Assignment of Business Environment

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Report on Analysis of Business Environment-2009

Submitted To

Mr. Mo Willan (Lecturer)

Icon College of Technology and Management

Submitted By

Mashukur Rahman

Id. 4098

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Content 1. Introduction

2. SWOT analysis of Caffé Nero

2.1 Strengths 2.2 Weaknesses 2.3 Opportunities 2.4 Threats

3. Porter’s five (5) forces analysis

3.1 Bargaining power of Buyers

3.2 Bargaining power of supplier

3.3 Threats of substitute

3.4 Threats of new entrants

3.5 Competitive Rivalry

4. PESTLE analysis

4.1 Political Environment

4.2 Economic Environment

4.3 socio-cultural Environment

4.4 Technological Environment

4.5 Legal Environment

4.6 Ecological Environment

5. Stakeholder analysis

5.1 Supplier

5.2 Government

5.3 Shareholders

5.4 Pressure Groups

5.5 The Media

5.6 Customers

6. References

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Introduction

The Café Nero Group is the leading independent Italian-style coffee bar operator in the UK. Its number of coffee bars, which are all company owned, has grown from 5 stores in 1997, to 30 in 2000 & 310 in May 2007. Today, Caffè Nero has over 360 stores, nearly 3,000 employees, and has become one of the best-recognised and most admired food and beverage brands in all of Britain.

The Caffè Nero’s outlets tend to be located in UK high streets and shopping centres within 140 cities, city suburbs and market towns, although the Greater London area still accounts for a large proportion of sales. The company hopes to have around 400-450 outlets by 2010.

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2.0 SWOT Analysis of Caffè Nero

SWOT analysis a distillation of the findings of the internal and external audits which draws attention to the critical organisational strengths and weaknesses and the opportunities and threats facing the company.

Kotler, P and Wong, V and Saunders, J and Armstrong, G. (2005) Principles of Marketing. 4th

European Edition

SWOT analysis method or model is a way to analyse completive position of the company or firm. SWOT analysis uses so called SWOT matrix to assess both internal and external aspects of doing the business. The SWOT framework is a tool for auditing an organisation and its environment.

SWOT is the first stage of planning and helps decision makers to focus on key issues. SWOT method is a key tool for company to officials to formulate strategic plan. SWOT stands for Strengths, Weaknesses, Opportunities, and Threats.

SWOT model analysis factors that are internal to the business and also factors that affect the company from outside. Strengths and Weaknesses in the SWOT matrix are internal factors. Opportunities and Threats are external factors.

SWOT is the very popular tool in marketing because it is quick, easy and intuitive. SWOT analysis provides information that is helpful in matching in the firm’s resource and capabilities to the competitive environment in which it operates.

(www.maxi-pedia.com)

2.1 Strengths

Strengths refer to the firm’s capabilities or aspects of the business that the firm does very well. Strengths are resource advantages relative to competitors and the need of the markets a firms serves or aspects to serve. It is a distinctive competence when it gives the firm comparative advantages in the market place. Strengths arise from the resources and competencies available to the firm.

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Example of strengths include the following:

Company Strengths

Coca-cola ------ Strong Brand Name

Apple ------ Products Innovation

Tesco ------ Broad Product Range

Strengths of Caffè Nero Group LTD. Given bellow:

Strong Brand name (position number 1 as per Allegra Consumer Report-2005).

Excellent, fresh & quality food and coffee.

Broad product range.

Doing business in very good location (high street, shopping centre).

Strong financial capability to acquisition another competitor.

Good reputation among customer.

Continuing making profit.

Sales turnover is growing up (pre-tax profit £7.3m).

2.2 Weaknesses

Weakness is a limitation deficiency in one or more resources or competencies relative to competitors that impedes a firm’s effective. Weaknesses are aspects of the firm’s operations or activities that it does not do very well. For example, Primark Sales the low quality product and so many British Airways passengers have lost their baggage frequently. So, here low quality product and lost baggage of the example of weaknesses for the both company. As a Business Executive I find out some weaknesses of Caffè Nero those are given bellow:

Weak food sector than other competitors.

Practice only Italian style.

Most brand names are little known.

