The franchise model of business is regarded as one of the most successful and compact business model which enables an individual to become the owner of a business without having some of the risk elements which are associated with a new venture (Burns, 2016). According to Jeong et al. (2013), franchise is one of the expansion strategies that organisations develop in order to increase the footprint in the market and ensure a greater reach to the target market. Some of the most common examples of franchise are Mc Donald’s, Burger king known as Hungry Jacks in Australia etc. There are two parties in a franchise strategy the franchisor and the franchisee, from the perspective of a franchisor (owner) it is an expansion strategy that the company engages in. on the other hand from the perspective of a franchisee (affiliated dealers) it is a business opportunity with limited liability and a head start to a business venture (Scarborough, 2016). Therefore, franchising can be referred to as the arrangement in between two business parties in doing business and organizing, training, merchandising, marketing and managing in return for a monetary. This report focuses on the prospect analysis of the franchise of Muffin Break in Australian market. The idea is to provide the client with a CADDIE planning process for the franchise.
Muffin break is an Australian Multinational company that has been established in 1989, the company had its first store in Queensland (Muffinbreak.com.au, 2018). Ever since the establishment of the first store the company has come a long way and has gained goodwill and reputation based on their products and services. The company now has 210 stores in Australia, apart from that there are stores in New Zealand and United Kingdom. Internationally the company has around 300 stores (Muffinbreak.com.au, 2018). The company offers a wide range of confectionery and savory products along with hot and cold beverages. Over the years of operation the company has been able to successfully establish a brand image which helps the company to maintain a recall value and develop loyal customers (Muffinbreak.com.au, 2018). One of the major strategies of the company is to develop and improve according to the new trends of the market but they ensure that they also stay aligned to the tradition that they have been following since the time of inception. The policy of providing fresh baked muffins daily and follow some of the old traditional recipes are some of the factors that make the company unique in its own terms. There are three main aspects to the strategic management of the company are: good ingredients, good people and good products. The company is consumer oriented and focuses on providing the customers with a good time with good food items to enjoy with (Muffinbreak.com.au, 2018).
The company has franchise strategy for expansion the official website for the company has the provision for investors to apply for franchise. Furthermore the company believes in sustainable growth and thus ensures to invest in CSR activities like reduction of waste and recycling of products etc (Muffinbreak.com.au, 2018).
Any organisation operates in two environments internal and external. While taking strategic decisions the management of the company considers all the factors that are associated with the micro and the macro environments (Bah & Fang, 2015). According to Schaltegger and Wagner (2017), while the internal environment factors are under the control of the management, the external factors are not. In order to understand the customer, organisation, market and product PESTEL and SWOT analysis tools will be used. The customers of Muffin break are people who are looking ahead to have a good time with friends or family along with some munchies like hot beverages and tasty muffins. The organisation is as mentioned above focused on the requirements of the company and thus strategies in a way that ensures customer satisfaction and customer engagement. The industry that the company operates in is food and beverage which is one of the most evident industries in the Australian market there are a number of players in the market offering similar products and services (Schaltegger & Wagner, 2017). And lastly the products that the company offers the customers are edible confectionery and savory muffins along with hot beverages; the company has a wide range of options for customers with varied taste preferences.
With the help of the PESTEL Analysis the external environment of Muffin Break in Australia can be determined. Along with PESTEL analysis the competitor analysis of the company will also be conducted in order to determine the intensity of competition in the market. This is an important step for a new venture whether it is a franchise or a new idea as it gives the management a platform to form competitive decisions (Gupta, 2013).
The clients want to open a franchise in a location in Australia thus; the following PESTEL-C analysis is based on the business environment of Australia.
