Dated: 20 Nov 2019
Table of Contents
Introduction
The main purpose of the assessment is to conduct a feasibility analysis on a business plan which is regarding a fast food outlet offering Chinese food in the UK. The fast-food industry is significantly growing as more and more youths are engaged in having more fast food and lower healthy food products. The analysis would also be including a detailed market analysis for the business so that it can be ascertained whether opening the Chinese food outlet in London is a good option or not. The discussion which is shown below would be comprised of different kinds of tools so that a detailed market analysis can be done for ensuring that the market would be favorable for the type of business which is to be established. The discussion would be showing the application of PEST analysis so that the management is able to get an idea of the external environment in which the business would be set up. In addition to this, value chain analysis would also be used to show what values are created by the new venture. The pain relievers and takers would be identified in this analysis. In addition to this, the discussion would also be showing Porter’s Five forces model so that it can be appropriately be identified which factors affect the operations of the business and to what extent. The decision regarding the feasibility of the proposal would be done considering the results which are obtained from the external environmental analysis.
The market of the UK is considered to be favorable because of the demand for Chinese cuisines in the market. As per the recent study of the market situation in the UK, Chinese food falls in the top five cuisines which are preferred by most of the people in UK. It is to be noted that London also has its own china town where people go to enjoy authentic Chinese cuisines. It is therefore for such reasons that the management of the company is trying to establish a Chinese outlet shop in the region so that the business is able to generate maximum revenue from the operations of the business.
Discussion
Estimation of Cash Flow of the Business
The cash flow statement of a business shows the cash inflows and outflows of cash of the business and is an appropriate statement that shows the liquidity status of a business. The cash flow for a business needs to be estimated so that a clear idea of the operations can be obtained regarding the financial viability of the business. The cash flow for the business can be forecasted with the help of previous year trends. In order to formulate a proper cash flow of the business, the first step is to identify all the income and expenses of the business. This is done so that it can be ascertained as to which activities are causing maximum cash inflows and outflows in a business. On the basis of the cash flow which is forecasted, decisions regarding investments which is required in the business and also financing prospects are also taken.
PEST Analysis
PEST Analysis is undertaken by a business to understand the external environment in which the business starts its operations (Gupta 2013). The external factors play a vital role and can have a direct impact on the revenue which is generated by the business in the initial years. In the case of PEST analysis, four factors are considered which can have an impact on the operations of the business and thereby on the profits which are generated by the business. The four factors which can be presented for the new Chinese outlet in the UK are explained below in details:
Political Factors
The competition in the food industry has grown tremendously over the years and this has attracted more entrepreneurs to try their hand in the business. It is a trend which is followed by most of the restaurant’s businesses, that more and healthier food items are being added to the mix for serving all classes of customers (Barbara et al., 2017). The government has also been in support of the industry to expand into a more healthier section of food so that the health of the people can be maintained. It is therefore for such reasons that numerous regulations have been brought in so that there is no compromise with the quality of the food which is offered. The new Chinese business would be attracting all classes of people and would be having different varieties of food ranging from soups to Chow Mein. The political environment would be a matter of concern for the business as numerous rules and regulations are being established. The same can have a negative impact on the revenue which the management of the business anticipates to generate.
Economic Factors
The economic environment also plays a vital role in the survival of a business as it is on the basis of the same major decisions are taken on behalf of the business. The economic factors include unemployment rates, fluctuation in the prices of inputs and resources. In the case of the new Chinese outlet, the most important component which needs to be considered is the raw materials for cooking food and soups. If the prices of such components increase due to inflationary pressure or any other factor than the cost of operations of the business would be significantly high. The management of the company must consider before making any decision regarding commencing the operations of the business (Antoo, Cadersaib and Gobin 2015).
Social Factors
This is another important factor that has an impact on the revenue or operational process of the business. The social factors include changes in the taste and preference pattern of the consumers. In recent times, a lot of emphasis on being put in a healthy and balanced diet approach so that fitness level is maintained. This can affect the business as most of the customers might switch to a healthy diet thereby affect the sales of the business and also the revenue which is generated by the business. Therefore, this factor should also be taken into consideration by the management of the business before initiating the plan.
