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Case Study: SumoSam Foods Inc.

Nielbert de Leon Jedrek Estanislao Ariel Gumabon Erle Lope Rod Rojas Rachel Ronquillo BA 291.1 Strategic Management I Professor Art Ilano August 11, 2011 Case Study: SumoSam Foods Inc.

I.

Introduction

SumoSam Foods, Inc. (SFI), a young company showcasing a group of sophisticated restaurants, has successfully captured the trending fusion cuisine popular with the AB market. In less than four years of operation, SFI has become the restaurant industrys new darling with at least four of its five restaurant brands, Sumo Sam, JohnandYoko, Mr. Kurosawa, Marcianos and SumoSam Express, enjoying leadership status. II. Problem Statement

Just like any business, the owners, Marvin, Ricky and Raymund want to grow their venture. Keeping in mind the features of their multiple brands, the target markets, and their strategy of locating in the malls, what should be the strategy of Marvin, Ricky and Raymund to sustain and grow the business? III. Analysis

SWOT Analysis

STRENGTHS INTERNAL ADVANTAGES A young, innovative and multi-faceted set of owners with great passion for new products and unique offerings sourced from the world over Strong brand that has been popular with most AB malls Proven success of multi-brand strategy Instinctive desire for further expansion Japanese theme is apparently the strongest link ability to conceptualize and operationalize different restaurant brands/themes

WEAKNESSES INTERNAL DISADVANTAGES

High material and operational costs Poor affinity/ exposure to BCD markets High capitalization demand of expansion High risk of hit-or-miss strategy as with initial failures of SumoSam Express and Marciano Success seems to be limited in AB market only Success seems to be limited only to Japanese-themed cuisine restaurants

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Case Study: SumoSam Foods Inc.

OPPORTUNITIES EXTERNAL ADVANTAGES SM malls group is yet to be penetrated o SM is starting to cover the AB market with recent expansions Opportunities to expand on remaining stand alone areas that cater to AB markets both in Metro Manila (e.i. Timog and T. Morato (QC), Seaside Blvd (Pasay), Jupiter (Makati), Metrowalk (Pasig)) and in highly urbanized provincial regions (e.i. SBMA, Clark, Pampanga, Sta. Rosa, Laguna, Tagaytay city, Bacolod City, Cebu City, Davao City) Unlimited number of concepts and themes that they can adapt expanding the operations / opening more branches of their current brands

THREATS EXTERNAL DISADVANTAGES

Highly competitive market both from local competitors and international franchises Increasing cost of mall fees especially for prime, high traffic locations Customers changing needs Mall migration limits locations for expansion

The group recommends some strategies to go about their planned expansion taking into consideration their strengths, weaknesses, opportunities and threats highlighted above. SFI should focus on their strengths. They have been very effective with the Japanese theme so they should concentrate on expanding these Japanese brands. Venturing to other themes may be considered but must be second priority if funding is limited. As the old adage goes, dont put all your eggs in one basket, but the proven success of their Japanese brands must be utilized to finance other explorations. The hit-or-miss strategy may be very risky since expansion cost is very expensive but it must not be taken out of the picture. Trends and fads dictate customer acceptance and loyalty. They should continue innovating since there is still a risk for trends to go against their existing brands. Maybe new recipes can be prepared before present menus go out of trend, just waiting be launched. Despite the mall migration trend, there are still potential high volume areas in and around Metro Manila that may be explored. These areas cater to a similar target market as seen by the establishments that are already present. Expansion outside Metro Manila may be considered. To operationalize this, partners from the provinces may be sought for management, logistics and financing functions. It is a known fact that Ayala, Megaworld, and other AB establishments are already operational in Metro Cebu, Laguna, Pampanga, and other areas. SM malls now have areas for the AB market which SFI can benefit from. If they get the pitch, they will have an opportunity to have national coverage for their brands.

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Case Study: SumoSam Foods Inc.