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2.3 Opportunities

Opportunities are aspects of the environment that the firm can take advantages of or capitalise upon. The firm’s success probability depends on whether its business strengths not only match the key success requirements for operating in the target market but also exceed those of its competitors. For example Tesco have an opportunity to open a new store in China.

To analysis the external business environment, I found some opportunities for Caffè Nero. If Caffè Nero Group LTD. will take following opportunity, I think their profit will be maximising in future:

Selling the brand name can earn more profit i.e. can start franchising business.

Give the competitive price if directly contract or invest in the developing countries those are cultivate and produce tea, coffee and any other food.

More capital invests in UK because coffee and sandwich shop market is growing rapidly.

Removal of international trade barriers by open new outlets in Middle East as well as East Asia.

2.4 Threats

Threats are aspects in the environment than can hinder a firm from achieving its objective and goals.

An environmental threat is a challenge posed by an unfavourable trend or development that would lead in the absence of defensive marketing action, to deterioration in sales or profit. Threat should be classified according to seriousness and probability of occurrence.

Examples of Threats are:

Competitors

Government new policies, taxation

Political instability- wars etc.

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There are so many threats for Caffè Nero are given bellow:

Huge competitors such as Starbucks, Costa, BB’s Coffee, Subway, McDonalds etc.

Economic crisis, financial hardship for example present situation in UK.

Always wars with other competitors based on price, quality, environment etc.

Political instability for example if Caffè Nero start the business in Bangladesh, they must be face this threat. Because in Bangladesh political condition is not stable.

Always doing business in pressure because of potential competitors i.e. threat of new entrants.

Figure 01 shows the SWOT Matrix of Caffè Nero

Strengths

Strong brand name. Provide excellent & fresh

quality food & coffee. Broad product range. Good location. Good reputation among

the customers. Sales turn over growing

up.

Weakness

Weak in food sector. Practice only Italian-style.

Opportunities

Removal international trade barriers –business start in Middle East, East Asia.

Sell the brand name and start franchising business.

Increase the capital in UK.

Threats

Existing and potential competitors such as Starbucks, Costa, Subway etc.

Economic And financial hardship.

Political instability. Huge taxation

Figure No. 01

Finally, as a Business Executive I suggest to Caffè Nero higher management that they should take necessary steps & plan for convert the weakness into strengths also convert the threat into opportunities as well as consolidate the opportunities into strengths. If the threats or weakness cannot be converted, the higher management should try to minimize or avoid that.

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Porter’s Five (5) Forces Michael Porter develops the 5 forces model 1985 to help analyse and better understand the firm’s industry environment. The strategic business manager seeking to develop and edge over rival firms can use this model to better understand the industry context in which the firm operates.

According to Porter (1980a, 1985) the ability of a firm to earn an acceptable return depends on five forces – the ability of new competitors to enter the industry, the threat of substitute products, the bargaining power of buyers, the bargaining power of suppliers and the rivalry amongst existing competitors. Figure 2 shows the Porter’s five forces analysis:

Diagram of Porter’s five(5) Forces:

Figure No.02

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Porter argues that it is the collective strengths of the five forces that determine industry profitability. The stronger the forces, collectively, the less likely an industry is to be profitable in the long term; conversely, the weaker the forces the greater the opportunity for high profit. These forces influence profitability because they influence prices, costs and investment requirements – which are the fundamentals of return on investment. Buyer power, for example, influences the prices a firm can charge, as does the threat of substitutes. The bargaining power of suppliers determines the cost of raw materials and other inputs. It is in a company’s interest to examine these forces in detail to establish the industry strengths and weakness. Knowing these forces, and how they are likely to affect their industry, enables managers to decide on future direction.

Boddy, D. Management and Introduction. 3rd

Edition

3.1 Bargaining power of Buyers

This refers to the choices as regards where buyers/customers shop for their products and services. Customers have a fundamental right to choice his/her necessary product or services. Seller or marketing firms cannot push the customer for purchase the products or services. For example, mobile phone customers have many choices when they shop for mobile phones. This means that consumers can buy mobile phones different phones from such choices as Orange, O2, Vodafone and T-mobile.

Buyers (customers) tend to seek lower prices or higher quality at constant prices, thus forcing down prices and industry profitability. Buyer power is likely to be high when:

• The buyer purchases a large part of a supplier’s output

• There are plenty of substitute products, allowing easy switching

• The products represents a major proportion of the buyer’s total costs, creating the incentive to seek lower prices

• Buyers can plausibly threaten to supply their needs from within their own business.


