Macro environment analysisTable of Contents
OPPORTUNITIES AND THREATS OF SPUR
Bargaining power of suppliers
Bargaining power of consumers
Threat of new entrants
Threat of substitute products
Spur is a steakhouse franchise restaurant with its origins from South Africa. Since 1967 the founder Allen Ambor, who is still the company’s Executive Chairman opened the first Spur in Newlands Cape Town. In the years since then, Spur Corporation has grown into an international restaurant chain with 528 South African and 63 international outlets.
The group creates value through its relationships with stakeholders within the context of the macro environmental analysis by utilizing the accurate tools in this case PESTLE analysis. PESTLE framework is a business tool used to analyse the position of the organisation or product in the market place. The model incorporates various factors in the changing external environment and how these factors affect the organisation. PESTLE analysis helps to determine Political, Economic, Social, Technological, Legal and Environmental factors of any organisation.
2.1 Political Factors
Political factors are related to political stability of a country, the extent of government intervention, government policies, and legislation. National politics affect business environment directly through the changes in policies, regulations and laws. The government determines labour regulations, fiscal and monetary policies which then affect investment and returns.
The political stability in a country also affect actions a government may take, impacting on the viability of doing business in the country. For example when Cyril Ramaphosa was elected as the ANC President the Rand appreciated against the greenback. That appreciation of the Rand meant that the disposable income of consumers also increased which is beneficial to Spur for people will have extra cash to spend.
The employment laws for the safety and rights of employees imposed by the government, will have a negative impact on business as the recently introduced minimum wage will result in Spur’s fixed cost increasing thereby increasing their prices thus impacting on their profit margin due to less disposable income by the consumers.
2.2 Economic Factors
Economic factors include economic growth, inflation, interest rates, exchange rates and taxes. Economic factors can have a major impact on the firm’s behaviour. For example weak growth in gross domestic product (GDP) will result in a country slipping into a recession and strong national income growth may boost the demand for a firm’s products. An economic recession of whatever magnitude has a potential to change the purchasing power attitude of consumers, forcing companies to restructure their sales and marketing campaigns resulting in profits decreasing. With profits diminishing the companies undergo downsizing contributing to an increase of unemployment leading to an increase in poverty and crime which in turn deter investors
Interest rates though is of great interest to the banking institutions, it affect organisations whose strategies rely on taking out large loans, for high interest may deter investment because it cost more to borrow
While exchange rates mostly affect the companies dealing with export and import. Changing exchange rates might affect how much organisations pay to its international suppliers for a strong currency may make exporting more difficulty because it may raise the price in terms of foreign currency.
Furthermore the government fiscal policies may affect firms, like the recently announced increase in value added tax, companies will have to enhance the rate of their products and services thereby affecting end-users’ disposable income and the success of business strategies
Spur as an organisation operating in such environment is also not spared for all above economic factors will zero in to the consumer’s (their target market) disposable income which will defeat their reason of being in business
2.3 Social Factors
The sociocultural factors examines the social values, culture, life styles, attitude and demographics of the consumers.
According to Unisa (2018; 41) Changes in sociocultural factors may create a demand for new products and services, creating totally new opportunities and thereby changing the rules of industry competition. For example people are now becoming educated hence the society is continually changing and these changes are affecting people’s attitudes, opinions, and interest thus shaping people who they are, how they behave and what they buy. People’s attitude towards diet and health is changing as more and more are joining fitness clubs and there is a massive growth in demand of organic food hence Spur since it is operating in such environment should be able to offer products and services aimed at complementing the consumer’s behaviour.
On the cultural and/or ethical aspect people we defer in our beliefs, what we value and what we eat hence Spur introduced a Halaal menu in an effort to broaden their target market and embrace the Muslim consumers into their family.
The life styles of consumers is another important impact factor affecting consumer purchasing behaviour. With the general increase in the average economic status of the population of the country, there will be a change in the interest, opinion and activities of consumers. With more money to spend, a higher percentage of the population will find themselves eating out at restaurants more frequently.
2.4 Technological Factors
The technological factors are often referred to advancement in technology. With advent of the new age in technology companies have integrated themselves with all the recent changes that have taken place.