Porters 5 Forces

Porters Five Analysis for the Restaurant Industry in the Philippines The restaurant sector in the Philippines is a mature industry and competition is very tough. However, because of high consumer demands, it is very lucrative to venture into this business. Records from National Statistics Office (NSO) show that there are a total of 95,812 hotel and restaurant establishments in the country, 91,791 of which belong to the restaurant sector. The total revenue generated by the hospitality industry is estimated at P186 billion, 80.14% of which came from the restaurant sector. We can say that running such business can be a hit or miss. Venturing into this business, whether it caters to the lower class such as Mang Inasal or Mang Pepe or the upper class which is Marciano or Itallianis, it is always important to analyze the industry for business strategy development. Porters Five analysis will help us determine the attractiveness or the competitive intensity of this industry. Threat of New Entrants Low Barriers to new entrants include high capital investment due to huge capital investment needed to open a restaurant. Prospective owners needed either to lease a huge lot and build a fully furnished restaurant or build a restaurant in a mall. Customers are also fickle-minded; it is necessary for this business to generate more sales for faster ROI. However, a satisfied customer can give them job security so it is equally important to invest on customer service to retain guests. Also, huge value addition and employment is needed for this business to flourish. Bargaining Power of Buyers High The demands of the consumers have been increasing due to the availability of choices and steep competition. Consumers now have a tendency of deciding first the cuisine they want to eat before they choose the specific restaurant. Buyers can also switch easily and it does not entail too much switching cost. It is really important for this business to be precise with regards to their target market. The Philippine household market is segmented into five income groups namely A, B, C, D and E. According to private researches, the A and B segment are the lucrative markets for restaurants due to the strength of their purchasing power and their propensity to spend. However, the sheer size of the CD market vis-a-vis the AB market cannot be ignored as the high base is just as lucrative as the higher margins earned from the latter

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Case Study: SumoSam Foods Inc.


demographic. In any case, buyers should be able to get the value for their money in order for them to come back. Threat of Substitutes Low As stated in the case, there is no real threat of external substitutes to the services provided by the restaurant industry. It is competition between the sub-sectors of the industry that determines market share. Raising quality standards and improving service have to be the focal points of their points of their innovation. Finally, to keep their share of the market, it is necessary to extend their service coverage by setting up other branches. Industry players who have outlets that are visible in Metro Manila and in other key urban cities are ones who are most likely to reap more profits. What can impact threat of substitutes, however, is when buyers experience another financial or economic crisis that will drive them to rather eat at home than in the restaurants. Bargaining Power of Suppliers Low Every month SFI conducts local field trips to look for the best supplier of their raw materials together with their branch managers. They go directly to where the trade is conducted. They also conducted a field trip at Ha Chin grocery, the biggest Japanese foods importer so their chefs and kitchen managers would have a feel of what they are doing. Suppliers may have high bargaining power provided that their products meet the requirements of the keen restaurateurs, that is, fresh, best of its kind, etc. However, there is also a tough competition for these products thus making their bargaining power low. Determinants of Rivalry among Existing Competitors High The competition in the restaurant business is fierce. The market is large but consumers are price conscious and exhibit brand loyalty. However, consumers can also freely switch their brand preference without incurring any costs, which is an unfavorable factor for the industry. With a wide range of restaurants and fast food establishments to choose from, pricing schemes and marketing strategies determine market shares. Intense competition urges players to come up with new products to capture bigger market shares. Restaurateurs have to be keen at finding the latest food and wine concoctions available both locally and abroad to create differentiation. IV. Summary of Recommendations

The group had determined that the success and continued viability of SFI as a business entity lies in its ability to expand its operations. We focused on two specific areas for expansion: (1) expanding the current brands; and (2) expanding into the other segments of the market. Expanding the current brands When marketers talk about distribution, they generally talk about two modes horizontal and vertical distribution. Horizontal distribution refers to the number of outlets carrying the products, while vertical distribution refers to the number of SKUs each outlet is carrying. In SFIs case, the different restaurant brands is analogous to vertical distribution, while the presence of these brands in the various malls refers to how horizontally distributed is SFI. In the case of the AB segment of the market where SFI already has presence, the strategy that they can undertake here is to expand the reach of the brands by opening more stores in the AB malls nationwide.