Edition

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So, to deal with the bargaining power of buyers i.e. for influence the customer, Caffè Nero should to do the following:

Advertise to inform their products by different types of media like as Television, Radio, Newspapers, Magazines, Lip let, Internet etc.

Differentiate their products from other competitors and also announce it to the customers by advertises.

Offer a competitive price.

Offer wide variety of product as well as quality product.

Offer different types of discount such as (buy-1-get-1) before different religious festival.

Arrange a home environment.

3.2 Bargaining power of Suppliers

Supplier is a one of the important stakeholder for a firm. Suppliers provide the necessary inputs i.e. raw materials that the firm’s need to produce its products and services. Supplier is a very powerful when band is powerful. Caffè Nero Group Ltd is a firm, their have also so many supplier. And also need to contract with different types of suppliers such as coffee and tea supplier, beverage supplier, vegetable supplier, bread supplier etc. Therefore, Caffè Nero should follow the following steps to deal with the bargaining power of supplier:

Always pay to the supplier on due time and also pay fair price for their products and services.

Caffè Nero should contract with more than one supplier to minimise over dependency on just one supplier.

Always try to long-term contract with reputed supplier, so as to guarantee consistent supplier of inputs.

If supplier's interests are not satisfied, they have power and influences to do any of the following action:

1. Delaying of supplies

2. Stop supplying their products to the organization.

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3.3 Threats of Substitute Products

In Porter’s model, substitute products refer to products in other industries that can perform the same function as the product of the industry. For example, using aluminium cans instead of plastic bottles for soft drinks. The threat of substitute typically affects an industry through price competition, and is high when buyers are able and willing to change their buying habits. To the economist, a threat of substitute exists when a product’s demand is affected by the price change of substitute products.


Edition

Substitutes are products that can be used interchangeably or in place of one another. The competition engendered by a threat of substitute comes from products outside the industry.

Substitutes can be direct for example Caffè Nero & Starbucks. Substitutes can also be indirect for example Caffè Nero & local teashop.

Caffè Nero Group Ltd should take the following necessary steps for face threats of substitutes:

Always advertise to inform and differentiate the firm’s products from those the substitute.

Always maintain good relation with electronic media i.e. lobby with media.

Offer high quality products and services like home environment.

To charge competitive prices.

3.4 Threats of New Entrants

It is not only incumbent rivals that pose a threat to firm in an industry i.e. the possibility that new competitor/ firms may enter the industry also effect competition.

Threats of new entrants refer to how easy or difficult it is for new competitors to enter the firm’s industry.

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The threat of new competitors to an industry depends on the ease with which they can enter a market. Major barriers to entry are as follows:

• The need for economics of scale (to complete on the basis of cost), which are difficult to achieve in the short run

• High entry cost, where significant capital investment is required

• Lack of distribution channel

• Legislation or other government policy such as selective subsidies.

• Cost advantages of existing firms such as access to raw materials or know-how to among product or service differentiation-customers are loyal to the brand.

• Cost of capital needed to invest and enter the industry.

• Level of expertise needed.

• Exit barriers-how difficult it is to get out the industry.


Edition

To deal with the threats of new entrants, the Caffè Nero Group Ltd should do following:

More and more advertise to the customer and also inform about the firm’s product as well as differentiate the firm’s product.

Always try to innovation the new product.

Encourage the customer loyalty; as a result they do not move/switch to the new entrants.

Try to lobby with the government to prevent the new entrants from the firm’s industry.

3.5 Competitive Rivalry

This refers to the intensity of competition among existing firms in an industry.

In the traditional economic models, competition among rival firma drivers profit to zero. But competition is not perfect and firms are not unsophisticated passive price takers. Rather, firms strive for a competitive advantage over their rivals. The intensity of rivalry among the firms varies across industries.

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Among competitive rivalry is likely to result in low margins and profitability; it is likely to occur when:

There are many firms in an industry, but none is dominant

There is slow market growth, which means companies fight for market share

Fixed cost are high, as this encourages firms to use capacity and over produce

There are high exit costs; specialised assets (which may be hard to sell ) or management loyalty ( for example in long establishment family firms ) can create exit barriers which prolong excess capacity and low profitability

Products are similar, so customers can easily switch to other suppliers.

