Porter

Did you break your fast this morning?

Published on: 24 Sep 2017

Did you have anything for breakfast this morning before you headed to work?

If I’d asked that question a few years ago the chances are that the reply would have been positive and brought back nice memories of what had been eaten earlier at home.

Things are changing though and according to a recent study for the Grocer magazine, nearly half of those surveyed who were between 16 and 34 skipped breakfast altogether. Even those who had breakfast were only likely to grab a croissant from a coffee shop on the way to the office or eat a breakfast biscuit.

The report said that “Millennials may be more clued up to food and health trends than older generations, but in terms of traditional breakfast there are empty seats at the table”.

Whilst skipping breakfast isn’t necessarily that good for your health, there are also financial health consequences for companies who produce breakfast cereals. In the UK, sales of cereal over the last 12 months are down by £40 million.

A number of companies are trying to regain some of these lost sales though.

Weetabix Limited, the company that produces yes, you guessed it… Weetabix, are now producing biscuits, bars and breakfast drinks that can be consumed on the go or taken to work to be eaten.

Weetabix has been made in the UK since 1932 but in 2012 was sold to Shanghai-based Bright Food.

Bright Food had hoped that as part of the general trend to more western eating habits in China, eating cereals would become more popular. Whilst sales of Weetabix have increased in China, the market share was disappointing as the traditional rice and steamed bread maintained their popularity for the first meal of the day.

Weetabix has now changed hands and was purchased by the US company Post Holdings for $1.7bn (£1.3bn).

Post Holdings already own the Shredded Wheat and Bran Flakes brands so the acquisition of Weetabix seems a good fit.

Back to breakfast on the go though and if you’re one of those people who struggle to get out of bed in the morning and miss breakfast then look on the bright side, if you’re getting into the office late then at least you’re closer to lunchtime.

Was this an Innocent transaction by Coke?

Published on: 16 Jun 2017

“Smoothie drinks” have become very fashionable over recent years.

Smoothies are drinks made out of crushed fruit and are seen as a healthy alternative to carbonated drinks such as Coke or Pepsi.

Perhaps the most famous smoothie manufacturer in the UK is Innocent Smoothies. The business was set up in 1999 by three friends who famously gave up their jobs to start the business after they invested £500 on fruit and turned it into smoothies and sold them at a music festival. The business has grown since then and been a true success story.

The brand has a “quirky, playful” image as well as promoting itself to be ethically aware (it donates 10% of its profits to charity).

So, what has Coca-Cola got to do with all of this? Porter’s 5 Forces strategy model is well known to students of professional exams. See our free ExPress notes for more details but one of the forces concerns “substitute products”.

If a 5 forces analysis is done on for example the traditional Coca-Cola carbonated drink then a substitute product would be a smoothie. There is a general trend in a lot of countries towards healthier living and the threat of a substitute product such as a smoothie could be seen as a threat.

In 2009 Coca-Cola bought an 18% stake in Innocent for £30 million and then in the following year increased its shareholding to 58% for a reported £65 million. They then increased their shareholding to over 90% for an undisclosed sum. From a Porter’s 5 forces point of view this is a good move as it means that one of the substitute products is now within the Coke family.

There has been a fair amount of discussion since the aquisition about whether Innocent is still the ethical likeable  “under dog” that it was given that it is now part of one of the biggest companies in the world.

One thing is for sure though and whilst it was certainly an Innocent transaction it was also definitely a well thought out strategic acquisition.

Maintaining eye contact…

Published on: 22 Apr 2016

It’s always nice to grab a social bite to eat with colleagues or clients but if I’m honest, I’m not sure I’d recommend the Bunyadi restaurant for such events.

The reason I wouldn’t recommend the restaurant for such events is not because of the food, location or service (which I’m sure are all very good).

No, the reason I think it would be an awkward location for colleague or client dinners is due to the fact that, how can I put it but using business terminology, they have taken an extremely differentiated approach to competing.

The Bunyadi restaurant has announced that it is opening in central London in June and the different thing about it is that it will be a naked restaurant.

Whilst an increasing number of people are choosing to eat their food in a more “natural” state without additives or preservatives, the company behind Bunyadi are taking things a step further by having a naked section in the restaurant.

