Analysis of Strategies for Expansion into UK

Introduction

Research Content:-

Over the last few decades, there has been a tremendous growth in the volume of business. A number of new players have entered the business world and as a result there is fierce competition making survival very difficult. Therefore it is imperative that Companies establish a sustainable competitive advantage over other competitors. One key strategy that companies have often adopted to sustain in the long term is continuous growth to become recognised brand and dominant that they can set the agenda. Thus we see huge multi-national corporate in various sectors particularly in retail, food and beverages that are dominant and sometimes act as monopolies. However, pursuing a strategy of growth simply does not mean that corporate can expand their businesses, survive and remain successful. In the past, many organisations have adopted various strategies and implemented all of them but have failed. This is because like any other strategy, growth strategies must be carefully formulated and properly implemented. If not, there could be severe consequences.

There are many organisations particularly in the UK that are aspiring to expand their presence. However, a number of huge western based multi-nationals exist that are dominant and follow entry deterrence strategies such as patents, limit pricing, cost advantages, aggressive advertising and marketing etc, in order to prevent other organisations from taking their market share or eroding their margins. We shall study in this dissertation, the growth strategies that such emerging organisations adopt and implement to capture the markets and also see how they encounter the indirect entry barriers imposed by the giant multi-nationals.

Aims & Objectives

The Goal of this dissertation is: to analyse the various strategies that can be composed by an organisation and the ways that they should be implemented; to list the various possible outcomes that can be achieved by an organisation with proper planning and implementation of a strategy; to study the reasons why it is important for organisations to plan and have alternative strategies

Even though many companies form strategies and implement them, not all of them may succeed. So, why do companies fail to achieve their objectives with the implemented strategies. The main purpose of this research would be based on Andronicas – World Of Coffee (AWOC), the way they work on the strategies they plan and the implementation process to make it a success. A Study would be done on the problem that they have faced and are facing in the present and the past while implementing their Retail business strategies to become a recognized brand.

The objective is to complete the study with all the required literature review and theory which relates to strategies formulation and implementation. Analyses the reasons, motives, process and other aspects related to strategies formulation and implementation. The main objective is to have a brief study on how Andronicas- world of coffee has planned its strategy and has implemented it, in order to enter highly competitive market of coffee chains and become a leading Retailer in UK. Analysis will also be done on the performance of this organisation and the growth achieved in short span of time.

The objectives that we aim to explore are given below :

• To Examine the strategies formulated by Andronicas- World of Coffee for establishing their retail business within UK.
• To analyse the different steps and ideas they used and implemented for establishing their retail business in LONDON.
• To find out what Andronicas- World of Coffee was and what it is now after the implementation of its formulated strategy.
• To study the impact of ongoing Financial crisis on Andronicas as a business.

Purpose of Study:-

The fast growing competition in business market has raised the need for new markets. This has inspired many small organisations to grow and provided opportunities, for which various strategy needs to be formulated. The purpose of research is on what field a company needs to concentrate and what strategy it should apply in order to enter the highly competitive market. The implementation plans of company play a vital role. Even though strategies are planned well but some companies fail during the implementation process, this is because of improper communication/ short term plans. The implementation process needs to be monitored very carefully. The purpose of the study is to identify the strategies that organisations plan and the way they try to implement it. The main aim of this study is to describe a method that can be adopted by Small medium enterprise to enter a highly competitive market that is already dominated by big market players with the Example of Andronicas -World of Coffee.

Managers and leaders of companies are constantly involved into decision-making. They use different types of strategy to ensure that their business not only survives but brings profit. . Strategic ideas are relevant for all types of organization, and many of the key issues are the same although they may differ in their relative significance. All businesses in the competitive environment are affected by strategy and strategic issues – if not their own, then those of the competition or the external environment[2]. Long-term strategic success requires coordination of the managers’ efforts and effective structure of the managerial department of the company.

Introduction to the Industry

Coffee makes us severe, and grave, and philosophical

– Jonathan Swift, 1722

Possibly the cradle of mankind, the ancient land of Abyssinia, now know as Ethiopia, is the place where coffee was born.

