Pearson BTEC Level 5 HND Diploma in Business (Marketing)

Unit 7: Business Strategy

Date: Sept 4, 2014

Introduction

Caf de Coral is one of Hong Kongs largest Chinese fast-food brand and
market leader in the fast-food sector. Established in 1968, Caf de Coral now operates
153 fast food outlets across the Territory and services some 300,000 customers daily.
While emphasising quality dishes at affordable prices, the company also pioneered in
offering new choices. The daily menus are regularly rotated to ensure optimum
variety, drawing upon over 100 popular dishes.

Caf de Coral is one of the strategic business unit Quick Service Restaurants
(QSR) belonging to the Caf de Coral Group, which is one of the worlds largest
publicly listed Chinese fast-food restaurant groups. The group principally engages in
operating quick-service (QSR) and specialty restaurant chains and have successfully
diversified both vertically and horizontally into the institutional catering and food
processing business. Founded in 1968, the Caf de Coral group now operates over
580 separate outlets across its brands all over the world. In 1979, it established its first
benchmark food processing plant in a move to lower costs and ensure consistency. In
1986, the Caf de Coral Group went public by listing on the Hong Kong Exchange
(SEHK 0341), a first for the local catering industry at that time. In October 2001, the
company were appointed as one of the top 200 constituents of the Hang Seng
Composite Index Series. Despite the prevailing difficult business environment, the
Groups 2013/14 results reached a remarkable new high with total turnover/revenue
up by 9% and profit attributable to shareholders surging by 8%. The Group is heading
towards a new chapter, with a comphrehensive strategy and implementation plan that
will enable substainable growth of the Group.

Caf de Coral Fast Foods Chinese brand name is "" is inspired by the
ancient Oriental concept of togetherness and literally means that our customers, staff
and shareholders are all happily united as one. The corporate motto is "A Hundred
Points of Excellence" (100 ). More a way of life than a set of words, the phrase
reflects the companys commitment to striving for excellence and staying ahead in
todays rapidly changing world.

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Mission ,Vision, Goals and Strategies

Strategy is the long term direction of an organization (Johnson,Whittington,

Scholes 2011). Strategies exist at 3 main levels - corporate; business and operational
level strategy. The mission statement describes the overriding (strategic) purpose of
the organization, while the vision statement indicate the desired future state.

The "strategy statement" of an organization normally covers the corporate -level

strategy, goals, scope of activities as well as the organisation's capacities. The
corporate-level strategy or mission statement of Caf de coral Group is to provide
the public with dining and catering services which are healthy, delicious, value for
money and impeccably safe. According to the Caf de coral Group annual report
2014, the strategic objectives and goal for in the next five years is to expand in Hong
Kong and Mainland China with a focus on the mass catering and casual dining
segments. The great growth potential of the casual dining segment in both Hong Kong
and Mainland China a sector in which they have not done enough in the past
has become more prominent. Network of the leading brands will be expanded to
maintain leading position as well as capturing unclaimed market share in this segment
with different brands and concepts. The Group will focus on building a stronger
platform with a portfolio of cuisines and dining concepts, developing new concepts by
increasing their internal capacity and co-operating with renowned overseas brand
owners.

The vision of the Caf de Coral Group is to become the best-loved and most
competitive catering group in Greater China with leading brands across all major
market sectors. The Group strive to ensure the continued happiness of the customers,
staff and shareholders, and to benefit the communities.

Business strategy is also known as competitive strategy. It is the basis for

acheiving competitive advantage while providing best value. Caf de coral Fast Food
business strategy is to create value for customers as their key brands in the mass
market. It offers everyone in Hong Kong to enjoy diversified fares at a reasonable
price anytime, anywhere.

Operational strategy concerned with how the components of an organisation

deliver effectively the business level strategy in terms of resource, processes and
people. For Caf de coral Fast Food (SBU), it is decribed under the aspects of
Product, Place and People:

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 Product
Optimum variety - regularly rotated daily menus with a selection of over 100
items; innovative products from Western cuisines to traditional Chinese dishes;
Quality ingredient from around the world - professional merchandising team
travels the globe to look for the best ingredients.
Promote healthy diet - fresh and balanced dishes.
Professional, stringent quality control across every outlet
Food safety - stringent company standard on origins of ingredients, food safety
and hygiene measures including stern guidelines on cooking and food storage
Services - frontline personnel make "customer satisfaction" a top priority
Attention to details from customers perspectives - a number of pioneering
measures in the industry, eg. ticket number display to achieve a tranquil dining
environment; attach hooks to table edges to facilitate customers with handbags;
Service ambassadors help delivery food for customers; Direct data transmission
between cashiers and kitchens for better and more efficient operation without the
need for customers to submit order tickets to service counters.

