BreadTalk Group Limited Essay.
Bread is one of the most popular staple in the Asian food culture. In the years, BreadTalk has successfully expanded their influence and reputation to 16 countries with more than 500 bakeries all around the world. BreadTalk is known for their ‘see thru’ kitchen concept which enables their chefs a platform to showcase the skills and capabilities. This also allows interaction between customers and employees.
A comprehensive analysis of the business strategy of BreadTalk Group Limited for the Thailand market revealed that its strategic objectives are aligned to the company’s vision and mission statement: Vision Establish BreadTalk as the foremost international, trend-setting lifestyle bakery brand | Mission Leading a new lifestyle culture with new, innovative changes and creative differentiation to craft products with passion and vibrancy | Innovative improvement and design of their products increased awareness of the brand, BreadTalk, complimented with the use of locations with high human traffic are increasing the market share of its bakery arm within the Thailand market.
Lessons drawn from the analysis have shown that BreadTalk is consistently seeking improvement and reviewing their strategies to stay abreast.
Being in a country with cultural differences in food preferences, working attitudes and lifestyle, BreadTalk’s adaptation and globalization strategies has proven to be effective. Success is reflected in the confident future investment promise and processes in place to overcome their strategic implementation issues.
BreadTalk is aggressively expanding globally and leaves footprints in China, Indonesia and Thailand. With Singapore and China markets dominating the overall revenue for the bakery arm, a review on the business strategy for the Thailand market carried out. Strategies and implementation issues are identified to increase the market share and revenue for BreadTalk Thailand using the rational / formal model.
BreadTalk’s company history and background is attached in Appendix A.
With a strategic analysis on the external and internal environments using models / theories like PESTEL, Porters’ 5 Forces, analysis of turbulences and internal strategic competitive advantage, useful strengths and weaknesses, opportunities and threats are identified in this report. Strategic implementation and implementation issues are discussed further. Successful implementations are useful lessons for review.
External analysis: General environment
Thailand has faced various political/government instabilities, such as the Thai coup d’état in 2006, the elections for a new constitution in 2007, a political crisis in 2008, and crackdowns and protests which involved violence from 2009-2010. Although the ruling of the July 2011 elections belonged to the Pheu Thai Party, the political situation was still shaky. There was a conflict between the “red shirts” (supporters of current ruling Pheu Thai Party) and “yellow shirts” (oppositions of the Pheu Thai Party), resulting in continuous tensions. All the bloodshed also damaged the economy, sinking the already suffering consumer confidence even more.
Besides this matter, Thailand’s also having issues with its neighboring country, Malaysia. Both countries’ relationships have soured greatly because of the Pattani separatists’ issue, which involved the struggle of independence by the ethnic Malays in Southern Thailand. These incidents have raised concerns among foreign investors and manufacturers regarding Thailand’s political stability.
Thailand has strict regulations when it comes to working terms and conditions. A proper visa must be applied from a Royal Thai Embassy, with some countries needing to obtain an entry visa, which allows a stay of 15 days upon arrival in Thailand. However, Singapore is one of the countries that could stay for 30 days without an entry visa, but must obtain an entry stamp on their passports. The disadvantage of Thailand’s employment regulation is that it is time consuming, expensive and has a tedious amount of paperwork.
Following the constant tremors in the economy in 2008 and late 2011’s Euro crisis, Thailand has suffered duly in retrospect. With a staggering 41.06% debt of Thailand’s total GDP January this year and an additional 2 trillion baht for the beginning of next year (‘Good only at borrowing’ jibe haunts Pheu Thai Party, 2012), the country has much to recover from. The nation’s currency, Thai baht, has also taken a beating from the economic crisis in 2008 and 2011, falling from a high of 43.6 baht in 2002 to 29.44 baht per 1 USD today.
However, it is to be noted that Thailand has come a long way since its third world country days back in the 90s. It has reduced its poverty by a third, from 27% in 1997 to 9.8% in 2002, and even has a health care policy which covers approximately 70% of its citizens (Data – Thailand).
Countries surrounding Thailand portray a mixed basket of economy statuses. With Myanmar slowly opening its doors to foreign investors, and Malaysia running a high risk of going into debt (Budget 2013 proof Malaysia falling into debt crisis as income slows, says MP, 2012), Thailand has to weigh its opportunities and costs with great consideration in order to maximize its potential in this crisis-stricken economy.