In today’s world beverages sector comprising of coffee as a sub sector is one of the key segments of the economy having extensive and forward and backward linkages with other key segments of the economy. According to the latest coffee statistics from the International Coffee Organization (ICO), we pour about 1.4 billion cups of coffee a day worldwide. In fact when we look at per capita coffee consumption, the U.K. is #22 on the list with about 5 kilograms of coffee per person per year[3].

The coffee industry has grown rapidly since the 1990s; before Starbucks emerged, people were used to drinking low quality coffee from tins. Starbucks introduced fresh coffee made from top quality beans that have excellent taste and drinks such as the caffe latte and cappuccino, which have helped to fuel the development of the coffee market into a multi million pound industry. The size of UK branded coffee chains have quadrupled from 1999 to 2004, with a current market turnover of over £1 billion.

However, Britain’s coffee may finally be taking a new direction. Take a walk through London and you’ll see a rash of trendy independent coffee houses, with blackboards boasting of freshly roasted, Fair Trade beans and organic milk. Retail sales at specialist coffee shops reached £1 billion for the first time in 2007 and were almost £1.2 billion in 2008. High street chains such as Costa Coffee, Starbucks and Caffe Nero are also performing well, with 890 new branches of branded coffee shops expected to open before 2012, but they are upping their game to meet our rising expectations.

Jeffrey Young, of the consumer analysts Allegra Strategies, says: “We’re seeing a movement to a stronger coffee palate. People say that their Starbucks is not strong enough, that Nero is stronger than their Costa. That’s something that no one was talking about ten years ago. There has been a massive revolution in coffee drinking, from drinking instant or filtered in a polystyrene cup a decade ago to espresso-based drinks made from 100 per cent Arabica beans today.”

UK being an upcoming market for coffee shops, with an estimation of more than 11000 outlets opened so far and number still increasing. The total turnover of the whole coffee industry is estimated to be over £1.63 billion for year 2009.[4] Estimations for year 2010 are expected more than 13000 coffee shops, including small, medium and independent businesses

Introduction to Andronicas – World of Coffee (Source: – Andrew Knight)

Form of Ownership:

-Andronicas Coffee is a private limited company whose entire share capital is under the control and ownership of Andrew Knight.

Andronicas Coffee – a coffee roaster/ supplier vertically integrated, accessing green coffee at source, roasting and processing through to the point of sale, via either catering or retail industries and including the equipment required to produce the finished drink. With a 25year history of selling, serving and operating retail outlets, adopting the best of both the Seattle and European model. Focused now on trade sales identifying customers whose ideals of quality, taste and service, expectation are at the top end of the market and who see outlet expansion as the driver for their business. Promotion of our brand identity is important but secondary to the overall success and profitable growth of our business. To develop staff skills and competence to recruit to fill any gaps and to take the opportunity forward, always keeping in mind the potential property opportunity as it arises and being in a position to take it up. Maintaining our commitment to re-invest each year across marketing, new plant, product development and if appropriate acquisition i.e. office coffee service.

Not to lose sight of what we have in the pursuit of what we want. Strive to do what we do better – always.

The company commenced business as a retailer of real coffee in the Kensington department store, Barkers in 1979. The addition of a tasting facility lead to our first conflict – the restaurant manager unhappy that we should be offering a free tasting to his potential customers as they walked through the door resulted in some initial difficulty. The compromise reached with the store manager was that we could charge for our sample. This led us to operating one of the first espresso bars in London. It was popular with both the store and customers in equal measure, was extremely profitable, our rent being based on a percentage of sales and led directly to the opportunity to replicate the model at a second House of Fraser store in London’s Victoria, just 18 months after the Kensington store opened.

At this time we had installed a small coffee roasting machine. This brought a multiple benefit; vertical integration, aroma at the point of sale, credibility and increased profit.

When House of Fraser invited us to open a third site at Rackhams of Birmingham, it was at the banks suggestion that we should try for our own site. This led to acquiring a lease at 15 St John’s Wood High Street in 1983.