Place
Expansive branch network - at busy mixed-use districts, business hubs, shopping
centres, industrial areas and public & private housing estates all over Hong
Kong.
Size and environment - With an average area of 300 sqm., each restaurants is
designed to enhance customers dining pleasure with a warm and modern home-
feeling ambience
To fulfill the needs of different customers, an extensive collection of tables,
chairs and their combinations are available for customers to choose freely.

People
energetic and dedicated frontline service team
on-the-job professional training for kitchen staff and chefs - To enhance their
knowledge of food management and boost overall performance.
Staff training programme - "Caf de Coral Management Academy" organizes
regular training activities for employees to strengthen their skills and put team
spirit into practice.
Objective "mystery shoppers" program to review the service attitudes and
performance of staff

As approximately 80% of the Groups 2013/14 turnover is contributed by business

operation in Hong Kong, the Group strategy is to accomplish even greater market
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penetration locally. Focus remains to serve the majority of local people with
affordable meals whenever and wherever the need them near their homes,
workplaces, schools and campuses. This strategic position poses the Group to
maintain as market leader in the mass catering sector and drive the future expansion
of the network.

Basically Cafe de Coral Fast food adopts a low price strategy to maintain market
share among competitors. Similar food and services are provided with very limited
product differentiation. While facing severe competition and increasingly challenging
business environment, the Group can still acheive high revenue and profit margin in
year 2013/14. The low cost strategy was used in the value meal series, which
received tremendous customer supports. This has demonstrated that the company can
substain competitive advantage via adopting proper strategy.

However this strategy may face serious margin reduction as operating costs
escalate such as price surge in supplies and staff wages. In a concious effort to
manage this pitfall, a low cost base must be achieved in ways that competitiors cannot
match to give substainable advantage. Therefore in 2013, the Taipo central food
processing plant was built to improve efficiency as well as standardising food quality
and ensuring safety. By adopting a hybrid strategy, Cafe de Coral Fast food can
achieve optimum differentiation simultaneously with a price lower than competitiors.

To monitor and control the implemetation of strategy, Cafe De Coral Fast Food
adopts direct control process including direct supervision, planning processes
( resource allocation and budgeting), performance target in turns of market share, and
also customer satisfaction survey with mystery customers.

Value adding strategy include 4 main type of activities by which a corporate

parent can add value to business units - envisioning strategic intent, provide central
services and resources, intervention at business level, coaching and facilitating
(expertise) to develop strategic capabilities. For Cafe de Coral Fast Food, the central
food processing plant of the Group as a central resource may provides great leverage
for all the SBUs, increasing bargaining power in purchasing, dealing with government
regulations in food safety etc.

In addition, the company can also enhance competitiveness via collaboration.

Collaboration may help to achieve advantage or avoid competition. It is advantageous
when the transactional costs are lower than operating alone. For example, the Group
recently is bringing in Japanese and Korean food for the first time to the Group -
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Gourmet Kineya Co., Ltd (Gourmet Kineya) from Japan to bring Kineyas various
brands of Japanese restaurants to Hong Kong; JNT Co. Ltd (JNT) from Korea to bring
a Korean healthy food brand, The Cup, to Hong Kong. The Cafe de Coral fast food
will definitely benefit from such collaborartion with new culinary skills and menu
development of the local market.

Organisational structure

The Cafe De Coral Group has a multidivisional structure consisting of separate

SBUs under a headquarter and a centralised food processing service. The SBUs are
grouped under different catering concepts - quick-service restaurants, institutional
catering, sepecialty restaurants. Each SBUs has its own functional structure of
departments for its operation and branch management.

As one of the SBU of the Group, Caf de Coral Fast Food management/operation
has a conventional functional structure headed by the CEO, then typically divides
responsibilities to priamry specialist role including purchasing, production, central
food processing, branch management, outlets development, sales and marketing,
finance and accounting, HRM, etc. Although Cafe de Coral Fast Food is a sizeable
SBU of over 6,000 staff, the product range is quite narrow (Chinese fast food menu).
Therefore the functional structure works well in excercising effective control through
on hands managers and simplified control mechanism. Roles and tasks are clearly
defined in the organisational structure with high degree of accountability. Functional
departments also provide concentration of expertise, enabling and fostering
knowledge exchange such as culinary skills and specialisation. However as senior
managers attend to tedious routine matters with narrow functional interest, they tend
to lose sight of the strategic issue of the business and unable to cope with product
diversity. Some may tend to resist the corporate strategy of incorporating say Japanese
and Korean food to the Chinese fast food menu.