To mention a recent trend that has greatly pick up and every business is turning toward is social media. The social media explosion has allowed for increasing interactive engagement with the consumers with real time results so Spur has to stay ahead of all the developments that take place with keeping in view how the youth of today utilizes technology for their benefit and how can Spur reach them in order to keep on increasing brand recall and brand engagement
According to Bartleby.com (2012). The existence of play zones with the integration of modern technological gaming system and animatic advertisements shows Spur’s business approach in trying to attract younger populations as well, whilst some of their advertisement operations promote the sense of family with the slogan, “family steak ranches”
2.5 Legal Factors
Legal factors however, is the changing of legislations and about the way the government interferes with or manages the business environment such as changes in tax policy, enforcement of tariffs to certain products and health and safety of consumers
In recent years have seen a significant rise in number of regulatory bodies that have been set up to monitor organisations’ observance of legislation relating to all areas of operations, including consumer protection, employee welfare and waste disposal. For example the human rights group Sonke Gender Justice which lambasted the Spur Johannesburg last year after a racial incident. The incident caused some right-wing consumers to boycott Spur resulting in profit margin falling
2.6 Environmental Factors
Environmental factors relates to the ecological and environmental aspects that will affect the demand for a company’s products and how that business operates. The factors include environmental regulations, ecological regulations, reduction of carbon footprint, and the impact of the adverse weather
According to (businesseassys.net) the global climate changes and the emergence of green technology are pressing all businesses to become aware of pollution issues and to exercise corporate social responsibility. Organisation should proactively implement green technology in their business processes.
3.1 Opportunities Spur face in the macro environment
Be more responsive to social changes to provide healthier options
People’s attitude towards diet and health is changing as more and more are joining fitness clubs hence there is a massive growth in demand of organic food and also to provide more vegetarian options.
Technological game system
The existence of play zones with the integration of modern technological gaming system and animatic advertisements shows Spur’s business approach in trying to attract younger populations as well.
3.2 Threats Spur face in the macro environment
Supermarket food chains and informal traders.
According to Maumbe (2010) supermarkets chains and informal traders have gained access to market segment which was traditionally used to be dominated by franchised fast food operations and are selling hot meals to urban consumers.
Increase in taxes and rates
The recently announced increase of the value added tax, companies will have to enhance the rate of their products and services. The increase will hard hit the consumer thereby decreasing their disposable income resulting in decline of Spur’s profit margin.
From the discussion above, I have analysed the commonly used but powerful strategic and competitive analysis model thus the macro environmental analysis. I have discussed about the PESTLE mode, which is useful for the management to do an analysis on the environment the company is sitting on. Such kind of analysis is very important so that management will take the various environmental factors into account when discussing the business future strategic direction
5 PORTER’S MODEL
The forces that determine the attractiveness of the restaurant industry in South Africa can be analysed using Porter’s five forces model. The term Porter analysis refers to company business plans and their attempt to gauge the forces that affect a company’s chances for success. The five forces that affect competition are
Threat of competition within the industry
Bargaining power of suppliers
Bargaining power of consumers
Threat of new entrants
Threat of substitute products or service
5.1 Competitive Rivalry
There is an enormous amount of competition in the restaurant industry at every level, from fast food chains, cafes, food tucks, diners and independent eateries. Organisations with enormous advertising power have a huge advantage over the small businesses. Additionally, very little customer loyalty exist in the restaurant industry. One bad experience for a customer means they may not return, especially if it is was their first time. With apps, blogs, and websites cataloguing and reviewing the vast number of restaurants, it’s now easier for customers to transfer to other restaurants. (Porsche Moran 2013)
5.2 Bargaining Power of Suppliers
Strong bargaining power allow suppliers to sell at higher price or low quality raw material to their buyers resulting in buying firms’ profit margins declining because of paying more for materials. Suppliers have strong bargaining power when
there are few suppliers but many buyers
Suppliers are large and threatening to merger with its buyers
Suppliers hold the scarce resources
Few substitute raw materials exist
The cost of switching raw materials is high
5.3 Bargaining Power of Buyers
Customers have the power to demand lower prices or higher product quality from industry producer when their bargaining power is strong. Lower prices means lower revenues for the producers while higher quality products raise the production cost resulting in lower profits for the producers. Customers’ bargaining power is strong when
They are buying in large quantities
Only few customers exists
The switching cost to other supplier is low
There are many substitutes
Customers are price sensitives
Spur customers cannot bargain for their food prices, however Spur cannot set prices too high as buyers have a good knowledge of market and will simply go to another restaurant.
5.4 Threat of New Entrants
New entrants can change Spur’s business performance and the conditions of the industry environment. The external factors that create threat of new entry against Spur are
Cost of doing business
Ease of brand differentiation
Cost of brand development
The cost of doing business is an external factor that limits the entry of some companies. Also, the ease of brand differentiation enables some companies to readily compete against Spur’s. However the high cost of brand development prevents many new companies from succeeding in competing against the firms like Spur
5.5 Threat of Products
The greatest competitive challenge comes from substitute products and services. Grocery chains the huge substitute to the Spur, especially in hard times consumers reduce their eating out budget or not to eat at all. The following external factors create a strong threat of substitution:
Low switching costs
High differentiation of substitute
High affordability of substitute
Customers can easily move away from Spur’s toward substitute because it is easy to do so, based on low switching cost. Moreover Spur’s customers could choose substitutes based on low prices.
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