A highly competitive market will also be one in which the threat of new entrants is high. While Nokia still dominated the mobile phone industry in 2004, it was facing growing pressure from established competitors Motorola, Siemens and Ericsson and from new entrants from Asia.


Edition

The intensity of competition can be 2 types namely as:

1.Friendly competition

2.Hostile competition

Caffè Nero always doing or facing hostile competition among other competitors.

As a Business Executive, I give them some suggestion for deal with competitive rivalry in its industry that is given bellow:

Advertise to inform and differentiate the firm’s products from the other competitors.

Caffè Nero Group Ltd also can acquire or buy out the competitive firms.

4.0 PESTLE Analysis

PESTLE analysis is a one of the analytical technique which is use for analyse the external environment. The external environment is also called macro-environment and it refers to aspects in the environment over which the firm has no control over.

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The macro-environment represents those factors and forces over which the organisation has least control. The firm has no control over the external environment, it should therefore adapt to changes in the external environment.

Firms and their supplier, marketing intermediaries, customers, competitors and publics all operates in a macro environment of forces and trends that shape opportunities and pose threats. These forces represent “noncontrollables,” to which the company must monitor and respond.

Kotler, P. (2003) Marketing Management.11th

edition.

The external environment is subjected to constant changes and it is therefore necessary and important for the firm to constantly monitor, analyse, understand and respond to such changes in the external environment.

PESTLE stands for-

P > Political Environment

E > Economic Environment

S > Socio-cultural Environment

T > Technological Environment

L > Legal Environment

E > Ecological Environment

4.1 Political Environment

This refers what is happening politically in the environment in which government runs the country including areas such as tax policy, employment laws, attitude of government officials, types of government in power, environmental regulations, trade restrictions and reform, tariffs and political stability.

www.cipd.co.uk/subjects/corpstrategy/general/pestle-analysis.htm Marketing decision is strongly affected by developments in political environment. This environment is composed of laws, government agencies, and pressure groups that influence and limit various organization and industries. Sometimes these laws create new opportunities for businesses. For example, mandatory recycling laws have given the recycling industry a major boost and spurred the creation of dozens of new companies making new products from recycled materials.

Kotler, P.(2000) Marketing Management. The Millennium Edition

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In UK, Caffè Nero Group Ltd doing business under an excellent political environment except tax policy. Because tax rate is very high in UK. In Bangladesh, overall political environment is not good. Because there political government is not stable, frequently change the government. Strike, corruption is common affair in Bangladesh. Only one thing is favourable for business that is tax policy. In Bangladesh tax rate is very low.

4.2 Economic Environment

This refers what is happening within the economy, for example; economic growth/ decline, interest rates, demand, exchange rates and inflation rate, wage rates, minimum wage, working hours, unemployment (local and national), credit availability, cost of living, etc.

www.cipd.co.uk/subjects/corpstrategy/general/pestle-analysis.htm

In UK, before one and half year their economy was very strong. But at this time their economic condition is not good, because of financial hardship. So many people have lost their job as well as lost their purchasing power. Here, also minimum wage rate is also high. So this condition is not good for business. But in UK, demand of coffee & sandwich and other fast food is very high. Bank interest rate also favorable for business. Therefore, Caffè Nero Group Ltd should continue the business in UK instead of demand.

In Bangladesh overall economic condition growing up but so slowly. There are also having demand of coffee, sandwich & other fast food. But in generally, income level of Bangladeshi people is very low. So, in spite of demand, Bangladeshi people cannot purchase these types of food. On the other hand, minimum wage rate is very low in Bangladesh. Bank interest rate also not very high. It is very good for business. So I think, Caffè Nero’s less the operating cost and they provide the product by less cost. As a result Bangladeshi people can buy more the Caffè Nero’s product.