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Case Study: SumoSam Foods Inc.

We learned in past cases that standardization of processes is a key ingredient for success in rapidly expanding businesses. This is because the more standardized the processes, the more that economies of scale become a competitive advantage. In SFIs case, having more branches of the same brand of restaurant means they can procure more of the same raw materials thereby gaining more leverage during negotiations with suppliers. We therefore think that it is also important for SFIs long-term viability to balance the creation of more brands with the expansion of existing brands in the various locations. At some point, SFI must concentrate more on establishing more presence in the malls (horizontal distribution) than on creating more brands (vertical distribution). Furthermore, SFI must be aware of the possibility of cannibalization within its own portfolio of brands. Instead on eating up the market share of its competitors, SFIs varied brands might eventually end up eating into each others share of the market. This becomes all the more possible given the fact that SFIs brands are solely concentrated on the AB market. This therefore brings us to our next recommendation which is to expand into other segments, particularly into the BC or BCD markets. Expanding the reach into the different segments of the market SFIs current brands primarily cater to the AB segment of the market. This in itself is not a problem if SFI is content with slowing down its growth prospect within a few short years. However, SFI is not looking to slow down. In fact, its owners envision the company to be the P&G of the hospitality/restaurant industry. Therefore, in order to grow, SFI must look to serve the market segments beyond AB. They must craft strategies to penetrate the BC or BCD markets. And they must do this without diluting the brand equity they have already established for their AB brands. A perfect example for SFI to follow would be Toyota. When Toyota decided to venture into the luxury car market, it did so by creating a totally new brand (Lexus) and then totally dissociating this new brand from Toyotas image. Lexus as a brand was managed separately. It had its own showrooms, distribution system and sales people. This was because Toyota did not want Lexus, which was being marketed as a luxury brand, associated with the everyday-man, value-for-money image of Toyota. The group used Kotlers Segmentation-Targeting-Positioning (STP) process to provide the general framework on how to strategize their entry into the BC or BCD markets.

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Case Study: SumoSam Foods Inc.


Segmentation Segmentation involves breaking down the market into homogeneous groups. In the case of the market for restaurants, the breakdown can be made according to economic classes A, B, C and D. This allows for each segment to be measurable, sizeable and reachable. AB market the smallest of all the segments, but one with the highest disposable income the caveat here is that this segment may have the most discriminating taste with a high requirement for quality; might also easily shift from one brand to another BCD market the biggest and most significant segment of the whole market those belonging to this class have some disposable income (not as much as the AB segment) which can be spent on dining out. Targeting Targeting involves choosing a specific segment of the market and then focuses your campaigns specifically for that target segment. SFI already has presence in the AB market. SFI can choose to target the BCD market segment as part of its mid to long-term growth strategy. Positioning (The 4Ps) Product Low, medium to high priced food choices with options for value-meals A commissary may be employed to prepare most of the meals which can help in controlling costs; Doing the cooking at the restaurant itself using trained chefs will not work as already experienced by SFI with their SumoSam Express outlet.

Price Place In BCD malls frequented by the BCD segment (SM, Robinsons, Ever-Gotesco, etc.) Pricing should mostly be mid-range which the majority of the BCD segment can afford. Occasional offerings in the high-priced range may be done to affect a touch of classiness to the brands. Value-meal pricing

Promotion The menu can carry value meals which may be appealing to the BCD class Busog-Sarap-type campaign handles Use of ads featuring talents associated with or have fan bases in the BCD classes Ads targeting BCD sentimentalities and values

Positioning Develop a separate brand or group of brands specific for the BCD market so as not to dilute the brand equity or image of SFIs AB market brands. Value-for-money proposition - Delicious food at affordable prices that every family can enjoy Family atmosphere to attract BCD families into the restaurant

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