Discuss about the Introduction to Hospitality Industry for Beverage Companies.
Every organization dealing with food and beverages seek to gain a competitive advantage which can assist it to succeed in its operations. In order to stand out in the market, it is always important to come up with ideas that can assist the organization to stand out by acquiring a competitive advantage. The most common strategies which food and beverage outlets are currently using to stand out in the market include; ensuring the companies produce high quality products than its competitors, ensuring their the prices are slightly lower, coming up with products that can be easily differentiated from those of companies which produce similar goods, offering take away and delivery services, installing free WIFI in their premises and so forth.
This paper will look at different strategies which food and beverage companies are currently using to gain competitive advantage. It will also give an overview of the comparative nature of various companies which operate this kind of business in Sydney and also cover some examples of bars and upmarket restaurants that have succeeded in the use of competitive advantage and value chain analysis strategies in Australia.
Competition is a major challenge affecting hospitality and other industries today (Silverman, 2011). Competitive advantage provides an edge over the competitors and the possibility of establishing a greater value for an organization and its shareholders. Companies with competitive advantage generate more sales or superior margins than their competitors. Because so many foods and beverage outlets are emerging almost each day, there is an urge for the people who operate this kind of businesses to find out strategies which can assist them in dominating the market.
There are three major strategies which an organization can use in order to gain a competitive advantage. The three include seeking to attain cost advantage through selling products at lower prices, attaining differentiation advantage through ensuring your products are of high quality and finally through attaining a competitive advantage by using the right distribution channels, creating brand awarenss and so forth. The diagram below shows the major sources of competitive advantage and how they can be attained.
For food and beverage outlets to gain competitive advantage, they have to work on various things like their cost structure, brands, customer support, and intellectual property (Thompson & Tracy, 2011). There are two types of competitive advantage which can be used by food and beverage outlets. These are comparative advantage and differential advantage
Comparative advantage is the company’s ability to produce foods and drinks at a reduced cost than other enterprises which produce similar goods (Frank, 2011). This strategy can give food and beverage outlets the capacity to generate a larger margin on its annual sales. Comparative advantage can assist this kind of businesses to sell its products at a price that is lower than that of its competitors and still realize good profits because production cost mostly drives the sale prices.
The best ways in which food and beverage outlets can achieve comparative advantage is by paying attention to some factors like using more efficient internal systems, using economies of scale, embracing technology and innovation, expanding in areas which can promise low-cost labor and so on (Levander & Geterl, 2015). Although these factors can help companies to attain competitive advantage, it does not mean the entity can produce better foods or beverages, but rather, they can sell their products at a price which is lower than their competitors.
Food and beverage outlets can attain comparative advantage by producing products that are so different from those of their competitors and are perceived to be more superior by the consumers (Still, 2010). A food and beverage outlet can achieve a differential advantage by coming up with products that have different features than those of its competitors, and also products which can make the company win customer loyalty. In most cases, food and beverage outlets have been using differential advantage as a stepping stone in achieving both their short and long term goals.
Fast food and beverage outlet can gain a differential advantage through several aspects like; using advanced technology, using sound and attractive business slogans, use of patents and copyrights, superior personnel, using brand protected products, using robust and unique brand names and so on (Burrows III, 2013). Use of these factors assists the customer in differentiating your products from those of competitors. Use of patent can also prevent the competitors from using your brand names.
Differential advantage makes customers build loyalty with a particular company because it makes them believe what they get from that company is so unique, and they cannot get it from other businesses. Food and beverage outlets use the differential advantage to make their customer think the food and drinks they get from a particular store are of high quality than those of their competitors.
Value chain analysis involves evaluating all activities that affect the inputs and outputs of goods or services that customers seem to show high demand for them. The concept of value chain analysis was first described by a person known as Michael Porter in 1985 (Fromm & Garton, 2013). According to porter, primary activities like operations and outbound activities must be combined with support activities like technology for a firm to realize a firm to succeed in its operations. The diagram below gives an overview of porter’s value chain analysis model
Fast food and beverage outlets can make use of these strategies to establish high sales, win competition, and attract customer loyalty. Value chain analysis describes different activities that take place in food and beverage outlets and relates them to the analysis of the company’s competitive strength.
Food and beverage outlets perform value chain analysis based on two approaches depending on the nature of competitive advantage they want to establish (Still, 2010). The two approaches which can be used by these companies are; Cost or differentiation advantage. The cost advantage is mostly used by businesses that compete on costs. On the other hand, differentiation advantage is used by outlets that strive to come up with superior products.