Technological Factors
The level of technology in the market has also been advancing and new and better equipment is now available in the market to make the same product. In addition to this, innovative packaging and labeling also attract customers. The management of the company needs to stay updated at all times so that they are able to take competitive advantage of the technological advancement to generate more revenue. If the business is not able to cope up with the competitive advantage than the business would be suffering losses.
Value Chain Analysis
Value chain analysis is a strategic tool that is available to the management of a company so that the business can strengthen the internal activities of the business and further create a competitive advantage in the market. Value chain analysis allows a business to improve the internal structure and bring about more efficiency in the operations of the business (Mohajeri et al. 2014). The value chain analysis for the business of Chinese outlet in the UK is provided below showing different activities which the business needs to initiate:
The diagram which is shown above represents the porter’s value chain model and also shows the internal processes which the business needs to follow for the purpose of creating value in a business.
Inbound Logistics: This process involves a range of activities like receiving, storing, distributing the materials which are to be used in the operational process of the business. In the case of a Chinese outlet, materials such as spices, lamb, noodles need to be stored and the same needs to be acquired from a supplier (Holweg and Helo 2014). This forms part of inbound logistics.
Operations: This is the main activity for the business wherein the material is converted into the final product which can be sold to the customers. In the case of a Chinese outlet, the order would be taken from the customer and prepared accordingly to be served.
Outbound Logistics: The activity involves, storing and transporting the final product to the customers so that sales can take effect. In the case of a Chinese outlet, the business would be providing delivery services and take out orders for customers so that the sales of the business can be enhanced.
Sales and Marketing: This refers to active promotion for the product which is being offered by the business so that awareness can be spread among the people regarding the product which is being offered by the business (Ouzrout et al. 2018). The Chinese outlet would be required to promote the product and the place so that the people are aware that a new Chinese place has opened near the corner.
Service: This refers to the customer service which is offered after the sale has taken place. These form part of additional services which are provided. The business of the Chinese outlet is based on both product and service model and therefore, it is quite natural that the business might be required to look after the needs of the customers.
The above-discussed activities form part of primary activities that have a direct impact on the operations of the business and also on value creation. The support activities comprise the firm’s infrastructure, procurement, human resources and technological level (Zott and Amit 2013). All these factors combined together create value for the firm in the long run and the same needs to be considered by the management of the company to take major decisions. The infrastructure of the firm is considered to be important as the operations of the business would be taking place in the same and all the resources such as spices and noodles would be stored accordingly. The procurement of the materials is also an important step as the same is indirectly related to the production process and the same assists the business with the generation of appropriate revenue (de Souza and Márcio de Almeida 2013). In addition to this, the human resources comprise of the chef, managers, support staff who would be looking after the needs of the customers and also taking orders from the same. The staff members would also be ensuring that the customers are satisfied with the services and food of the business. Lastly, the level of technology always has an impact on the business and can create a competitive advantage for the business if the same is utilized in a proper manner.
TOWS Analysis
TOWS Analysis is a tool that is used by the management of a company for the purpose of strategic planning. The tool can reveal the best possible scenario for the business to generate maximum profits and also scenarios which the business needs to avoid. TOWS Matrix standards for threats, opportunity, strengths, and weaknesses. The purpose of the analysis is simple, to understand the internal factors which can be improved and also external analysis so that threats and opportunities are available in the market (Al Salmi and Hasnan 2015). The matrix allows the management to attain the best possible combination for the purpose of generating appropriate revenue and at the same time also achieve growth in the operations of the business. In the case of a Chinese outlet, there is an opportunity in the market to expand the operations of the business and thereby create a brand name for itself in the market. The business should look for a situation of strength and opportunity so that the business is able to make most of its and generate more profits from the operations of the business (Alaaraj and Hassan 2014). The analysis is considered to be very useful for framing policies and sticking to the strengths of the business.