4.3 Socio-cultural Environment

Every society has different social norms and characteristics that explain the way people in that society live. Socio-cultural Environment refers that what is occurring socially in the markets, cultural norms and expectations, health consciousness, population growth rate, age distribution, career attitudes, emphasis on safety, global warming, language, education levels etc.

www.cipd.co.uk/subjects/corpstrategy/general/pestle-analysis.htm In Bangladesh have a huge population. It is a very good for business, especially food sector. Because more population, more consumer. There, education level is not bad. English is the second language of Bangladesh. It is a good for foreign investor. In Bangladesh most of the people are Muslims. They are strictly avoiding the “Haram” food. So, if Caffè Nero Group Ltd wants to start the business in Bangladesh, they must consider the all the things.

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4.4 Technological Environment

Technology is a major environmental influence upon the marketing firm. It affects not only the firm’s operations and products but also consumers’ lifestyles and consumption patterns. Management must be aware of the impact of technological changes. The impact of new information technology has been particularly marked in the marketing research area. Technology also affects the way in which goods are distributed and promoted. The economy’s growth rate is affected by how many major new technologies are discovered.

Lancaster, G and Massingham, L and Ashford, R.(2002) Essential of Marketing. 4th

edition

New technologies are continually being developed and the rate of change itself is increasing. There are also changes to barriers to entry in given markets, and changes to financial decisions like outsourcing and in sourcing.

Technology has perhaps the greatest impact on how businesses operate and it includes a consideration of the following factors:

Transport infrastructure

In Bangladesh, road communication is very good. Air communication is not bad as well as seaport. Bangladesh have 2 international seaport-one is Chittagong, another one is Mongla. Therefore, if Caffè Nero Group Ltd wants to start the business in Bangladesh, they can use this seaport easily.

Communication infrastructure

Bangladesh is a third world developing country. There internet communication is not good. Only few cities and towns coverage the internet. But mobile & telephone communication sector are very developed in Bangladesh. Television & Radio communications are also available in Bangladesh.

IT skilled people

Bangladesh is failed to develop this sector until now. But they are trying to develop this sector.

4.5 Legal Environment

Marketing decision is strongly affected by developments in legal environment. This environment is composed of different types or laws, government agencies, pressure groups that influence and limit various firms and individuals. Sometimes these laws also create new opportunities for business.

Kotler, P.(2003) Marketing Management. 11th

edition.

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Legal environment refers to what is happening with changes to legislation. This may impact employment, access to materials, quotas, resources, imports/ exports, taxation etc. Legal environment includes a consideration in the following factors:

Employment Law:

Minimum Wages only $27 per month in Bangladesh. This rate is very cheap than the other country of the world.

Investment Law:

This law is very flexible in Bangladesh. Any foreign company/firm can start business in Bangladesh without joining the any local company/firm or individuals. Whereas, In India, without joining a local individual or firm, a foreign investor or firm cannot start the business. Therefore, Bangladesh gives the opportunity to foreign investor or firm to enter in Bangladesh for Business. So on basis of this law, I think Caffè Nero Group Ltd should take this opportunity.

4.6 Ecological Environment

The final element of the wider macro-environment facing the marketer concerns the natural environment including aspects such as, for example, resource uses and deplation, environmental pollution and degrading, related to environmental pollution-climate changes such as global warming and the so called greenhouse effects.


edition

Ecological environment refers that what is happening with respect to ecological and environmental aspects. Many of these factors will be economic or social in nature. Firms are now expected to consider in their plans how to best to preserve the environment. Ecological environment include a consideration of the following:

Recycling issues: Recently, Bangladesh is morn concern about recycling issues. For example, poly bag is strictly prohibited in Bangladesh. So, Caffè Nero Group Ltd should consider this issue before entering in Bangladesh.

Pollution issues

Green marketing

Corporate social responsibilities.

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5.0 Stakeholders Stakeholders are a person, group, organizations or system who affects or can be affected by an organization’s actions. Key stakeholders in a business firm include creditors, customers, employees, governments, shareholders, suppliers, unions, and the community from which the business draws its resources.

www.businessdictionary.com

All organisations have a wide range of internal and external stakeholder. Often their interests will conflict because as groups or as individuals, stakeholders are themselves subject to wide range of influences that condition or shape their views and what they expects of organisation. External stakeholders include suppliers, financiers, central and local government, shareholders and customers. They have expectation of organisations and will seek to influence them in various ways. They may be able to influences staff or board members directly through personal contact or they may seek to exert influence indirectly, for instance by the use of the press and other media to raise issues of concern.


