Azalea Seafood Gumbo Shoppe

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.)


§     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


•       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


•       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


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


•      Excellent customer retention

•      Excellent product quality

•      Product innovation and differentiation

•      Product diversification

•      High Z-score


•      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


•      Broaden its product lines

•      Expand in the U.S. market


•      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