blue foods analysis
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BLUE FOODS Case Analysis
Indian Restaurant Industry
• Restaurant Industry in India is large and rapidly growing• Highly fragmented (only 10% is
organized). Single unit restaurants dominate the landscape. Liberalization led to entry of foreign players into the market• Fast growth rate of food services
industry( 25%)• No nationwide presence of brand
in multiple formats. Space for significant growth
• Increasing disposable Income• Change in Indian consumers
eating habit. Infrastructure growth. Malls and shopping clusters rise has provided space for restaurants and food courts
• Favorable demographics. Increasing women workforce and nuclear families is creating strong culture of eating out
• Increased penetration of organized retail is driving spending on eating out
• High cost of real estate • High competition from local
shops• No single window clearance
for establishing restaurants. Cumbersome licensing requirements (10-15 licenses)
• Below par transportation and cold storage logistics in India
• Lack of skilled manpower. Inconsistency in service delivery
• High cost of sourcing food items. Local suppliers issues
Industry Overview Drivers Challenges
Organized10%
Unorganized90%
Total market size (US $ 16 billion)
Restaurant Industry
Quick-service restaurants
(QSR)
Fine-dining restaurants
Coffee shops
Ice-cream parlors
Specialty restaurants
Company Overview
• Incorporated in year 2001. One of the largest F&B players serving across multiple formats by 2008• Average ticket size ranging from 100-750• Wide range of offerings. (Value –for-money to expensive
dining options). Early mover advantage• Decreasing profits. Negative PAT in 2007 and 2008.• Firm has heavily relied on debt financing to increase
revenues without achieving operating efficiency. Less favorable macroeconomic conditions have worsen Blue Foods financials. High financial distress
Year 2006 2007 2008
Revenues (in millions) 405 590 890
EBITDA 25 -60 -280
PAT 5 -105 -405
Debt 120 170 710
Revenue growth -- 45.7% 50.8%
Increase in Debt -- 41.7% 317.6%
Brands/Parameters Average price per customer(APC) in Rupees
Restaurant Category Target Markets/Customers Locational Availability
Pasta 1000 Fine Dining Tier I Cities/ Students, young and professionals High end malls; Prime city locations
Dhaba800 Casual Dining Tier I and some Tier II Cities/High income Families High end malls; Prime city
locations
Gelato 30-100 ( per scoop) QSR Tier I Cities/ Students, young and professionals Prime city locations and high
traffic areas
Mumbai400 Casual Dining Tier I and Tier II cities/Students, young and professionals Near offices ( esp. IT and SEZs)
and colleges
Kaapi & Chai 300 Café and QSR Tier I cities/ Young professionals and high income families Elegant or stylishly luxurious
localities
Noodles 600 Casual Dining Tier I and some Tier II Cities/high income families High end malls; Prime city
locations
Bharat Food Court250 Food Court Tier I and some Tier II Cities/Students, Young
professionals and Middle income FamiliesAll Shopping malls , cooperate
offices and colleges
Major Focus Area Problems Impact
StrategyNo well articulated expansion plan; wrong locations of restaurants; heavy reliance on debt financing( From 3.4 in FY 7 to 14.2 in FY 8)
• Excess capacities at various places • Unprofitable units• Lesser monitoring and high
inconsistency of customer experiences across stores
No centralized purchasing; strained supplier relationships; erratic outlet level procurement of material; high cost of operations (Food cost higher than 40% of sales; Lease rentals more than 33%; manpower cost more than 20% )
• Non standardization leading to high cost • No accounting for wastes affecting
profitability• More financial leakages at store level• Steep fall in EBITDA (From 0.5 in FY 6
to – 5.6 to FY 8)
Organizational Structure
Operations
Training
Ads and Marketing
Several overlaps in organization structure; no fixed structure and no employee incentive plan; no fixed business plan
More focus on day to day operational inefficiencies; High attrition rate
Absence of comprehensive marketing plans for each format
• Confused planning and execution framework• Low employee morale and lack of role
clarity at various levels
• Reduced performance in frontline execution and service delivery• High hiring, training and other
overhead costs.