We had by this time embarked on the wholesale side of coffee supply to local restaurants and with the acquisition of the lease at St John’s Wood installed a 25 kilo professional coffee roasting machine in order to become self sufficient with our coffee. We considered franchising as a possible means of further expansion.

The St John’s Wood shop was the ideal coffee shop model; a catering led operation, roasting on-site, front and rear access and space for an office. By now the coffee shop offer was growing to include a lunch-time dish of the day.

It was around 1988, we received the disappointing news, Barkers was to be redeveloped and all concessions were given 6 months notice to quit. Certainly this was a rude awakening, how quickly 6 months goes. So we acquired the lease of another shop nearby in Kensington Court and then had four sites, all trading in profit, each slightly different. Just as we had spare space in St John’s Wood, so too a basement in Kensington allowed for the acquisition of a proper factory packing machine, allowed us more control, independence and profitability.

As we assessed a way forward at that time, the expansion of the wholesale side of the business appealed more and our view that department stores, not delicatessen shops were the place to sell real coffee to the consumer, that led us to target Harrods, Selfridges, Fortnum and Mason and Harvey Nichols. In order to access funds to finance a production facility, we had to sell the lease on one of the two London shops. The first offer was for St John’s Wood, so that sale allowed us the opportunity to put a production facility in place in a railway arch in Camberwell.

The successful conclusion of the contract to supply all Harrods retail coffee resulted in the need to acquire plant machinery, printing and packaging which quickly burnt through the £120,000 that was paid for St John’s Wood and forced the sale of the Kensington shop to give us sufficient cash flow. (The Kensington shop sale was another fascinating lesson in small business management, but not terribly relevant to this). Suffice to say, the timing of the sale was perfect and ultimately led to the opportunity to acquire the freehold of Great Eastern Street.

Having successfully become the supplier to Harrods, we added the exclusive supply of coffee by catering and retail to Harvey Nichols (that was juggling) and Selfridges.

Today even fifteen years later, we are still in that happy position and whilst we only supply a few fringe coffee beans to Fortnum & Mason, as the family owning the store also own Twinning’s, we count that as quite an achievement.

Our luckiest break on the catering supply side was to supply an espresso machine and coffee to the first Café Rouge also around 1989. This company went on to expand to 120 sites nationally, acquired the Dome chain and instigated the idea of a restaurant being willing to sell a cup of coffee at any time of day. A bit like Barkers, the news in 1995 that Pelican Group was acquired by Whitbread, owners of Costa Coffee, came as a disappointment. Even then it took Costa three years to take the coffee and machine contract away from us.

Another major customer is AMT Espresso Bars, established in Oxford around 1993, they had two coffee carts when we discovered the operation. Here were three brothers, passionate about their business and their coffee – our coffee. Today with 43 bars nationally focussed in railway stations, there coffee sales are quite remarkable, though naturally confidential.

All this brings us to the point. We have helped a number of high profile customers achieve consistent record sales of real coffee – our real coffee, but nobody knows, nobody has even heard of Andronicas. (Our coffee produces over 50 million cups annually).

We want to continue to develop the business as it is. Continue to sell, supply and develop coffee sales in all of these customers under their brand, but additionally and to different customers we want to sell our brand. The historic and existing business being the income stream to support the next opportunity, but which must remain the primary focus, i.e. the existing business can in no way be jeopardised by the plan for the Future. Our growth might well be limited by that fact, but there is always tomorrow.

Our experience and strength are bound up in a passion for the product. From the grower and processor, we import only the finest beans, anybody can say it and they all seem to, even Kenko (part of Kraft Foods) – but we have seen their factory and others like it. When you grind their coffee beans they look just like mine. Statistically the UK imports very little fine coffee, so somebody is lying. As always it comes down to money. Today I can buy Arabica coffee for £1,000 per metric tonne. We actually pay around £1,800 per tonne so naturally we get something much, much better. It really is that simple. We can only afford to pay more because our customers have the same view, they are willing to pay more because they in turn are saying the same to their customers and so it goes. Be it retail or catering pay more, get better, pay less, get worse. It will always be easy to drive down the price; always it will be pointless.