Political: The political condition in Australia is stable, which provides the investors opportunity and support in the venture. The government has a number of policies and regulations to encourage trade and commerce in the country. There is transparency in the regulatory system, which encourages the investors from around the world to invest in the country. Apart that there are a number of facilities for foreign investment made for the country. The regulations and formalities which are associated with opening a new venture in the country are also simple. The procedure for investment or opening a new venture is also digitalized so that it is easier for the people to conduct the formalities and expedite the process. The Franchise council of Australia is also an authoritative body in Australia that regulates and monitors the franchise ventures and disputes (Franchise.org.au, 2018). The franchise sector in Australia is valued at around $146 billion; this represents the franchisees, franchisors and service providers who are associated in this form of business (Franchise.org.au, 2018). One has to be a member of the organisation in order to undertake the services this is completely voluntary. The Australian government supports commerce in the economy and thus it can be said that the system of undertaking a new venture is fairly fluid in the country. As Muffin break is a company that operates in the food and beverage industry the franchise also does not have to worry about any kind of licensing. The food and beverage industry in Australia is one of the most trusted in the world (Austrade.gov.au, 2018) which also provides the company a certain reputation and goodwill in terms of the claims that they make. The government also ensures security for the investors from other countries and also safe passage for domestic businesses investing in other countries.
Economic: The country is a developed economy and has seen a growth trend for the past 26 years, the GDP of the country is A$1.69 trillion as of 2017, which is a growth of 2.2 percent (En.portal.santandertrade.com, 2018). This makes the country and the economy lucrative for investors who are looking for an opportunity to open a new venture. The country has also been ranked 5th in the economic freedom index in the world. Furthermore, the economy is ranked in the 15th position out of 190 countries for flexibility in doing business (Austrade.gov.au, 2018). It is important to understand the nature of the economy while investing thus the inflation rate is an important aspect while determining the prospect. The inflation rate in the country is currently at around 1.9% (En.portal.santandertrade.com, 2018). One of the drawbacks is the cost of labour in the country which is high and is in a growing trend and also the household debt in the country is also high in comparison to other developed countries around the world. However, for a company that operates in the food and beverage industry these factors are positive as with higher wages the purchasing power of the people are also increasing and thus improving the standard of living among the people (Botha & Robertson, 2014). The format of business that Muffin break has is not based on necessary items and thus people need to have spending power in order to avail the products and services of the company beyond fulfilling the necessities. According to the Bureau of Statistics, unemployment rate in the country is also decreasing which is an indicator to further development and improvement in the industry (O’Neill et al., 2016). Therefore, the opening a business venture is a lucrative idea in the country from the economic prospective as there are also no major threat from the international economic conditions.
Societal: The standard of living in the society depends upon the conditions of the economy. As mentioned above the condition of the economy is developed it can be said that the standard of living among the society is high. The people of the country wants to spend time with friends and family in a coffee shop or café thus making the business opportunity of franchising Muffin break feasible in the country. But the company has to undertake a survey in order to understand a location which will be perfectly suited for the business (O’Neill et al., 2016). The society is educated and the government encourages and motivates education and provides subsidies and scholarships. There are a number of franchises of Muffin Break in the country and the company has been successfully able to capture the attention of the customers (Botha & Robertson, 2014). There are also a number of competitors in the Australian market which will be discussed further in the report.
Technological: Technology has advanced in the past decade and business based technology is wide is used and accepted in the country. The use of big data and the advantages associated with the same have enabled the organizations to strategies in a more planned and organized manner. On the other hand the increased use of technology and internet among the common people has also increased the reach of companies to the customers (Shahiduzzaman, & Alam, 2014). In Australia the government and communication companies have provided the people with opportunity to use internet and technology and make it a part of their lifestyle in the current time. Social media, e-commerce etc are some of the platforms that companies are using in order to reach out to the customers and develop the business by achieving the growth objectives. For an organization like Muffin Break there are a number of technologies that are used by the company in order to keep up with the logistics and supply of the materials (Lawrence et al., 2013). Apart from that the company also uses the social media platform and digital marketing in order to reach out to the customers. The company has a number of promotional offers and discounts listed with the help of the digital platform (Shahiduzzaman, & Alam, 2014).