• Insufficient marketing attention on any specific format
Short-Term Strategies to Revive Blue Foods
Asset Reduction Halt Expansion Streamline Operations
Change Organizational
Structure
1. Asset Reduction
Location AnalysisIdentify underperforming assets (low cash flows, high rent)
Close down underperforming assets. Reduce number of outlets in Tier II cities
• Firm is suffering from heavy financial losses. Better to close down loss making units• Location analysis should be carried out to identify rent and market conditions. • Detailed strategy plan to close down underperforming units where possibility of economies of scale is minimum
and achieving operational efficiency in 3-4 months is not possible (mostly Tier II cities). Bharat Food Court and Gelato can perform relatively better in small cities
Improved Return on Capital Employed (ROC)
Decreasing Losses and Increasing Profitability Implementation
2. Halt Expansion
Halt restaurant expansion plans
Sell off closed assets
Use cash flow from proceeds to pay off part of debt
• Reduced Interest Expense• Less level of Debt in the Capital
Structure• Bankruptcy Cost goes down
• L:ack of capital investment plans has led to opening of restaurants without considering demands factors and cost • Halt any expansion plans of restaurant units before stability of cash flows could be achieved
3. Streamline Operations
Changing MenuIncrease operational efficiency of existing facilities
Centralized procurement
• Reduced food cost• Reduce wastage• Faster Service• Tractability, food consistency
and profitability
• Short term removal of items from menu to cut down on food cost and reduce materials wastage• Increase operational efficiency of existing restaurants to do faster service to customers. Increase in customer
satisfaction. • Centralized procurement system by collaborating with nation-wide supplier. Reduced procurement cost,
standardization of products across units and better inventory management• Collaboration with logistics provider. Use of centralized kitchen to prepare basic items for all restaurants in
surrounding areas. Reduction in waste. Improved operational efficiency at centralized level
4. Change Organizational Structure
Reduce employee base by firing employees in non key positions
Design organizational hierarchy with specific roles
Bring in new managers to oversee the turnaround process
Employee training. Linking salary of managers to performance
• Reduction in salaries and wage expenses
• Clarity of roles and responsibilities. No overlaps
• Good service delivery. Low attrition rates
CEO
Production Purchasing Operations MarketingHR
Implementation Process
Asset Reduction
Halt Expansion
Streamline Operations
Reorganization
Marketing & Advertisement
Training & Development
Day 1 Day 100
Assess and develop roadmap
Implementation
Minimum Activity
Success Factors
Employees• Training • Motivation level• Incentives & Benefits• Personality and passion
of employees
CSFsLocation
EmployeesManagement
Products & Services Infrastructure
Customer Satisfaction
Location• Easy accessibility• Parking facility • Visibility and
surrounding environment• Competition from
other players
Infrastructure• Decor design creativity
and uniqueness• Comfortable seating• Entertainment
mediums (TV, music)• Lighting; Exteriors &
entrances
Company/ Management
• Brand image; Targeted Value proposition and marketing• Buying leverage;
working capital; Costs and Gross margin• Staff retention;
management ability
Products & Service• Quality food; Customer
satisfaction• Cuisines; variety; pricing • Service efficiency and
accuracy• Upkeep and Hygiene
Long-Term Strategies for Blue Foods
Create an Authentic Brand• Establishing and communicating a clear and compelling vision for each Blue Foods Brand.• Consistent and authentic character across units.
Outstanding Food• In the end only good quality and delicious food matters to consumers• Use a single quality supplier for basic food ingredients like meat, vegetable, dairy etc. This will help in improving quality,
consistency and reducing cost. Quality of starters and sweets should also be high.
Quality Menu• Indian customers give preferences to food items they that are difficult to cook at home( must include these preference items).• Adding more items complicates menu and confuses customers. Provide a good variation of local and other cuisines based upon
customer demographics. Sweets which is popular among Indian masses is must include item in the menu.• Innovate and provide variety while reducing cost (Menu having broad customer appeal and few items). Quality menu will
increase traffic and improve execution.
Superior Service• Quality service requires energy, passion and focus. Develop by creating sense of ownership among restaurant
workers• Training and development is required for restaurant workers from kitchen staff to managers. Clarity among staffs
personnel and mangers with regard to responsibilities and accountability. • Recruit talented, skilled and experienced managers from outside market.
Incentives for Managers• Mangers are the most important individuals in a dining company. Empowering managers and creating ownership will
help Blue Foods build an operationally focused organization and encourage new ideas to improve restaurants.• Incentives tied with traffic growth and cash flows.
Manage Food Costs• Centralized purchasing to reduce material cost. Centralized kitchen system in major cities to realize economies of
scale in preparing base for food items (e.g.. Boiling meat). • Collaborate with nationwide supplier and good logistic providers.
Innovate• Continuous benchmarking the firm with industry standards. Continuously innovate in food development,
ambience• Provision for secondary services like private community space for organizing local events( e.g. birthday parties),
corporate events and banquet.• Alcohol serving in fine dining restaurants, installation of big screen TVs (playing matches), playing music etc. • Blue Foods has several brands. Launching loyalty cards will help customers identify other brands as well as
increasing purchases from other brandsMarketing and Advertisement• Understand how different marketing channels can be leveraged for specific brands. Need for fast and accurate
response.• Content mix of TV, print advertising, website, word of mouth, mobile, social media (less in 2008) and in store
activities• Message should provide utility for customers. Provide useful information about the brand, food, locations and
recipes.• Build relationship with food bloggers, reviewers and influencers.
Pricing• Price Sensitivity is high among Indian customers• Blue Foods should see that its brands are not overpriced with respect to customers. Provide affordable options to
customers.• Provide a compelling value proposition, not just based on price.
Demographics• Develop insights about various customer segments, needs and relevant atmosphere for satisfying experience• Menu offerings taking into neighborhood and community needs ( i.e. Local food items).
Future Expansion Plans• Previous expansion plans with excessive debt financing led to heavy financial burden and operational losses.• Any new expansion plan has to take into account the lease rental rates, demand conditions and supply chain
issues in cities. Also stability of cash flows has to be taken into consideration before launching new units• Debt level should be maintained at industry levels. Equity financing can be used for future growth.• Blue Foods could also fuel its growth through franchisee model (most beneficial for Tier II cities).
• Promotion of Tier II & III cities• Implementing strategies to
regain normal business across outlets, Streamline operations, Improved customer service and customer satisfaction, Shift towards management contracts
• Brand re building via ads and marketing
• Identification of untapped segments, Focus on CRM, Diversification and Addition of new Capacity
• Tier I Cities Focus only on Metros -Delhi, Mumbai, Hyderabad, Bangalore & Chennai
• Identify and do away with under performing assets and excess capacities. Focus on removing operational inefficiencies like erratic store level procurement etc.
• Hire new management team and develop a turn around strategy to attain solvency.
• Revenue growth and Maximization, Customer Acquisition
1st Year
• Future expansion plans in Tier II cities. Adoption of Franchisee model
• Use of technology into the operations to improve operational efficiency
• Refurbishments & Expansions under brands and emergence of new domestic brands/concepts
• Focus on customer retention, diversification into new business
• Loyalty factor, Product Enhancement
2+ years
1-2 yearGeographical Penetration
Operations
Investment Needs
Strategic Focus
Future Strategies
THANK YOU
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