So we have the best green beans, now we have to roast them. Our processing plant is equipped to roast coffee in batches of 1, 12, 60 and 120 kilos. This flexibility is of key strength, but more important than that, immediately after roasting, our coffee is securely packed, excluding all the oxygen immediately. This is only possible with state of the art valve packaging equipment. Whether nitrogen or vacuum packed removing the oxygen is critical to the aroma, taste and life of the coffee. NB you cannot vacuum real coffee twice, it only works when freshly roasted. The public does not understand this fact at all.

The third critical ingredient to great coffee we will call the barista, the person who makes the coffee. If person one, the grower, person two, the roaster have not done their job, number three cannot win. However even when one and two have done their job correctly, number three can destroy it.

So coffee the nectar of the gods, requires the skill resource and commitment of at least three people to achieve greatness. Given the consumption of coffee in just the UK alone exceeds 150 million cups per day, the scale of both the challenge and the opportunity can only be marvelled at.

Andronicas core skill is in understanding the variables and bringing their expertise to endeavour to help the consumer make great coffee. Be it through bars serving it by the cup or at home made by a myriad of equipment from the simple French pot, the sophisticated Italian espresso machine, a German filter system, a Turkish pot or the elegant cafetiere.

Going back to the bars, today’s fashion is for espresso-based drinks and the machines used to do this form an important part of the company’s business model. Espresso machines used extensively in every modern catering environment are a key opportunity to develop new business and a great opportunity to build long term customer relationships, through service, maintenance, training and lead to the identified opportunity here ‘ BRANDING’.

Traditionally a bar serving espresso purchases beans packed in kilo bags. This is emptied into a hopper feeding the grinder; the coffee is therefore nameless. In order to identify the brand at the point of sale, the outlet might well be given china cups that bear the brand of the coffee roaster.

Our idea is to change the pack from bag to tin. Instead of emptying the bag of beans, a 2-kilo tin replaces the unbranded hopper. Vacuum packed at the factory this tin allows us to identify our brand at the point of sale. The additional supply of branded cups, china or paper, and other point of sale material, to get the message across at the time the product is being consumed. This should therefore be self-financing. Accepting that our brand is of no commercial value yet, the means to achieve the trade sale is to additionally personalise the 2 kilo caddy with the clients outlet brand. In other words Andronicas Coffee at ………..

Our desire then is to sell our coffee to a new group of trade customers where they are keen to sell the product as Andronicas Coffee. This in itself is not difficult. Coffee is a competitive market, our history, experience and resource make it a relatively straight-forward proposition. An investment in manpower, accessories to support the offer, the process is essentially similar to our current programme.

Moving beyond this, the reason for creating the brand in the first place is to get back to our retail roots and to create value in Andronicas Coffee as a brand and therefore as a business.

We have already indicated that access to market in the retail arena is through supermarkets, departments stores, speciality coffee retailers or mail order. Our view is the supermarkets are not an appropriate route for our company taking account of our existing customer base, our size and brand recognition.

We are established in retail through department stores and therefore any activity to promote our coffee would be like shooting yourself in the foot. Speciality coffee retailers are unlikely to support our brand and are in any event a fragmented group, which brings us to mail order.

Back-tracking a moment – picture a coffee salesman visiting an espresso bar. His objective is to persuade the bar owner to change coffee suppliers. Having made that change and assuming everything the salesman says is true, one would have every reason to suppose that espresso bar owner would continue to purchase a case of espresso beans every week indefinitely. That is what Andronicas does, it persuades espresso bar owners it has great coffee, will not change the blend, will deliver consistently what they require, will not change the offer, price or any fundamental. Allowing him to offer his customer the same and build his business to such an extent he may open a second espresso bar. Who is he going to call?

