Azalea Seafood Gumbo Shoppe
Phase 1 –
External Analysis
Each phase done by a different group with different layouts, but merged here for convenience
Company Overview
§ Founded in 1971 by Pat Lodds in Mobile Alabama
§ Sold fresh fish from Mobile Bay and also made gumbo after a 100 year old recipe
§ In early 90’s the new owners give up retail sales and focus on commercial accounts
§ In 2001 the company was producing 45 tons of gumbo and other seafood products monthly and had $1 Million in sales per year
Dominant Industry Characteristics
Industry Size
§ $175 Billion in US Food-Service industry
Scope of Competitive Rivalry
§ Broad based regional – South Eastern US
Industry Growth Rate
§ 3 – 4% annually
Stage in Lifecycle
§ Mature
Concentration of Competitors
§ Any prepackaged seafood producers
§ 3 – 4 Gumbo producers
Dominant Industry Characteristics (cont.)
Customers
§ Supermarkets, restaurants, membership warehouses
Degree of Vertical Integration
• Mixed. The larger firms are purchasing the already prepared ingredients from the suppliers. Some companies forwardly integrate to distribute items directly to supermarkets
Horizontal Integration
• Larger Food Packaging companies buy smaller, specialized, packaging companies
Dominant Industry Characteristics (cont.)
Ease of Entry/Exit
• Low: The cost to buy kitchen equipment is low. However, the industry is very regulated
• Difficult to expand network
Technology/Innovation
• Not important factor, Some competitors have automated production capacity but for the smaller companies production technology is standard and slow to change
Product Characteristics
§ Differentiated by taste
§ Brand reputation
Dominant Industry Characteristics (cont.)
Economies of Scale
§ High. Economies of scale exist in purchasing large quantities of raw materials from the suppliers
Industry Profitability
§ Low to moderate . Because the product is value-added and because of the competition in the industry the margin is thin
Concentrated Vs. Fragmented
§ Fragmented – Though there is not a lot of information the value-added seafood industry industry seems to be fragmented. The higher segment, the Food Packaging Industry, is much more concentrated
Forms of Competition
§ Price
§ Quality
Industry Driving Forces
• Changing societal lifestyles – More people eating out
• Entry or exit of major firms – Consolidation of supermarkets or food-distributors
• Increasing globalization of the industry – Ethnic foods can be distributed worldwide
• Emerging consumer preferences for differentiation in taste and package appearance
• Regulatory influences and government policy changes
Critical Success Factors
· Effective marketing
· Good Taste
· Brand reputation
· Strong distribution/dealer network
· Efficient manufacturing
· Presentation of packaging
Porter’s Five-Forces Model
Industry Attractiveness
Competitive Strength
GE Matrix
Market Analysis
U.S. Food Industry
Grocery Industry
• $494 billion in 2000
• Fragmented moving to consolidation through mergers
Restaurant Industry
• In 2000 52 billion meals were eaten away from home
• Fragmented
Distribution
• Food service companies (Restaurants)
• Food brokers (Supermarkets)
Market Analysis
U.S. Food Industry (cont.)
• The consumer needs processed foods that are convenient, low priced and taste good
• Food distributors, grocers, and restaurants purchase processed food directly from manufacturers
• The typical markups for food-distributors are 15% – 30%, for grocers are 60%-75%, and over 100% for restaurants
Market Analysis
U.S. Food Industry (cont.)
• Customers are established mostly through personal contacts and brand-name recognition
• The customers are price sensitive which results in low profit margin in the grocer business and because of competition of other food products
Environmental Analysis
Demographic changes – Increased spending power of the baby boomers aids the meal-away from home (restaurant) industry.
Lifestyle/attitude trends – Eating processed food and eating out becoming common practice
Technological advances – Improved food distribution systems can help the food-service industry to market its products worldwide
Azalea Seafood Gumbo Shoppe
Phase 2 —
Internal Analysis
Z-Score
Financial Conclusion
Overall, Azalea has had mixed results…
• Revenues were strong, albeit declining after 1998 – average 6.29% over the past five years
• Consistent profits
• Average of 33 days to collect receivables
• Negative working capital in an upward trend
• Quick ratio consistently way below 100%
• Highly leveraged – D/E ratio almost 11.0 in 2000
• Z-Score is well in the safe zone all five years, but is declining
SPACE Analysis
Core Competency Analysis
Strengths
• Excellent customer retention
• Excellent product quality
• Product innovation and differentiation
• Product diversification
• High Z-score
Weaknesses
• Non-state-of-the-art facility
• Limited capacity for future expansion
• Limited time devoted to managing
– Poor accounting practices
• Weak distribution network
• Poor marketing skills
• Negative cash flow and working capital
• Very high D/E ratio
Opportunities
• Broaden its product lines
• Expand in the U.S. market
Threats
• Low barriers to entry
• Regulatory requirements could be costly
• Potential lawsuits
• Large competitors with state-of-the-art facilities
• Rising sales of substitute products
Questions for Management
• How cost-competitive is Azalea?
• Should the company build a more efficient internal infrastructure?
• Does Azalea want to expand?
– Make more products
– Greater operational expenditures
• Should management look for more partners?
Azalea Seafood Gumbo Shoppe
Phase 3 –
Alternatives Analysis
Key Strategic Issues
• How will consolidation of the food-service industry affect Azalea?
– Consolidation of supermarkets and other grocers
– Consolidation of packaged-food companies
– Number of meals eaten away from home
• Will other companies enter as direct competitors?
Key Strategic Issues (cont.)
• Should Azalea…
– Invest in state-of-the-art production facilities?
– Use boil-in bags for pint and quart packaging?
– Continue relationships with jobbers?
– Increase product prices?
– Pursue large food-broker accounts with regional chains?
– Add new products?
Key Strategic Issues (cont.)
• Should Azalea…
– Become USDA-certified?
– Pursue food-service accounts with large regional restaurant chains?
– Increase investment in advertising?
– Concentrate on product placement?
– Sell to retail customers?
Azalea Has Three Strategic Alternatives
• Expand its market
• Increase economies of scale
• Develop a forward-integration strategy into the food-broker industry
1. Expand Its Market
• Purchase state-of-the-art production facility
• Use boil-in bags for all packaging
• Create relationship with large food broker
• Become USDA-certified
• Add new products such as red beans and sausage or Cajun stuffed-chicken breasts
• Pursue relationships with restaurant chains
• Increase product prices
2. Increase Economies of Scale
• Increase sales force
• Increase investments in advertising
• Continue to use current product packaging
• Build better relationships with jobbers
• Aggressively pursue new food-service accounts with small regional food-service chains
3. Develop a Forward-Integration Strategy
Into the Food-Broker Industry
• Develop stronger relationships with established customers
– Get better product placement
– Gain access to other regional markets
• Develop new accounts with other grocery and restaurant chains
• Develop new accounts with specialty grocery markets such as Trader Joe’s or Bristol Farms
Criteria Matrix