Seb Lyall, the founder of the company behind the restaurant said “we believe people should get the chance to enjoy and experience a night out without any impurities: no chemicals, no artificial colours, no electricity, no gas, no phone and even no clothes if they wish to. The idea is to experience true liberation.”

When you arrive at the restaurant, you’ll enter the bar area (where everyone is fully clothed) and then head to the changing rooms where you will be given a gown. You then go to the naked area, take off your gown, fold it and put it on your seat and then sit down to enjoy your meal (and no doubt concentrate very carefully when eating your hot soup so that you avoid spilling any of it in your lap).

If you are interested in going to the restaurant you can sign up on their website but you’d better hurry. At the time of writing, there were over 15,000 people on the waiting list.

Should this have been predicted?

Published on: 05 Feb 2016

Picture the scene. You set up a company with two of your university friends. Things are going well but as is often the case with start-ups the work is hard, the hours are long and there is no initial salary.

Chris Hill-Scott was one such entrepreneur who founded a tech start-up business back in 2008 together with fellow Cambridge University graduates Jon Reynolds and Ben Medlock.

After setting up the company and getting it off of the ground, Mr Hill-Scott decided that being an entrepreneur was not for him. He resigned as a director, left the business and transferred his shares in the company to Mr Reynolds and Mr Medlock in exchange for a bicycle.

We’ve all done things that we have regretted but in hindsight Mr Hill-Scott should have stayed in the company. He now works for the Government Digital Service creating websites and it has been reported that the average salary for that type of job is in the region of £55,000.

The two gentlemen he left behind in the company though have faced a different journey. The name of the company the guys set up is SwiftKey and although you may not have heard of the company, you have almost certainly used their technology.

SwiftKey developed the predictive text technology which suggests the next word a user is about to type on their smartphone or tablet. It has been incredibly successful and their software is used on more than 300 million smartphones and tablets around the world.

The company estimates that the software it developed has saved over 10 trillion keystrokes for its users. Let’s just think about that figure for a moment. 10 trillion keystrokes – that amounts to more than 100,000 years of typing time and represents an awful lot of thumb pain which has been avoided.

SwiftKey is an incredibly successful company and yesterday Microsoft purchased the business for £174 million (or in dollar terms, just over one quarter of a billion dollars).

Mr Reynolds and Mr Medlock will both make more than £25 million each whilst Mr Hill Scott will receive nothing from the sale as he transferred his shares in the business in exchange for a bicycle.

It’s not clear how much the bicycle is worth but I don’t think you have to be a technology expert to predict what words that Mr Hill-Scott was probably thinking when he heard the news the business he helped set up had been sold for £174 million and he had received nothing….

What’s the link between almonds, PESTEL and water?

Published on: 27 May 2015

It wasn’t long ago that you only saw almonds in health food shops but things are changing quickly.

The health benefits of almonds are extensive. They are a rich source of vitamin E, calcium, iron and zinc to name just a few items. They can be eaten raw, made into almond oil or almond milk. They are one of nature’s super foods.

blog-almonds-275x275If almonds have been around for a long time, why is there suddenly such an interest in them?

If you link it to the environmental analysis model PESTEL you could argue that one of the areas within the “Social” element of PESTEL that has changed recently is that people are more health aware (if you are tucking into your burger and chips whilst reading this I should stress that health awareness doesn’t necessarily mean everyone undertakes healthy eating!)

However, it does seem that people around the world are eating significantly more almonds. So much so that there is a rush to plant almond trees.

The world’s almond crop is estimated to be worth nearly $5 billion per year and the centre of almond production is California where 80% of the world’s almond crop is produced. During the last three years alone 150,000 acres of almond trees have been planted in California.

Whilst the ever increasing number of almond eaters around the world are no doubt happy about this, there are a number of people who are far from happy.

California farmers have been removing tomato, melons and other crops to replace them with almond crops. There is a problem though as the almond tree require significantly more water than the other crops.

To produce a single almond requires about 4.5 litres of water. Multiply that by the millions of almonds that will be produced on the land and you can see what an impact it will have on the local water supply.

California has been suffering droughts for a number of years and there are certain water restrictions in place for individuals. So far, the almond growers have escaped these water restrictions but a number of activist groups have been set up and this situation could soon change.