Picture if you would just for the exercise, a salesman in a car showroom. Imagine for a minute the different objectives of both these sales people. One wants a sale now, today. The other wants a sale indefinitely. They both come from the same place, they are both going somewhere entirely different.

Now back to our retail opportunity. The consumer is a little like our espresso bar owner. They want great coffee, easily accessible, at good value for money, consistently. The supermarket fulfils that need extremely well. The only thing missing is the romance. There is no romance with supermarket coffee. We might all like the coffee specialist, but we don’t have the time and there is no consistency.

Mail order might be able to fulfil these objectives, but the cost of finding these potential customers would be excessive. However if the offer was good and met the requirements, it is conceivable such a person could purchase one 250g tin every week, for ever more.. Just like our espresso bar owner.

Buying direct from the roaster, who is also the importer, is the romance.

Operationally for us this is simple. The clever or difficult part is identifying those one in ten UK coffee drinkers who really do only drink real coffee at home.

Events. Picture if you would any day out you have been on. A county show, a day at the races, museums, air shows, Henley, Wimbledon. We don’t even expect a great coffee and we are still disappointed. Imagine being at one of these events and being served a great cup of coffee. Yes, it is possible. Might you think I wish I could get coffee like this at home. That is where we want to get to. Serving coffee in locations, the expectation is low, making a great drink and converting the customer to a mail order user.

Difficult as it may be, the beauty of the idea is they are going to pay for the tasting and so building this opportunity should be self-financing and by focussing on this avenue to the consumer, we should not alienate our existing trade customer further we are establishing the brand recognition of Andronicas Coffee to his and our benefit.

Andronicas – world of coffee 4th floor Harrods Knightsbridge, is a concept Gourmet Coffee shop, where Term Freshly Roasted means just that. Here green coffee beans are roasted to customer’s specifications in the desired quantity. Having identified, what we consider the right ingredients for the perfect coffee shop, we are focused on the other locations where the concept would be appreciated. By Easter 2010 we will have opened Andronicas – World of coffee at Covent Garden, Excel East and West, and Garden Park Peterborough.[5]

Structure Of dissertation:-

Developing a theoretical framework incorporating a number of ideas and findings relevant to understand the factors affecting Small medium enterprise entry barriers. In Chapter two a substantial body of literature is presented about different marketing strategies and branding models.

In Chapter three, the methodology used in research concerned with entering market and brand development is presented. A qualitative research is proposed with the elaboration of focus groups. The use of a guide for the moderator was needed in order to help the researcher to put the research question in parallel with the topics to probe. Also the codification technique is used to organize the information later on.

Finally, Chapter four presents the findings of this dissertation, giving an explanation of what the factors influencing the marketing strategies of any small medium enterprise. It also presents a comparison between the factors extracted from different authors and the ones found in this research evoking interesting potential directions for further research.

Literature Review

“Perception is strong and sight weak. In strategy it is important to see distant things as if they were close and take a distant view of close things”[6]

This chapter is based on brief explanation about how strategies are formed and how they are implemented for any organisation in order to become successful and survive. Strategy is one of the key elements and a major concern for any organisation for its survival in future. Here in this chapter we are trying to explain various theories and concepts that have been put forward.

Why Strategy?

“Like politics, strategy is the art of the possible; but few can discern what is possible”.[7]

Strategy in terms of business means planning how to reach the objectives of the company and how the planning should be implemented. “Strategy is a the pattern of major objectives, purpose or goals and essential policies or plans for achieving those goals, stated in such a way as to define what business the company is in or is to be in and the kind of company it is or is to be” Andrew’s (1971). In simpler terms can be explained as “The strategy of the firm is the match between its internal capabilities and its external relationship. It describes how it responds to its suppliers, its customers, its competitors and the social and economic environment within it operates” Kay (1993). Andrews’ definition clearly identifies two different processes, formulation and implementation, and the interrelation between these two concepts.

“Strategy as the determination of the basic long term goals and objectives of the enterprise and the adoption of the courses of action and allocation of resources necessary for carrying out those goals” Chandler (1962)

Mainly strategy is maintained at three main levels in any organisation.

