Spur Corporation Industry

Strategic management is necessary to plan appropriately and ensure that organisations outperform their rivals. When analyzing industry, it is important to understand the environment you are looking at. In this essay, the industry of Spur Corporation will be analysed. Specifically by using the Porter Five Force model to help understand Spur Corporation, as well as provide potential opportunities and threats to the organisation.

According to Venter et al (2014:147-148), an industry can be defined as a group of companies offering products and services that are similar in nature and purpose to one another - namely products or services that satisfy the same basic customer needs. The basic customer needs that are served by a market define an industry’s boundary. Spur Corporation Integrated Report (2018) states that Spur Corporation operates within the restaurant industry as a franchisor. It does not own or manage any of its outlets throughout the world, which are instead run by independent, entrepreneurial franchisees who pay a franchise fee to the group.

Porter (2008) identifies customers, suppliers and competitors as the primary determinants of industry competition. Subsequently, competitors encompass a broader spectrum which include existing competitors, potential competitors and substitute providers. Porter also added two additional factors – the role of government, and complementors.

As a result, we have seven forces that are largely present in an industry, as identified by University of South Africa (2018:45) which are: customers, suppliers, existing competitors, potential competitors, substitute products and services, government intervention and complementors. Each of these will be discussed in more detail below.

Customers: If customer buying power is great, it will increase industry competitiveness and reduce industry profitability. Buyer power is high when: (a) the buyers can produce the products or services themselves; (b) they are few in number or able to buy in bulk; (c) the product or service is similar and can be bought from alternate suppliers; and (d) the value of the buyers' purchases is a significant portion of the seller’s total income. Spur Corporation has a number of restaurant chains that offer specific types of food – John Dory’s (seafood), RocoMamas(burgers), Panarottis(pizza and pasta). The variety of products offered cater to different tastes and palate and exclusive sauces and flavors prevent buyers from replicating the products elsewhere. There are also monthly and weekly promotions and specials that promote brand loyalty. This has succeeded in creating demand for products, which gives the company power over prices through product differentiation, exclusivity, brand loyalty and hype around promotions.

Power of suppliers: Powerful suppliers can increase industry competitiveness and reduce industry profitability. Supplier power is high when:

1. supplies to the industry are not similar, which makes it difficult to switch to alternative suppliers;
2. there are a few major suppliers and they are highly concentrated in relation to the industry they serve;
3. there are few options for other products or services;
4. purchases made to suppliers form a minority of suppliers income; and
5. suppliers can move forward into the supply chain.

Each restaurant owned by Spur Corporation is sold the brand’s unique sauces, which are manufactured by the group’s sauce factory. In this way it sells its products to its own outlets, and occasionally directly to consumers through grocery stores.

Existing industry members and rivalry: Continuous rivalry tends to increase industry competitiveness and reduce profitability. Rivalry can be dependent on how fast the industry grows as well as size, competition, and abilities. Competitive rivalry is high when:

1. there are a many number of rivals of relative size and power;
2. the industry stagnates resulting in a struggle for the support of existing customers instead of seeking new customers;
3. incumbents carry huge fixed costs; and
4. rivals have excess capacity.

According to University of South Africa (2018:23) Spur Corporation, Famous Brands, and Taste Holdings are the three major players in the South African restaurant market. However, the majority of restaurants under Spur Corporation are sit-down as opposed to the other two players which consist mainly of take-away outlets. This provides a double-edge, since sit-down restaurants provide a unique atmosphere, take-aways provide a faster service that can often be more desirable. Despite strong competition, Spur Corp. has succeeded in creating demand for all its outlets products, giving the company power over prices through product variety, ensured brand loyalty, and unique customer service.

Potential competitors and threat of entry: Ease of entry will increase industry competitiveness and negatively affect profitability. Entry barriers are used to mitigate potential competitors, and offer protection to existing industries. There are six barriers to entry, namely:

1. capital required;
2. access to distribution;
3. cost disadvantages not related to size;
4. economies of scale;
5. government legislation and regulation;
6. high switching costs.

Spur Corp.’s has over 575 outlets worldwide, and has plans to open another 38 franchises in South Africa a further 12 internationally. The large surplus of outlets has succeeded in creating demand for its products, giving the company power over prices through product differentiation, ensured brand loyalty and positive recognition. It has also succeeded in creating a loyal customer group that easily identify the brand, and are thus willing to pay more for the familiarity.

Providers of substitute products and services: An increase of product substitutes from outside the immediate industry has the potential to replace industry products, subsequently increasing competitiveness and reducing industry profitability. Spur competes with other restaurant outlets that serve similar products (burgers, steaks, pizza etc.) at lower prices, or with delivery services etc. Spur uses their own unique sauces to add individuality to their products to promote their brand.

Government intervention: Regulations and policies that affect the structure, competitiveness and profitability of industries, especially where interventions are industry specific. Spur Corp. takes pride in complying to food and safety standards as regulated by the department of health, department of labour and South African Bureau of Standards, University of South Africa(2018:24).

Complementors as additional forces: Complementors are products that enhance an industry’s own products. Spur uses additional products that customers enjoy, such as popular soft drinks like coca-cola, to enhance customer satisfaction.

Opportunities for Spur Corporation

Spur Corporation could invest more money into local businesses. Buying produce, meat and other ingredients locally can provide a boost to agricultural economies as well as promote the standing of the corporation in the public eye. This small boost to the local economy can slightly increase the demand in the local restaurant industry, and has the potential of reducing ingredient costs in the long run.

Another opportunity can be taking advantage of trends, such as organic ingredients or branching out into foreign cuisine in order to draw in a larger customer market. Modern day developments have made gastronomy more appealing towards “futurists”. This provides an opportunity to Spur Corp. to create a new outlet with a unique clientele. It also adds to profit potential as people are willing to pay more for what is deemed “gourmet.

Threats to Spur Corporation

The aftermath of the global recession that began in 2008, and worsening economic conditions can impede the growth of Spur Corp. especially overseas, where the rand is weaker to foreign currency. It has also reached a point where it is too expensive to “eat out”. The average cost for a meal for two at restaurant ranges from R250 to R475, which can be too expensive for people struggling to keep their expenses under budget.

Fast-food chains and drive-thrus offer a convenience that sit-down restaurants are often unable to match. They are also widely distributed world-wide recognized brands. Numerous popular fast-food chains, which once only offered unhealthy meals, now include healthy salads, wraps and snacks at a fraction of the price of a restaurant's menu items. This can provide incentives for loyal customers stop visiting their favorite outlets, which in turn will reduce sales for Spur Corp

Conclusion

This essay analyzed the restaurant industry of Spur Corporation. A model was used to analyse the industry attractiveness of Spur Corp. and to identify two potential opportunities and two potential threats it may face.