Will we see a lot of thirsty almond trees in California in the near future….

It’s not a Lamborghini it’s a Volkswagen…

Published on: 04 Oct 2014

When it comes to cars, things used to be simple. Most brands were known for a certain type of car.

For example, Mercedes produced luxury limousine cars, Porsche produced sports cars, Toyota produced mid range cars and Land Rover made 4×4 off road cars.

But that was a while ago and things have changed dramatically within the car industry.

The famous Maserati sports car brand for example is working on the Maserati Kubang and as the photo shows it’s clearly not a low slung sports car.

It’s a 4×4 off-roader and whilst there’s a good chance that the only time it will actually go off road is when the owner parks on the pavement it’s definitely more 4×4 than sportscar.

So why the introduction of the new product? (For those of you studying the various strategy papers then why the product development in Ansoff’s Matrix?)

Well it seems that they are hoping to follow in the footsteps of Porsche whose off road Cayenne model has proved to be a best seller.

As well as introducing new types of cars the car industry has also seen a number of major conglomerates appear with some serious car brands within them.

When people used to talk about Volkswagen for example they were generally referring to the ubiquitous VW golf but the Volkswagen Group is now home to far more cars than VW cars.

The VW Group with its headquarters in Germany is the largest carmaker in Europe and nearly one in four new cars bought in Europe are VW Group cars.

So does this mean that 25% of the new cars have VW badges on them?

Far from it in fact as the following car brands are all part of the Volkswagen Group:

Audi, Bentley, Bugatti, Lamborghini, Scania, SEAT, Skoda and of course Volkswagen.

So all of the above car makes are in fact part of the VW group.

Now if you’re an executive working for the VW Group and were offered a company car which one would you choose.

Now let me think.

Bugatti or Lamborghini. Which one would I go for…

IKEA and Porter’s value chain analyis (and the hot-dog at the end…)

Published on: 20 Sep 2014

At the weekend I bought some furniture at the local IKEA. For those of you not familiar with IKEA it’s a very successful home furnishings group with over 650 million people visiting 300 stores in over 35 countries last year and producing sales of Euro 23 billion. They specialise in “flat pack”, self assembly furniture.

I’m a great fan of IKEA. You know exactly what you are getting with them. A great design, good quality and a reasonable price. IKEA make a great strategy case study and I’ll no doubt be referring to them as this blog progresses. I’ll highlight a couple of things I liked about the whole experience of shopping with them and them briefly link it into a strategic model.

As any of you that have been to an IKEA store before will verify, a trip there can turn into a day long event if you’re not careful. You are guided through a labyrinth of nice displays which will get your design thought processes working nicely. You are then funneled towards the checkouts tils where straight afterwards if the fancy takes you you can enjoy one of the classic IKEA hot-dogs!

Using Porter’s Value Chain when analyzing IKEA and linking it to my purchase shows what worked for me. (See our free P3 ExPress notes for more detail on the value chain)

I didn’t want to spend too much time at the store so what was useful for me was in that their website was very user friendly and easy to find what I wanted. They had up to date stock levels and estimates for the next few days. I could simply go to the website, highlight the item I wanted along, identify my local store and it would tell me the actual stock levels.

Each box within the Value Chain has numerous items in it but for me this element of “sales and marketing” was exactly what I wanted.

Another part of the Value Chain which is important for IKEA but I’m relieved to say I didn’t need it was the “after sales service”. As well as the normal guarantees and warranties that are provided, IKEA have a helpline for people to call if they get stuck when building the self assembly furniture. This could prove to be a key component of the value chain!

This is only a brief post about IKEA and the Value Chain but I always tell my students to look out for real life situations that link to the syllabus. Ok, so my purchase of furniture at IKEA is not the most exciting thing in the world but for anyone who has struggled to put together flat packed furniture “after sales service” component of IKEA’s value chain could save a frustrated hour or so!

You get a safe hotel and a great bed. The towels and TV will cost you extra but what about the toilet paper?

Published on: 20 Jul 2014

The Tune Hotel chain has just opened up its first hotel in the UK. The chain already has 7 hotels in Malaysia and 2 in Indonesia and they claim they offer 5 star beds at 1 star prices.