1. Internal Resources: It means the capital and the investments in the business, employee’s and their skill sets are resources for the company. To make most of these resources a proper strategy needs to be implemented, and that helps organisations to make most of the resources and that helps to survive and stay in the market.
2. External environment within which the organisation operates: Environment means every aspect external to the organisations. It’s not only the economic and political situations but also competitors, customers and suppliers. Organisations need to develop strategies that are best suited to their strengths and weaknesses in relation to the environment in which they are operating. According to Mintzberg H (1987) Environment is so uncertain, particularly in global level, that it may be impossible to plan a long term strategy. This may need to be crafted, i.e. built up gradually through a learning process involving experimentation. Strategies need to be devised to cope with such difficulties
3. The ability of the organisation to add value to what it is doing presently: To ensure long term survival an organisation must take the supplies it brings in, add value to these through its operation and then deliver its output to the customer. The purpose of the strategy is to bring about the conditions under which the organisation is able to create this vital additional value. The strategy that is formulated should also ensure that the organisation adapts the changing circumstances.

Strategy of a business is in cooperation with art and a science. Particular strategy will not be appropriate for all the cases. Small and medium companies coming into existence has increased substantially over a period of time. Marketing situation is completely different in small to medium enterprise then larger corporations. Gilmore, Carson and Grant (2001) use the limitations for companies to explain the differences. The limitations are capital, time, marketing knowledge and limited impact on the market place. Marketing strategy in terms of small and medium firms is lot different than multinational and larger firms. According to Gilmore (2001) marketing is casual, amorphous, reflex, and is build in the lead and in compliance to industry norm.

Small and medium sized organisations are a very diverse faction. The strength of the company does not decide the purpose and goal’s of the organisation. This wide range of Small medium organisations can be categorised hooked on three groups Child-, Dwarf- , and pygmy- companies Brytting(1998). This categorization is done on the foundation of organisation’s ambitions and potential of expansion.

Child companies are undersized because they are newly taking place. These companies are on the rise, resolve with time and the right resources increase beyond their present size.

Dwarf companies are small because of internal issues. A dwarf company is disabled with its undersized manpower. This type of business needs to develop or else reshuffle in order to be ready for action.

Pygmy companies are small because that is most suitable size. Pygmy companies are small because they don’t try to grow. They are cost-effective and economical in their current size. Growth is generally qualitative because organisational expansion is not attractive.

According to Brytting’s (1998) categories give three reasons to give explanation why a company is small. The company is small because it is a new entrant, some is wrong with in the organisation or, it is designed to be small.

In marketing a niche brand is strong within its market division, but small in unconditional terms (Doyle 1990). Companies that come under this category can be highly cost-effective without a large share of the market. According to Doyle (1990) it is possible for a small or medium company to receive comparatively better returns on investment then ratio then rest of the market leaders. Bergvall (2001) explains the fact how small and medium sized companies can be successful in their own markets. A small company is more supple and are innovative as they are physically more closer to customers/ market (Bergvall 2001) .Smaller organisations are have a flatter structure in size, that makes decision making process simpler.

In current management view, marketplace is captured by communication and exchange of assets involving network partners (Norman & Ramirez1998). Drucker (1974), the honoured management guru said “doing things right,” or efficiently, could not save the company when it was not “doing the right things” Both operations and strategic management must be done well to be successful, to gain and maintain a competitive advantage. When the world is changing, managers need to share some common view in the new world. Otherwise, decentralized strategic decisions will result in management anarchy.

Strategy has both pros and cons:

1. Strategy sets trend: At present this statement has uniformly advantages and disadvantages. The key function of the strategy is to map the road of a business in order to find the approach cohesively all the way through the situation. But the drawback is that occasionally strategic decision can also serve as a set of blinders to hide potential dangers.
2. Strategy focuses effort: Strategy tries to build and promotes team work in an organisation, lacking strategy it can happen that the employees start running in different directions. The drawback on this is faction arises when attempt is too carefully determined, that results in avoid
   
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