Concept of Value Chain Analysis and Competitive Advantage from the perspective of Food and Beverage Outlets

Discuss about the Value Chain Analysis for Assessing Competitive Advantage.

For any organisation, competitive advantage means not just being able to match or surpass what can be done by the competitors but determining what is it that the customers want and then satisfying them in a profitable way and also going beyond that to exceed their expectations (Lin, 2014). As the international as well as the interregional trade barriers are diminishing and accessibility to goods as well as services is rising, the customers are getting the capability of locating and acquiring the best of what is needed by them from anywhere in the world and that too at prices that are acceptable. Value Chain Analysis is a strategic tool for measuring the significance that the perceived value of the customers. By helping the organisations in determining the strategic advantages as well as the disadvantages of not only their activities but also their processes for value creation in the market-place, value chain analysis becomes crucial for the assessment of competitive advantage (Ensign, 2001).

This paper will define the two concepts from the perspective of food and beverage; examine the Sydney food and beverage industry’s competitive nature, give detail examples of bars as well as restaurants in Australia which exemplify these concepts and analyse the way they use menu engineering for maximising profits (Chung-Chi & Cheng-Han, 2008).

The concept of Michael Porter in relation to business or industry value chain is considered the centrepiece as far as the business strategy is concerned. Instead of describing the business  as manufacturing operations that are sequential in nature, the concept of value chain comprises a set of processes which involve a number of actors such as customers, alliances, business partners and suppliers who work together so that value can be produced for the customers (Porter, 1980).

Figure 1 – Food and Beverage Industry Value Chain

Figure 1 shows that the food and beverage industry lies between the customers and the suppliers and due to this the issues that have an effect on its suppliers and also on its immediate customers also have relevance for the processing industry. The commodities along with the other ingredients have to undergo processes of production, processing as well as distribution as the transformation takes place into processed food which can be consumed. Each of these processes is very complex (Lin, 2014). A particular product might be made of ingredients from a number of different locations and might have undergone many processing stages. Over the years the distance that an average food and beverage item travels has almost doubled and is constantly on a rise. At all the stages of the value chain both social and environmental sustainability issues exist and it becomes vital for the businesses the ones which are of economic relevance to it and then set up a coherent agenda of sustainability related to it (Ionescu-Somers & Steger, 2008).

Examination of the Competitive Nature of the Sydney Food and Beverage Industry

Competitive advantage is a resultant of the ability of the businesses to perform the various activities which are a part of the value chain at collectively lower costs in comparison to the rivals or performing certain of these activities in a manner that is unique which help in creating value for the buyers and thus permit the businesses to charge high prices (Porter, 1991).

The main utilisation of the value chain analysis (VCA) is the identification of strategic mismatch that might be present between the various elements that make up the value chain. In case a particular company is competing on low cost basis, then all the components of the value chain need to be directed towards low costs. Link between the different elements is a significant aspect pertaining to the value chain (Byrne & Heavey, 2006). For instance, if minimum stocks need to be maintained for quickly responding to the changes in the tastes of the consumers, it is necessary that business shift to “just-in-time manufacturing”, make investments in logistics and put emphasis on procurement. The VCA is also helpful in identifying the activities which can add value rather than the activities which lead to loss of value. For instance, logistics which is a vertical activity might be outsourced for more efficient transportation to companies that specialise in logistics.

The food and beverage industry of Sydney is among the most competitive as well as dynamic in Australia. It is drive by the consumers who are on the lookout for higher degree of diversity, value and also quality in their choices related to food and beverage (Australian Government, 2012). The food and beverage industry is a key contributor of growth in Australia and in 2015 it had a turnover of almost A$94 billion. The changes in the shopping behaviours and sentiments of the consumers and the entry of leading retailers from abroad accompanied with a shift in the direction of the private label products have had a significant influence on the industry (Australian Food News, 2014).

The dominant operators in the food and beverage industry are the Woolworths and Coles supermarkets having a share of 31% and 26.4% respectively in the retail market of Australia. Besides, the new entrants such as Costco and Aldi are also gaining increasing ground. The revenue growth is expected to be constrained throughout the brick-and-mortar stores as a result of the private label products causing price deflation. The foodservice industry has also been impacted by the rising health awareness among the people of Sydney and several operators have responded by introduction of healthier alternatives which are either free of or lo in salt, sugar and fat. This has also had an impact on the volume as well as value of the food and beverage purchased in different categories. There are approximately 82.707 outlets of foodservices in the nation which spend a total of A$15.5 billion approximately on food and also on non-alcoholic beverages (Georgiadis, Vlachos, & Iakovu, 2005).

Detail Examples of Bars and Upmarket Restaurants that Exemplify These Concepts in Australia

As a result of the expansion of Aldi, the “discount supermarket chain”, the leading players in the supermarket Woolworths and Coles are constantly stepping up their products having private labels. At present they account for almost one fourth of the grocery market. In the coming years, the shopping trends will be continued to be influenced by the growth of the companies like Costco and Aldi which offer discounts, constant private label expansions and fierce competition. Aldi has expanded its influence and has risen to become the largest player in the industry of packaged food. The dominance of Coles and Woolworths is gradually fading (Euromonitor International, 2015). The virtual grocery stores are also anticipated to offer more competition as the retailers capitalise on the increasing usage of tablets, smartphones and mobile devices. The online as well as the convenience subsectors will also register strong growth as the major retailers of food diversify into other areas for retaining their market shares.