Their policy is to offer the essentials that people look for in a hotel such as safety, cleanliness and comfortable beds whilst at the same time removing a number of “extras” that some customers don’t necessarily want.

With rooms starting at £35 it certainly offers great value for London hotels. It wouldn’t suit everyone’s taste though as some of the things that people take for granted at a hotel are not included in the standard price.

There are a number of optional extras that guests can purchase. A towel for example can be provided for £1.50 per stay whilst the use of a hairdryer will set you back £2. If you want to watch TV you’ll need to pay £3 a day.

If you’re the type of person that likes to take your own towel to a hotel or is relaxed about whether or not you wash then you could end up with a very cheap room.

Whilst this hotel wouldn’t be everyone’s “cup of tea” (incidentally there are no coffee or tea making facilities in the rooms) there will certainly be a market for people that only want a clean and safe hotel room to sleep in and are not bothered about the extras.

In the past we’ve blogged about the BMI Weymouth hospital that was adopting a differentiation approach to business. With Tunes Hotels adopting a hospitality industry equivalent to the low cost airline models of Easy Jet and Ryan Air, this is a great example of either a cost leadership approach or Bowman’s no-frills strategy.

Guests can rest assured though that toilet paper is included in the price and is not an optional extra.

It looks like Saturday could be a record day…

Published on: 17 Apr 2014

When I was younger I can remember queuing with friends to get the latest album by my favourite group. At the risk of showing my age though it’s been a long, long time since I last did that.

It’s not because I don’t like music anymore but rather that it’s now so much easier to buy music online.

PrintThings have changed quite dramatically for the music industry when it comes to their distribution methods.

In my youth it was pretty simple. Record companies would distribute the albums via the record shops.

Fast forward several years and over the last decade music has been increasingly distributed online via platforms such as iTunes and Amazon. There’s also the not insignificant impact of illegal downloads of music.

Even if you still want to buy the more traditional CD versions of the albums rather than the digital version, then supermarkets such as Tesco sell the leading CDs at very cheap prices.

The high street music shops have struggled to stay alive. Several high street music shops such as Virgin Megastores, Our Price and Zavvi have all gone out of business.

Students of strategy though would not really be surprised by this as according to Michael Porter’s generic strategies there are two main ways of competing. Namely, cost leadership or differentiation.

In simple terms, cost leadership is where a company can produce something at a lower cost than its rivals whilst differentiation is where an organisation can charge a premium for its product as it’s “different”.

A high street chain of music shops is going to have a significantly higher cost base compared to companies that sell music over the internet. Property costs are going to be significant and will make it impossible for high street record chains to ever win the cost leadership battle.

Whilst it’s not looking good for the big chains of record shops what about the smaller independent record shops? Clearly they could never compete via cost leadership so what about differentiation?

On Saturday the seventh annual UK Independent Record Store Day will be held.

More than 240 stores have signed up to this year’s Record Store Day and tomorrow’s event is aimed at reinvigorating interest in the independent music stores.

At last year’s event people were queuing to get into the shops. Not to buy the cheap music but to savour the atmosphere, talk to people who were interested in similar types of music and to buy some of the more unusual music.

Hopefully this differentiation approach will work as in my opinion it will be a sad day if all the independent music shops disappear and we can only buy the music online or at a supermarket when buying our weekly shop.

Fig salad for starters and I’ll have 2 doctors and 4 nurses for dessert.

Published on: 09 Jan 2014

A top boutique hotel has just opened in London that performs surgery.

Actually, that should really read a top hospital has just opened in London that has all the features of a luxury boutique hotel with the added advantage that it can perform surgical operations.

BMI Weymouth Hospital, just off the world famous Harley Street in central London, has opened with a target market of wealthy (and ill) people. It’s an exclusive private hospital with only 17 beds but 4 state of the art operating suites.

As well as having all the latest medical equipment and medical experts that would be expected at a top hospital it also boasts top chefs and en-suite custom designed rooms with all the latest entertainment systems and original artwork.

Fans of Michael Porter’s generic strategy will recognize this as a clear example of differentiation strategy whereby a “different” service is being provided and hence a premium price can be charged (as opposed to the opposite end of the spectrum where cost leadership exists).

It must be said though that although the hospital certainly looks very luxurious I’m sure that most of its guests would rather they didn’t have to check in.

The ExP Group