STP Model
Segmentation, Targeting and Positioning model is a widely used tool for the purpose of marketing and the same can be very useful for creating a brand and spreading awareness among the customers. Segmentation requires the business to segregate the total populations in segments which the business would be looking to target. It is to be noted that the market segments have their own characteristics and therefore, it is imperative that the buying behavior of the customers needs to be identified first and after that steps can be taken for the purpose of enhancing the sales of the business. The next step is targeting the segment from which the management of the company feels maximum revenue can be generated. The product which is to be developed should be according to the segment and considering their characteristics. The next step is to develop a positioning strategy for the products and also developing an appropriate marketing mix for the product. The STP model is considered to be successful due to the fact that it covers all essential parts of marketing and helps the business to formulate a proper marketing strategy.
In the case of a Chinese outlet, the business would be relying on youths and kids who have a craze for noodles. In addition to this, the business would be keeping something for all classes of customers so that the business can generate revenue from different sources and follow a diversified line. The STP Model also allows the management of the company to apply a proper positioning strategy which are initial steps towards the development of the brand. The management of the company would also be looking to offer free meals on the first day as an act to promote the food of the restaurants and also for noting whether the customers are liking the product or not.
Porter’s Five Forces Model
Porter’s five force model is a strategic tool which aids the organizations to undergo competitive analysis. The analysis is done by identifying and evaluating the factors influencing the five competitive forces (Harding, 2017). The result of the porters five force model helps the organization to determine the strength and weakness of the market and take appropriate action according to the analysis. In order to open a new Chinese business in the United Kingdom, the business will have to implement Porter’s five forces model to determine the sustainability of the business in the UK market. According to the study by International Markets Bureau the food industry in UK has been emerging with tremendous growth in various restaurants and café. This food industry in UK contributes a high share in its economic growth. The five forces are as follows:
The threat of new entry:
The threat of new entrants in the United Kingdom is found to have moderate force on Chinese business. It is evident that there are around 1,406 Chinese restaurants in the United Kingdom and is observed to increase in the past 6 years. The new entrant tries to take full potential and capacity and aspiration to undertake the market share. The threat of entry into a business depends upon the potential barriers of the entry from the already existing competitors. The new Chinese business will be having tough competition in the market of United Kingdom. The other barriers which could possibly impact the Chinese business are capital requirements economies of scale, product differentiation and thereby the government policy. As per the economies of scale is moderate in United Kingdom and therefore making the entry easier. On the other hand the United Kingdom has been facing challenges due to Brexit, due to which there are political instability and uncertainties. However, due to the political affair the Chinese business will have to be profound in taking the decision.
Threat of Substitute
The threat of substitutes has high force for the Chinese outlet since there are several other substitutes that do exist in the United Kingdom. The Chinese business has to implement major strategic like product differentiation and with effective pricing strategy (Cao, Duan, and El Banna, 2019). The business needs to create demand within the market in order to draw the attention of the customers. There are a number of restaurants and sit-down restaurants with street food which is highly preferable by the customers. Therefore the business will have to make a different approach to gain the attention of the customers.
Negotiating power of buyer:
According to a survey, it is observed that London is very popular for Chinese food, around 80% of Londoners visit Chinese restaurants (Zhao et al., 2016). Chinese cuisines are found to be one of the top five cuisines in the United Kingdom. Therefore there is a moderate bargaining force of the buyers, the Chinese outlet will have a good start in United Kingdom. At the same moment, the business needs to build brand loyalty and customer satisfaction since there is number of Chinese restaurants in London and the buyers are already comfortable with the existing service (Lüttgens and Diener, 2016). The business could set affordable prize with extra service to the customer for the initial attention. Since the buyers have various choices to make different products and advertisement strategies will help investors to underpin their business in the market.