Buddhism is the main religion in Thailand (about 85%) and it greatly influences the Thais’ working attitude such as respect and politeness, forgiving and thoughtfulness. Respect is also reflected in the country’s monarchy system with military-dominated hierarchy present in both the society and workplace (Bi, 2012). In addition to their religious beliefs, modern Thais also display patience and hospitality at work emphasizing positive outlook. Thais prefer to work in a group, with ample time for completion in social environment; isolating them will lead to stress and discomfort. They have great respect for age and authority, preferring obedience and tolerance to conflict (Gross, 2001).
Thai cooking is under the influence from the Chinese from southern China, Indians nearby and Malays from the south; the main dietary staple is rice. Due to the social nature and friendliness of Thai people, dishes are shared and enjoyed together. They love to eat in groups and eating alone is considered bad luck. Thais are known to take 7 meals a day; besides breakfast, lunch and dinner, they ‘snack’ a lot, savouring snacks along roadside or marketplaces anytime. Bread is becoming popular due its convenience. Baked products are expecting an annual growth of 5-6% (Jitpleecheep, 2012).
According to Internet World Stats, Thailand is ranked 9th in 2011 amongst countries in Asia, in terms of number of Internet users. Currently the population of Thailand is at 66.7 million; the country has an Internet penetration rate of approximately 31%, which amounts to 20.7 million in 2011 (Singapore Management University, 2012). There is a growing percentage of advertising spend with more large firms diverting a proportion of their advertising budgets to online advertising (Appendix B).
Amongst the Asia-Pacific countries, businesses in Thailand are relatively active on social media channels (Kemp, 2012). As enterprises tap on social media for their business, they play on the ‘personal touch’ factor that social media is able to achieve. Social media inspires and influence the behavior of Internet users, such as purchasing a product, by stimulating and attracting them to participate in online activities (New Media Trend Watch, 2012). This participation makes the purchasing process more personalized, hence increases sales.
Thus, if BreadTalk intend to increase their sales in the F&B industry in Thailand, they could make use of the developing social media platforms to aid in publicising the brand and its products (MVF GLOBAL, 2012). In this case, it would be more effective and they can reach to a wider audience too, bringing BreadTalk to greater heights.
The Thai Government has been focusing on the social and economic development for the past 35 years. Nevertheless, over the past decade Thailand has been increasingly threatened by the problems of industrial waste, hazardous wastes, natural resources degradation and water pollution (Thailand Info : Economy, 2008).
Thailand has been suffering the threat of floods in the recent years. This has caused a dip in their production of rice-their staple and in their tourism industry. During the times of floods, there was a scarcity of food supplies. According to the Ministry of Natural Resources and Environment of Thailand (MNRE), since 1992 the Government has made protecting the environment one of its top priorities.
Thailand can be described as a tropical and humid country throughout the year. They claim to have only two seasons, the wet and dry. The summer extends from March to June with a temperature of 320 C to 360 C and monsoon extends from July to October with temperatures averaging around 290 C (The Global Climate Change Regime, 2012).
This climate is suitable for BreadTalk. The process of fermentation and baking of various types of breads needs a tropical environment. Extreme weathers would change the uniformity of the ‘raising process’ for the bread and its fermentation process.
External analysis: Industry Related
Porter’s 5 forces
Threat of new entrants (HIGH)
The threat of new entrants is high as barriers of entry are low due to the little regulations from the government, the low capital outlay as compared to other industries, low Research and Development costs, and it is likely a highly profitable market. Also, because food has always been popular with people, and people are always looking for something new and fresh, many food joints have been opening, resulting in high amount of entry candidates. What attracts consumers is the variety of food being offered, therefore BreadTalk can consider widening their variety of breads, or by coming up with new flavors seasonally so as to stay competitive with the new entrants.
Bargaining power of customers (HIGH)
Customers have a generally strong bargaining power due to the high competition in the Food & Beverage (F&B) industry. Should customers not be satisfied with BreadTalk’s provision of goods and services, they have the power to boycott and purchase from a different provider, causing huge losses to the company.