Value chain analysis enables food and beverage outlets to experience greater profit margins than their competitors because it assists them to experience increased sales (Levander & Geterl, 2015). It also enables these businesses to put much attention on activities that are likely to convert their production inputs into the outputs that are valued by the consumers.
The primary activities included in value chain analysis in these types of businesses include focusing on the inputs, changing them into outputs and delivering them to the consumer. When food and beverage outlet is efficient in combining these measures to produce superior products, the consumers are always willing to purchase the products at higher prices than the production cost, hence assisting the firm to realize higher product margins.
For food and beverage outlets to succeed in their value chain analysis, they should always identify activities that are likely to add value to their products and analyze them so as to reduce production costs or increase differentiation (Burrows III, 2013). They also should find out the most valuable activities and the ones that need to be improved so as to provide a competitive advantage for the organization.
Foods and drinks are among the major factors that influence Australian economy (Levander & Geterl, 2015). In this country, the hospitality industry is highly dynamic and driven by customers who seek for diversity, quality and value. Both large and small manufacturing companies in this sector use every possible mean to ensure it stands out in the market through attracting as many customers as possible.
Most of the food and beverage companies in Sydney are emphasizing on innovation and technological advancements as their primary strategy of improving their competitive advantage (Tidd & Bessant, 2013). Innovators in this industry are looking for new mechanisms of promoting food and beverages so as to make them suitable for their customers. Focus on technological advancements and innovation has been assisting most of these companies in Sydney to expand their lines of production, hence enabling the consumer to have wider selections.
Because most of the consumers are becoming health conscious, most companies are putting much attention on salt and fat content to ensure they produce health friendly products for their customers (Still, 2010). Currently, enterprises that are emphasizing on the production of low-sodium or low-fat alternatives realize competitive advantage than businesses that do not consider these factors.
Cost minimization is another strategy which most food and beverage companies are using to gain competitive advantage. Most of them have realized that with reduced production cost, they can sell their products at reduced prices and still achieve good profits (Levander & Geterl, 2015). Companies which use strategies which lead to cost minimization and sell their products at reduced prices witness competitive advantage because their prices attract most customers in the market.
Understanding consumer behavior is another factor which is enabling some of the food and beverage companies in Sydney to gain competitive advantage (Fromm & Garton, 2013). In every business, customers are always the most valued stakeholders. Therefore, understanding their behaviors and knowing how to meet their demands is one way which can help an organization to succeed.
Some of the food and beverage companies in Sydney have realized their consumers look to various sales channels to satisfy their needs (Burrows III, 2013). As a result of this, they have leveraged various mobile and online technologies as a mechanism for meeting this demand. This strategy has enabled most of the companies which have realized its advantage to attract many customers hence winning the competition.
Some of the companies like Woolworths food group noticed emphasizing on low prices and improving customer shopping experience is one of the key strategies which it can use to win the competition (Burrows III, 2013). The company decided to use three fundamental principles to gain competitive advantage. The first principle was to improve the core offer to ensure the consumers value their enterprise; the second one was to concentrate on continuous innovations so as to meet the customer needs, and the last one was to work on efficiency.
Competition being one of the biggest challenges in the food and beverage companies in Sydney, every company in this industry is using every possible measure to expand its market share (Burrows III, 2013). Some of the companies are trying to expand their business to various geographical locations within the country, and other nations so as attract more customers than their competitors.
Product differentiation is another strategy which almost every company in this industry is trying to stress on. Using unique brand names and packaging enables customers to differentiate products from different companies (Fromm & Garton, 2013). Woolworth is a good example of a company which has been paying attention to this issue. This company uses unique brand names and packaging which can enable its customers to differentiate their products from those of its competitors.
As time goes on, competition is heating up in Bars and Upmarket restaurants in Australia (Levander & Geterl, 2015). Most of the businesses in this category have been operating using these concepts. An example of a bar which has been using these strategies in its operations is Baxter Inn. This organization has been valuing its customers and doing everything possible to attract their loyalty. Some of the primary strategies used by this enterprise include; stocking high-quality liquor, reduced prices, employing people who know how to handle customer needs in a professional manner and so forth.