Negotiating Power of the Suppliers:
The negotiating power of the suppliers possesses a weaker force in the United Kingdom. Since there are a number of suppliers worldwide and oversee which helps the restaurants to get the raw materials for their products. Therefore, supplier power is observed to be low in the United Kingdom market. This factor is quite beneficial for the business as the business can afford its raw materials at cheap price. In any organization the investor tries to lower the overall cost of the business. Since there is huge number of suppliers providing service in London the business can achieve cost-effectiveness through getting cheap raw materials.
The rivalry between Existing Firms
The market opportunity or pressure exerts a greater influence on the big players in the market. The market provokes to do advertising battles, price competition, increased customer service, new product development, new innovations, and major tactics and strategies to attract the potential customers (Ge and Li, 2019). There is no doubt that the immense completion of the Chinese outlet in the market of London. There are already big players existing in the market and can give high competition to the employees. If there are equably balanced competitors in the market the business needs to develop strategies and tactics in order to gain a competitive advantage in the market.
Reference
Cao, G., Duan, Y. and El Banna, A., 2019. A dynamic capability view of marketing analytics: Evidence from UK firms. Industrial Marketing Management, 76, pp.72-83.
Harding, S., 2017. MBA management models. Routledge.
Lüttgens, D. and Diener, K., 2016. Business model patterns used as a tool for creating (new) innovative business models. Journal of Business Models, 4(3)
Zhao, Z.Y., Zuo, J., Wu, P.H., Yan, H. and Zillante, G., 2016. Competitiveness assessment of the biomass power generation industry in China: A five forces model study. Renewable Energy, 89, pp.144-153.
Gupta, A., 2013. Environment & PEST analysis: an approach to the external business environment. International Journal of Modern Social Sciences, 2(1), pp.34-43.
Barbara, C., Cortis, D., Perotti, R., Sammut, C. and Vella, A., 2017. The european insurance industry: A PEST analysis. International Journal of Financial Studies, 5(2), p.14.
Antoo, M., Cadersaib, Z. and Gobin, B., 2015. PEST framework for analysing cloud computing adoption by Mauritian SMEs. Lecture Notes on Software Engineering, 3(2), pp.107-112.
Mohajeri, B., Nyberg, T., Karjalainen, J., Tukiainen, T., Nelson, M., Shang, X. and Xiong, G., 2014, October. The impact of social manufacturing on the value chain model in the apparel industry. In Proceedings of 2014 IEEE International Conference on Service Operations and Logistics, and Informatics (pp. 378-381). Ieee.
Holweg, M. and Helo, P., 2014. Defining value chain architectures: Linking strategic value creation to operational supply chain design. International Journal of Production Economics, 147, pp.230-238.
Zott, C. and Amit, R., 2013. The business model: A theoretically anchored robust construct for strategic analysis. Strategic Organization, 11(4), pp.403-411.
de Souza, C.D.R. and Márcio de Almeida, D.A., 2013. Value chain analysis applied to the scrap tire reverse logistics chain: an applied study of co-processing in the cement industry. Resources, Conservation and Recycling, 78, pp.15-25.
Ouzrout, Y., Savino, M., Bouras, A. and Di Domenico, C., 2018. Supply Chain Management analysis: a simulation approach of the Value Chain Operations Reference model (VCOR). arXiv preprint arXiv:1811.01683.
Al Salmi, M.A.A. and Hasnan, N.B., 2015. SWOT and TOWS matrix e-Government analysis review on Sultanate of Oman. International Journal of Learning and Development, 4.
Alaaraj, H. and Hassan, S., 2014. Developing SWOT/TOWS Strategic Matrix for e-government in Lebanon. International Journal of Multidisciplinary Research and Development, 1(7), pp.181-186.
Ge, L. and Li, C., 2019, April. Analysis of competitive Power of Chinese Sports Apparel Brand based on Porter’s Five Force Model. In Proceedings of the 2019 3rd International Conference on Information System and Data Mining (pp. 54-58). ACM.
Appendix:
Start-up cost
Sales Forecast
Cash flow forecast
Depreciation Schedule
Profit and Loss Forecast
Balance sheet
Comments