BreadTalk has to constantly update itself on customers’ tastes and preferences to better cater to their needs. It should also focus on hearing what consumers have to say, to be able to meet consumers’ expectations.
Bargaining power of supplier (LOW)
The overall bargaining power of suppliers for the F&B industry is usually low due to the similar quality of the products. Bulk purchases lead to economies of scale, further bring down the prices of the supplies. Suppliers of these F&B ingredients are in abundance; many in the market that lead to price competition. However, the bargaining power of the suppliers may escalate due to climatic influence that may cause shortages in the supplies; the supplier may then choose to work with companies who are willing to pay more. BreadTalk has its advantage over the suppliers, as the ingredients and packaging material are normal goods that are available from many suppliers.
Threat of substitutes (HIGH)
The Food and Beverage market has a big industry span and goes a long way back into history, therefore the risk of substitutes for food is actually very high (Aswe Travel, 2011). The food vendors must take note of mutual substitution. Congruently for bread-wise, there is no need for customers to consume them, especially in Thailand where its unique food culture provides various alternatives like rice and noodles that can fulfill the same purpose altogether (Aswe Travel, 2011). Thus, there is a certain level of risk for BreadTalk’s expansion and they need to tackle into the eating habits of the population, in order to win them over.
Overall, there is a high threat of substitutes in Thailand for BreadTalk.
Competitive rivalry – price war, elasticity within the bread industry (HIGH)
The Food and Beverage industry normally experiences intense competition. The bakery market in Thailand is increasingly growing since bread can be favored as substitute for rice. In the meantime, competitors may want to get advantage of this growing trend.
With growing urbanization in Thailand, now comprising of 33% of the total population have been observed to move away from traditional open air markets to retail stores (Exporter Guide THAILAND FOOD & BEVERAGE Market Profile, 2011). The competitors in this industry for BreadTalk can be roughly categorized into Café’s & Coffee shops, in-store shops in restaurants and hotels and open-air wet/flea markets. Recently over the past 5 years, there is an emergence of regional café come bakery concept (Exporter Guide THAILAND FOOD & BEVERAGE Market Profile, 2011).
The main competitors of BreadTalk in Thailand are Ka-nom, U-Bake, Pee Pee Bakery and The Human Bakery.
An analysis of the Porters’ 5 Forces reflected that despite the overall competition for BreadTalk within the industry being strong, BreadTalk is still able to sustain and achieve above average profitability due to the following:
BreadTalk is positioned at the “Moderately Complex Environment” due to the wide range of products and competitive substitutes available but low interconnectedness among the products, markets and competitors; the bakery market in Thailand is relatively small (Appendix C).
F&B industry in Thailand is generally low dynamism and is said to be in a “static environment’; the intensity and frequency of change is minimal and not drastic for this industry (Appendix D).
Besides the normal business cycle, other influences such as natural disaster eg flood and drought caused the environment to be unpredictable. Despite this influence, tourism is still picking up (ranking 39 in 2009 and 42 in 2008 (Blanke & Chiesa, 2009)) and growth of private investment is healthy (East Asia & Pacific Economic Update – Navigating Turbulence, Sustaining Growth, 2011). Internal analysis: BreadTalk Strategic Competitive Advantage Consistent with the company business strategy, BreadTalk continues to seek competitive advantages (Loh, 2011) based on their unique:
BreadTalk is consistently pushing out new products and upgrading of retail space to enhance customers’ experience. Their innovative achievement is strongly supported from top management to front-liners, starting from strategic planning by the top management, support from staff and feedback from customers, high quality control baking process and release of new products frequently.
With the above analysis on the external and internal environment, the following SWOT is identified and a summary attached in Appendix E:
BreadTalk has the capacity of preparing the raw material (dough) for all the outlets ensuring strict quality control and a team of innovative designer taking care of new product design and customer experience. Its unique branding and concept attract customers giving them new snacking experience at convenient locations.
There is limited sales and marketing effort in place for BreadTalk leading to low brand awareness and no loyal customer base. Allocating 20% adaptation to local food culture may not be sufficient for the Thailand. Opportunities
Increase in tourism business boost the growth of F&B sector and Thailand being ranked no. 13 out of 133 countries who are like foreign visitors, is adjusting to accommodate the foreign visitors’ likes and dislikes (Blanke & Chiesa, 2009).