Environmental: There are a number of rules and regulations that are issued by the authoritative bodies in Australian government regarding the environmental concerns that the country is facing. Muffin break is an organisation that understands the responsibility it has towards the environment and thus has policies of recycle and reuse (Botha & Robertson, 2014). The company also ensures ethical sourcing of raw materials so that Australian farmers and Australian grown raw materials are used. Furthermore, the company also has the policy of efficiently using the resources so that there is less wastage in the process (Wilmsmeier et al., 2013). The government of the country encourages the organisations operating in the country to follow ensure that there is developed methods of the technological aid which are in the support to the environment this also helps in achieving the objectives of the sustainability in the organisation (Lawrence et al., 2013).
Legal: As discussed above the government of the country has a number of legal jurisdictions that companies have to follow while operating in the area. According to Parham (2013), labour laws, tax laws, environmental laws etc are some of the general guidelines that muffin Break follows. In order to sign up for a franchise, the company has to also follow a number of regulations but the process is swift and the registration and other formalities can be easily completed by the owner (Lawrence et al., 2013).
Porter’s five force analysis is a tool that is used to understand the competition in the market. This tool will help the clients in deciding the competitive strategy by which they can gain an edge over the other competition in the market. This tool is developed by Michael Porter in 1979 (Cheng, 2013). It will not only help the company identify the competition in the current situation it helps the company to forecast the competition and trends in the future (Fiore et al.,2013).
Figure: Porter’s five force Framework
Source: Author’s creation
return on investment, therefore the attractiveness of the industry makes investors interested in the industry. As the risks associated with franchise business model are considerably low, entrepreneurs have the opportunity of investing on an established franchise brand (Friel et al., 2014). Therefore, it can be concluded that the threat from new entrants are high. Because the business model is franchise the capital investment and risks are considerably low thus increasing the threat of new entries in the industry. Another factor that increase the threat is that franchise of such food and cafes are easily available there are a number of companies in the Australian market that operates in the same industry (Cross et al., 2015).
Competition in the industry: Cafes are popular in Australia thus it can be said that the intensity of competition in the market is high. As the government of Australia provides support and motivation to the investors the companies get an opportunity to grow and develop as well. Some of the direct competitors to Muffin break are: The Cupcake Desire, Mrs. Fields Bakery Café, Brumby’s Baker, Walker’s Doughnuts etc. All these organisations operate in the franchise format and are popular among the target market. Each of these companies has their unique offerings making the competition intense (McLay, 2014).
As a franchisee there is also local competition from other franchise of Muffin Break for the client. Therefore the competition for the client is based on the location that is being chosen for setting up the new venture. For example if one of the outlets is already present in the vicinity then the franchise might not attract the people to a new one. There are already 210 stores in Australia.
Bargaining power of the buyers: The bargaining powers of the customers are directly proportional to the intensity of competition in the market, as discussed the competition is high this deceases the switching cost of the buyers. Hence it can be concluded that the bargaining power of the customer is high. Muffin Break is a company that is consumer oriented and thus is always in sync with the needs and requirements of the customers in order to remain attractive and fascinating for the customers (Mathooko & Ogutu, 2015).
Bargaining power of the suppliers: Muffin break is a company that operates with the local suppliers in order to provide the customers with fresh ingredients as well as support the local people. The suppliers of the company have been associated with the organisation for a long time and thus it can be said that they would not like to switch their contract (Fiore et al., 2013). However, as the intensity of competition is high the suppliers have a number of options in the industry. It can be concluded that their bargaining power is high as there are other organisation where they can list their companies with higher profit margins (Hokroh, 2014).
Threat of substitute: People can choose to make their own muffin or brew their own coffee at home instead of going to a café like Muffin Break. This would ensure and validate the ingredients used and also there are a number of people who enjoy a handmade muffin more than going to a café and spending money (Dobbs, 2014).
Strength: Muffin break is a company that has been established in 1989 the company has over the years gathered reputation and goodwill among the stakeholders. This goodwill is passed on to the franchises as the company has the policy of maintaining the quality of the products across all the franchise.
The company has three pillars of success, the ingredients and the raw materials sourcing, the people associated with the business and lastly the products. Muffin break ensures that the products are of high quality and thus engaging the customers with their unique products. For an organisation the greatest strength is the ability to stand by its claim (Muffinbreak.com.au, 2018).