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Strategic Positioning

An organisation's strategic position may be analysed according to the external

environment, the purpose, capability and culture of the organization. PESTEL
framework examines the broad macro-environment of an organisation in terms of
political, economical, social, technological, environmental and legal factors, from
which the key drivers of change can be identified. For Cafe de Coral Fast Food,
political, economical and social factors has minimal impact to their turnover, as
historically sales revenue in fact increases during adverse economic times and grass
root or low income working class are least affected by disruptive politcial or social
change or reform policies. In most cases these changes such as mimimum wage,
income tax relief, transport allowance, elderly benefits has little but even favorable
outcome for the grass root and low income workers. Technological factors plays an
increasing important role in food processing and safety. Government are imposing
more stringent food safety policies especially at times of epidemic infectious disease.
Environmental factors are becoming a standard requirement as green environment,
waste management (ISO14000), carbon food print are issues every business has to
address to.
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SWOT analysis of Cafe de Coral Fast Food
Strength
Affordable price
Good and convenient location
Acceptable food quality and safety
Pleasant seating environment and ambiance
Weakness
Food variety
Food differentiation
Opportunities
Further market penetration within segment
New fusion menu incorporating Japanese, Korean styles
Threats
Fierce competition within fast food sector
Escalating rental cost of shops
Minimum wage issues fo catering and service staff

Reason for failure to deliver success

Quality of front-lined service staff is inconsistent across outlets. This human

resource problem escalates as it is getting more difficult to recruit catering and service
staff since the introduction of minimum wage. Despite training and established HR
strategy, it has been difficult to deliver the promised service quality under the external
circumstances.

Limited product differentiation has also led to boredom in food variety although
low cost base is maintained. Customers are losing to other competitors with a more
agressive variety in short term menu.

Strategic advantage gained via technological development

The new central food processing plant in Taipo is a benchmark development for
the Cafe de Caorl Group in 2013. The pioneer design and advanced technology used
in the centralised facility allows the Group to ensure food quality and utmost safety,
which are critical to the businesss success as well as future expansion. Information
technolgy is also developed to strengthen various systems and networks that support
the Groups business. These include central food processing, shops branch
management, payment gateway, centralised haedquarters management and business
contingency.
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Role of corporate governance

As part of a publically listed company, Cafe de Coral management and operation

are subject to the corporate governance of the Board of Directors of the Cafe de Coral
Group, in compliance with the framework and practices as set out in the Corporate
Governance Code. The Board of Directors of the Cafe de Coral Group excercises a
high standard of corporate governance and strive for a responsible and value driven
management to safeguard and enhance interest and value of the shareholders.
Recommended best practices of the Corporate Governance Code are adopted where
relevant and applicable. To further improve the Groups governance standard, a
corporate governance enhancement programme was established internally with
external advice, to comphrehensively review the corporate governnance performance
and suggest enhancement initiatives. It also assists to cultivate a transparent and
ethical corporate culture for the company.

Planning technique

Directional Policy Matrix (or GE-Mckinsey Matrix) enables business units to

position according to how attractive the relevant market is in which they are
operating, and the competitive strength of SBU in that market. It offers strategic guide
lines towards the highest growth potential and greatest strength for the unit to invest
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for growth. For Cafe de Coral Fast Food, market attractiveness is medium for the
mass and low price sector, business strength is strong as the SBU is achieving new
high in 2013/14 revenue and profit despite difficult economic environment and fierce
competition. On the Directional Policy Matrix, it points to selective growth as
strategy guideline. So Cafe De Coral may identify area of selective growth to expand
its business.

(2,200 words)

Reference

Cafe De Coral Group website

http://www.cafedecoralfastfood.com/companyinfo.php?lang=en

Cafe De Coral Fast Food website

http://cafedecoral.com/eng/stra_business_units/quick_service/cafedecarol.jsp

Cafe De Coral Group 2014 Annual Report

Johnson, Whittington, Scholes, 2011. Exploring Strategy (9th ed.), Prentice Hall
FT Pearson

Richard Lynch, 2009. Strategic Management (5th ed), Prentice Hall FT Pearson

Gratton, Hailey, Stiles, Truss, 1999. Strategic Human Resource Management,

Oxford University Press