Edition

If the Caffè Nero Group Ltd wants to start the business in Bangladesh, they must deal & contract with some different stakeholders, which are following bellow:

5.1 Supplier

Supplier is a one of the important stakeholder for the firm. Supplier provides the necessary raw materials that the firm’s need to produce its products. If Caffè Nero Group Ltd starts the business in Bangladesh they must contract with coffee and tea supplier as well as bread, beverages & vegetable supplier.

Supplier’s interests include the following:

Fair prices their products and services.

Regular demand for their products and services.

Timely payment for their products and services.

If supplier’s interests are not satisfied, they have power and influence to do any of the following action:

Delaying of supplies that means they do not supply the products or services on due time.

May be stopping supplying their products or services to the organization.

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5.2 Government

Government is another important stakeholder for a foreign firm. Bangladesh government give opportunity for invest in the country such as low corporate tax rate, directly start the business i.e. run the business without joining any local partner, security, loan facility etc against only employment opportunity for the citizens of the country. If the firm violate the government rules and regulations, then government can impose the fine against the firm also government can close down the firm.

The interest of the government includes the following:

Creation of employment by the organisation for the citizens of the country.

Payment of taxes by the organisation.

Abiding and following the laws made by the government.

If government interests are not satisfied, they have power and influence to do any of the following action:

They can close down the organisation.

The government can impose fines or penalties on the organisation if it breaks the low of government.

5.3 Shareholders

Shareholders invest their monies into the businesses in return for a profit (dividends).

Shareholders interest include the following:

Sound management of the organisation’s resources.

Good profit/dividends payment.

Growth in share price.

Growth in net asset value.

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If the shareholder’s interests are not satisfied they have power and influence to do any of the following actions:

They can sell their shares in the company.

They can force out the management of the organisation.

They can invest their monies in competing organisation.

5.4 Pressure Groups

They are special interest groups who are mainly concerned with promoting their ideas, values, beliefs or interests.

Example of pressure groups include trade union who promote and defend the invests of their members.

The interests of pressure groups include the following:

Fair treatment of its members support for their values by the organisations.

Open and honest communications with the organisations.

If pressure groups interests are not satisfied they have power and influence to do any of the following actions:

They can ask their members to go on strikes.

Non co-operation by its members.

They can ask members to boycott the organisations products.

They can lobby the government to take action against the organisation.

They can take the organisation to court.

They can spread negative stories about the organisation in the media.

5.5 The Media

The media includes the TV station, radio station, newspapers and the internet. The media write or broadcast stories about organisations. Firm can easily advertise about the products or services through media.

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The interest of the media includes the following:

To be given stories by the organisation.

To have access to the management of the organisation, so that they can be interviewed.

To sell advertising space to organisation.

If media interests are not satisfied they have power and influence to do any of the following actions:

They can write negative stories about the organisation.

They can lobby to government and citizens to support or take action against the organisation.

5.6 Customers

Customer is the one of the important external stakeholder of any organisation or firm. Without customer any organisation cannot be run. Customers have a fundamental right to choice his/her necessary product or services. Seller or marketing firms cannot push the customer for purchase the products or services. For example, mobile phone customers have many choices when they shop for mobile phones. This means that consumers can buy mobile phones different phones from such choices as Orange, O2, Vodafone and T-mobile.

The interests of customer include the following:

Always aspect good quality product/services.

Product reliability

Warranty/guaranty provision

If customer interests are not satisfied they have power and influence to do any of the following actions:

Avoid the firm’s product and services.

Choose the competitors product.

Therefore, as a business executive I think if the Cafe Nero want to deal with the more customer, they can do the following:

Offer a wide variety of product.

Offer competitive price.

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Advertise to inform and differentiate their products from competitors.

Offer high quality product.

Give the customer loyalty.

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References


Edition

Kotler, P and Wong, V and Saunders, J and Armstrong, G. (2005) Principles of

Marketing. 4th

European Edition

Kotler, P.(2003) Marketing Management. 11th

edition.

Kotler, P.(2000) Marketing Management. The Millennium Edition


edition

www.businessdictionary.com

www.cipd.co.uk/subjects/corpstrategy/general/pestle-analysis.htm www.maxi-pedia.com

Assignment of Business Environment

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