The changes in the social trends have led to strong growth of the bars and upscale restaurants in the previous five years. It is expected that the industry will post annualised growth equivalent to 6.2% in the next five years to reach a total of $13.1 billion. Decrease in leisure time and busy lifestyles have attracted consumers to the restaurants where they can get a combination of dining and leisure and spend less time on preparing food. The strong consumer demand for quality and healthy food has propelled many firms to make entry into the industry. However, there is fierce competition among the restaurants for customer numbers and prime locations and if they fail in offering a successful proposition in terms of quality and price it can result in their exit from the industry (IBISWorld, 2010).

Several opportunities also exist in the foodservices sector of Sydney with a number of people eating out and also wanting meal solutions and snacks which are healthy and fresh. The adoption of healthier lifestyles by the consumers will be making them turn away from foods having high fat and sugar content (BMI Research, 2016). In 2015, the total volume sales of fresh food increased by 2% in Australia. Fad diets like zero-sugar, raw food and Paleo led to the creation of health conscious consumers looking for healthier alternatives. This has made Australians experiment with dishes at home, restaurants and cafes and the usage of native as well as exotic ingredients and super foods have increased. The consumption of liquor is also expected to decline in the coming years as a result of this (Euromonitor International, 2016). This trend has also had an impact on several categories of packaged food like breakfast cereals and baked goods. Value growth of the packaged food was also suppressed as a consequence of the Aldi discount chain’s influence (Euromonitor International, 2015). During the previous five years there has been a stabilisation in the trend of dining out with the Australians spending almost 33.5% of their budgets related to food and beverages on food services.

The bars and upmarket restaurant adopt the value chain analysis for attaining competitive advantage in order to achieve their strategic objectives (Nasution & Mavondo, 2008). The first option adopted for this purpose by them is the differentiation strategy wherein they differentiate their offerings on the basis of some particular attributes, since it has been observed that the trend is towards a healthy lifestyle and the consumers are looking for fresh and healthy food options, the restaurants are coming with choice of nutritious food. The second option is that of low cost leadership which is based on production at low costs. The restaurants in such cases are seeking a combination of low overhead levels, high volumes and efficiency (Li & Liu, 2006).

Menu Engineering relates to the study of popularity as well as profitability of the items on the menu and the way in which the two factors have an impact on the way these items are placed on the menu. It is a lengthy process with the goal is increase of “profitability per guest”. The basis of this concept is the BCG which assists the businesses in segmenting their products in a manner which facilitates analysis as well as decision making (Kang, Lee, & Kim, 2010). The process of menu engineering involves methodically selecting, costing as well as pricing and also evaluating the items on the menu of the food and beverage outlets. It provides profitability as well as popularity related information to the managers to help them in doing proactive planning, recipe designing and make decisions related to customer pricing (Cooper, 1989).

The process of menu engineering is used by the food and beverage outlets for the maximisation of profits in the following way (Raab, Shoemaker, & Mayer, 2007) –

All the items in the menu should be broken down into their individual ingredients and then the exact amount for creating each of the items should be determined as the engineering process is heavily dependent on the level of profitability of each item. The person performing the menu costing is best suited for this job also as he has information about the costs of each item.

This process will help in determining the way in which the menu-engineering efforts need to be applied. This process can be further divided into three (Raab, Mayer, & Shoemaker, Menu Engineering Using Activity-Based Costing: An Exploratory Study Using a Profit Factor Comparison Approach, 2010).

Splitting the menu into sections and categories such as drinks, desserts, appetizers and entrees so that there is no overlapping between the items in different categories. Then categories are broken into sections for instance the drinks category can consist of alcoholic drinks section and the non-alcoholic drinks section. The distinct menu items have to be kept separate by creating a spreadsheet for help (Raab, Mayer, & Shoemaker, 2010).

Each menu item is placed into one out of the four quadrants by going through all the menu items and by using very recent data. Then divide them into stars, blow horses, puzzles and dogs.

The fate of the menu items in all the quadrants is determined by using the information from step b). The menu items which have been ranked in accordance to popularity and profitability are viewed at category level and then section level. Category level viewing will help in deciding the place for different menu sections. Stars are highlighted, more profitable versions need to be created for plow horses, items in puzzles category might need reinvention and dogs may be emitted or deemphasised (Raab, Mayer, & Shoemaker, 2010).

The items that are to be sold most are highlighted. The customer base is taken into consideration like what items are the different customers ordering, what is driving them to the outlet, are they reading the menu properly, etc.  This helps in application of menu engineering techniques. For turning the menu into a profit centre visual cues need to be used for highlighting the items that are to be sold the most, prices should not be listed in a column on the menu’s right side, the descriptions of the menu items need to be used for gaining advantages. It should be recognised that listing the items of each menu section involves a science and the cover configuration of the menu needs to be used advantageously. The patterns of the eye movements of the customers are also used advantageously and the outlets need to think out of the menu (Annaraud, Raab, & Schrock, 2008).

This is done either with the old menu design or separately to test if there is room for improvements in profit.

Conclusion

The concept of value chain analysis has been studied with the perspective of the food and beverage outlets in Australia and it has shown that several leading outlets have adopted it for gaining competitive advantage. It has also been observed that the current trend in the food and beverage industry is towards healthy foods which people either make at home or avail the food services or go the various outlets offering fresh and nutritious food. Menu Engineering is being used by the outlets for increasing their popularity and maximising their profitability. The analysis that has been carried out is an indication that value chain analysis presents the food and beverage outlets with an “overarching” tool for bringing improvements in their strategic planning as well as resource allocation, thus assisting them in achieving their strategic objectives. The main goal is providing the management with enough alternatives so that they are able to sustain the competitive advantage in a dynamic environment of business. Analysis of costs and differentiation by means of the value chain is a vital component for attaining competitive advantage.

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