Another example of a bar which uses these strategies is Bibo. The management of this restaurant has been using various measures to make sure most customers value their organization. Some of the strategies they have used to stand out in the market include ensuring customer comfort by fitting their bar with good lighting, proper ventilations, best music, and classic furniture. Bibo also values selling high-quality products to its clients. Their prices are also friendly to most people in the country.
Most bars and upmarket restaurants that do not use strategies that can give them a competitive advantage fail in their operations because the competition is becoming a significant threat in the Australian market (Levander & Geterl, 2015). To cut down production costs and increase profitability, most of these organizations are embracing the use of technology and innovation in their businesses. Others are including different types of beverages in their stores so that consumers may get all they need under one roof.
A bar like Titus Jones has been conducting value chain analysis to ensure its competitors do not win its loyal customers. It has also been using strategies which can assist it in acquiring a comparative advantage like selling its products at reduced prices and making sure it stocks high-quality products (Levander & Geterl, 2015). This bar also ensures its customers get good entertainment while enjoying their drinks through playing various types of music like hip-hop, rock and so forth. This bar also makes sure that its clients get every kind of liquor they like by stocking different types of beverages like spirits, wines, and beers.
Most of the bars and upmarket restaurants are using these strategies to ensure their businesses attract many customers than their competitors (Burrows III, 2013). The most common strategies which almost each one of them is using is selling personalized brands, employing employees who know how to welcome and serve customers in a professional manner and furnishing their businesses with good furniture which ensure customer comfort
Menu engineering which can also be called menu psychology is the analysis of profitability and popularity of various menu items and how they affect the placement of these items on the company’s Menu (Inghilleri & Solomon, 2013). Menu engineering is aimed at making the customer have the first impression of products which the company wants to be purchased on highest rate.
Because most of the clients who visit food and beverage outlets spend at least two minutes with the menu, the management should ensure the Menu is attractive, and items are arranged in a manner that attracts customers at first glance (Levander & Geterl, 2015). Organizations use Menu engineering to ensure their clients make the first impression on the most profitable products
The primary goal of menu engineering is always to increase product profitability per guest (Fromm & Garton, 2013). Menu engineering assists the managers with information concerning products’ profitability and popularity. This information enables them to come up with proactive planning, customer pricing decisions, and recipe planning.
Most enterprises in the hospitality industry use this strategy to allow the organization in meeting its profit targets (Burrows III, 2013). With menu engineering, managers can control food costs by analyzing which products need a lot of money to be produced, and what they can do to minimize such costs. It also helps them to come up with better decisions on how to improve the profitability of items that are not highly profitable for the organization.
In most cases, menu engineering assists food and beverage owners to emphasize on the menu items that are likely to generate high profits for their businesses (Fromm & Garton, 2013). They achieve this by ensuring such products are produced in large quantities and are available throughout. They also ensure those products are given priorities in their menus by placing them in the most eye-catching areas in their Menu.
Menu engineering helps the management to evaluate the volume for every menu item against the cost and selling price of each item to see which one of them has the biggest demand and the level of profitability it generates (Burrows III, 2013).Menu engineering makes customers purchase the goods that the seller wants to be bought and avoid fewer profit items. For a food and beverage outlet, the menu is the most compelling merchandise tool because all products that make this kind of businesses to succeed flows in the menu.
Most of the Food and beverage outlets use menu engineering in controlling their pricing and making decisions which can assist in cost reduction (Kisilowski, 2014). Use of menu design helps this kind of enterprises to minimize the chances of making losses because all products are sold at prices which are above their production costs.
Some of the food and beverage outlets have been taking their Menu as a valuable tool which can assist them in coming up with decisions which can help them to maximize their profitability (Burrows III, 2013). Menu engineering helps restaurant owners to calculate all costs incurred in production of all menu items and come up with decisions on how to minimize the production cost and maximize profitability
For food and beverage outlets to maximize their profitability and periodic sales, they always ensure their products appear on the menu in a manner that aligns with their consumer psychology and buying behavior (Fromm & Garton, 2013). Menu engineering enables food and beverage owners to place their high-profit products in the most eye-catching and visible places on their Menus. This technique allows the customers to give these products their first impression hence enabling these companies to maximize their profits.
Conclusion
Having seen examples of bars and upmarket restaurants which use these strategies in Sydney, we can conclude that competitive advantage and value chain analysis are fundamental tools which every company dealing with food and beverages should use. This is because these strategies can assist an organization to acquire large market share, attract customer loyalty, and also experience increased sales and profitability than its competitors.
References
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