentiation among rival sellers and can broaden an industry’s customer base.Changes in the long-term industry growth rate- A surge in long-term demand triggers a race for growth among established firms and newcomers attracted by the prospects for higher growth.
Competition becomes a contest of who can capture the growth opportunities and become an industry leader.Conclusion: Sound analysis of an industry’s driving forces is a prerequisite to sound strategy making. Reductions in uncertainty and business risk, product innovation, and changes in long-term industry growth rate are three dominant driving forces in the Value-Added Seafood Industry because they have the biggest influence on what kinds of change will take place in the industry’s structure and environment.