The product portfolio of the company is also compact offering a plethora of choice for the target market. Along with confectionery, savory and beverages the café also offers lunch and breakfast option for the customers. The number of flavor and variety of muffins are the main attraction of the company (Bull et al., 2016).
Furthermore, the company caters to a large target market by providing vegan, gluten free, low carb as well as dairy free items. This strategy of the company helps them cater to a large target market including the ones who are health conscious or has issues with dairy products etc. The company segregates the meal option according to the lifestyle that is lead by the customers making it easier for the customers to choose from the long list of options (Muffinbreak.com.au, 2018). The company has a strong established brand image which enables the company to gain the attention and develop a recall value to the brand. Muffin break has the capability and resource to expand the business further in the international market for example the US market.
Weakness: The major weakness of the company is that their expansion is based on third parties which may hamper the quality of the products. And have an overall impact on the goodwill.
The company is dependent on the suppliers of raw materials to maintain the quality of the products.
Opportunity: In the hot beverage department the company has the opportunity to tap on the tea market for the consumers who prefer tea over coffee. In Australia tea is gaining popularity and thus it will be a good scope for the company in terms of expanding the product portfolio.
Threat: the competition in the Australian market is the major threat that has been analyzed in the competitive analysis. There are 210 Muffin Break stores in the country as well as have a number of organizations that operate in the same format (Muffinbreak.com.au, 2018).
The target market for the franchise are people who are in between the age group 16-35, these are essentially people who are looking to have a good time with their friends and family. There is a group of people who are dependent customers on the other hand the income group of the target market that has been decided is upper medium group. The preference of the people is to experiment with their choice of food as the company offers a plethora of options.
Tourist are the secondary target market as the place that has been chosen is a popular weekend getaway spot for the local people, thus ensuring a new range of target market.
The franchise location that can be chosen as an option is the Sydney area of New South Wales. There is just one store of Muffin Break in this region and the store is well established and thus if the client choose to establish the store in Kiama which is a coastal town of in the Sydney area then there can be an assurance of target market as there is already store in NSW. But there nearest store form this region is at least 12 Km away. This is one of the many location opportunities that the client has to open the franchise store. The store will be located in the Terralong Street. This is popular market area in the location, the Woolworths of the area is also located in this street thus, ensuring a wide exposure in terms of location.
This location is chosen as the place has a small population but the town attracts a lot of tourists who are mostly domestic, people come to the town for a weekend getaway and thus opening customers’ opportunity for the store. Refer to appendix 1 for the map of the location that has been selected.
The store will begin with a humble offering, as there is a large range of products that the company offers. The franchise can begin with offering the customers with confectionery and savory teats along with hot and cold beverages. Among this the most popular varieties of muffins will be chosen which are popular among the market of Sydney as possibilities are that the people who will come to visit the place is from in and around Sydney. With the establishment of the franchise and popularity of the store the client can choose to add more varieties and also include the breakfast and lunch options (Muffinbreak.com.au, 2018).
|
Summary of the Financial requirements |
|
|
Sources of Capital |
|
|
Investment by the owners |
$150,000 |
|
Loans from the bank |
– |
|
Other sources |
– |
|
Total Source of Funds |
$150,000 |
|
Startup Expenses |
|
|
Store premises |
40,000 |
|
Leasehold Improvements |
30,000 |
|
Capital requirement |
10,000 |
|
Location / Admin Expenses |
21,500 |
|
Opening Inventory |
– |
|
Promotional expense |
18,000 |
|
Other Expenses |
– |
|
Total Startup Expenses |
$119,500 |
The expense of establishment of the company is estimated to be $119,500. The company has to earn $132,645 in the first year in order to earn a profit of 11 percent.
Conclusion:
It can be concluded form the above discussion that the idea of opening a new store of Muffin Break in the Kiama region of NSW, Australia is a feasible option. There is intense competition in the market but there is also opportunity in the Australian market. The government of the country is supportive of investment and also encourages Australian made products which are endorsed by the company. The product range will be kept minimal and the most popular in the company will be kept in the new store and with stability and popularity more options will be added.
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