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Executive Summary
1. Introduction 1
1.1 Company Overview 1
1.2 Recent Developments 1
1.3 Industry Overview 1
2. External Environment Analysis – PEST 2
2.1 Political 2
2.2 Economical 2
2.3 Socio-cultural 2
2.4 Technological 3
2.5 Implication of PEST 3
3. Internal Analysis 5
3.1 Financial Analysis 5
3.2 Success Factors of Breadtalk Group 7
3.3 Value Chain 8
3.4 Competitors’ Analysis 9
3.5 Strategic Group Analysis 12
3.6 Porter’s Five Forces 13
3.7 Boston Consulting Group Matrix 15
3.8 TOWS Matrix 16
4. Problem Definition & Objective 17
4.1 Problem Definition 17
4.1.1 Current Challenges 17
4.1.2 Future Challenges 17
4.2 Short Term Objectives 17
4.3 Long Term Objectives 17
5. Recommended Strategies 17
5.1 Business Level Strategy 17
5.1.1 Porter’s Generic Strategies 17
5.2 Corporate Level Strategy 18
5.2.1 Related Diversification 18
5.3 International Strategy 18
5.3.1 Franchising 18
5.3.2 Joint Ventures 19
6. Implementation 20
7. Evaluation and Control 21
References
Appendix
Executive Summary
BreadTalk Group Limited is a lifestyle F&B group who started with the Bakery
business in year 2000, and steadily developed into an enterprise consisting of 3 major
business segments in Bakery, Restaurant, and Food Atrium.
This report includes a detailed analysis conducted on BreadTalk Group Limited, and
the proposed strategies that will give BreadTalk a better direction into its future with
the idea of sustainability.
The report consists of a brief overview of the company and the industrial outlook. It
will be followed by an extensive external and internal environmental analysis
conducted and its implications. Key success factors will be identified and matched to
BreadTalk’s core competencies, and various Strategic Management models and tools
will be use to aid analysis.
Lastly, challenges faced and both short and long-term objectives will be discussed,
and proposed strategies and implementation measures will be put forward. The
proposed strategies will be discussed using Porter’s Generic Strategies and The
Balanced Scorecard is used for Implementation, Evaluation and Control.
BreadTalk Group Limited was founded in year 2000 by current Managing Director, Mr
George Quek and his wife, Executive Director, Mrs Katherine Lee. The first retail outlet
opened at Parco Bugis Junction in July 2000 selling freshly baked breads and buns that are
visually creative and attractive. Within 5 months, the second outlet at Novena Square
followed and they also ventured into the HDB heartlands (BreadTalk Group Limited, 2012).
By year 2003, BreadTalk was listed on the SGX.
A central kitchen and corporate headquarters was built at KA FoodLink, Kampong Ampat in
September 2001 to centralise food preparation process and in preparation of franchising plans.
Over the past 11 years, BreadTalk has expanded and become a distinctive F&B brand with
bakery, restaurant and food atrium businesses. Their proprietary brands are BreadTalk, Toast
Box, Food Republic, RamenPlay and The Icing Room. They also manage franchises in Din
Tai Fung and Carl’s Jr.
1
As a company with huge success, BreadTalk needs to continue to monitor the general and
industrial environment as well as making sound strategic moves to improve their market
position, gain competitive advantages and ensures a sustainable growth.
2.1 Political
Singapore government encourages local companies to venture overseas. A “double
tax deductions” scheme is introduced to allow companies to have deduction on tax
income mainly for overseas business or investment (International Enterprise
Singapore, 2010).
The Agri-Food & Veterinary (AVA) is the national authority entrusted to ensure a
resilient supply of safe food. Under Food Regulations and the Sale of Food Act, all
processed food must comply with prevailing requirement including labelling
requirements.
2.2 Economical
2.3 Socio-cultural
Consumers are getting more health conscious and affluent, and inflation has an impact
on consumer buying power.
2
BreadTalk came out with a wider variety of products that includes a healthier choice
range, and kept prices low to attract more consumers.
Investment in R&D to create more creative products to meet consumer demands.
2.4 Technological
Advance Technology had greatly reduced the cost of labour and increase in
productivity.
Enterprise Resource Planning (ERP) was implemented to improve effective
monitoring of inventory purchases and consumption.
The retail outlets are also installed with point-of-sale systems. This mean that the
daily sales figures and itemised sales volumes can process at the end of day for each
outlet so that management can evaluate the popularity of each item and understand
trends better.
3
2002” awarded by ASME and SPH and was also voted Singapore’s Most Popular
Brand in a joint poll by the ASME and SPH.
F&B industry has been hit by the inflation of rental expense and utility charges, which
hurts profitability. F&B industry in Singapore is highly competitive and fragmented
with low barriers to entry.
4
3. Internal Environment Analysis
3.1 Financial Analysis
Calculation
Ratios Implication
2009 2010 2011
Current Ratio Ability to pay current liabilities
0.97 0.90 0.98
from current assets
Quick Ratio Ability to pay current liabilities
0.68 0.91 0.93
from the most liquid assets
Debtor The period of time taken to
Collection collect payment from debtors 0.2mths 1.0mths 1.5mths
Period
Creditor The period of time taken to pay
1.5mths 0.9mths 0.8mths
Payment Period creditors on credit purchases
Stock Turnover Indicates sale ability of
23.2 22.5 22.4
inventory
Gearing Ratio The mix between owner’s funds
and borrowing (determines if
0.62 0.63 0.67
company has borrowed too
much to finance the business)
Returns on The amount of net income
Equity (ROE) returned as a percentage of
shareholders equity.(profit a
18.2% 16.4% 14.9%
company generates with the
money shareholders have
invested)
Return on Sales Measures the percentage of
6.33% 5.51% 4.68%
profits to sales
Gross Profit to Measures the percentage of
54.4% 54.5% 54.7%
Sales gross profits to sales
Revenue Percentage of growth in
16.1% 22.9% 20.8%
Growth revenue
Net Earnings Percentage of growth in net
42.8% 1.6% 2.9%
Growth earnings
5
Based on the liquidity ratios, it reflects that BreadTalk might not have enough cash or liquid
assets to pay its current liability as their net working capital is negative. In the supplier point
of view, higher liquidity ratios will be preferred as it will lower their overall risk. However,
due to their reputation and size of company, BreadTalk’s buyer power will not be greatly
affected. In the investor point of view, it will not be of a great concern as investors will be
more concerned about growing the business using assets of the company.
The debtor collection period increased from 0.2 months in 2009 to 1.5 months in 2011. This
might tie down their liquid assets hence affecting their quick ratio and ability to use the
money for other investment or expenses.
There is a decrease in the percentage of net income returned as per shareholders’ equity. This
reflects on the profitability of the company as also shown in the decreased in return on sales.
The high administrative expenses incurred over the years might have contributed this.
Bakery remains the main source of revenue for BreadTalk with about half of the income
coming from the bakery segment. However, it is observed that the restaurant segment is
catching up on their revenue with increasing shares of income every year.
It was also in the profit earned by restaurant sales with an increase of 35% from 2010 to 2011
and an overall increase of 25% in profit over the past 4 years.
Singapore remains the main source of revenue for BreadTalk with China as the next major
revenue contributor, followed by Hong Kong. However, there is a decrease in revenue earned
by the two major revenue contributors in year 2011.
6
3.2 Success Factors of Breadtalk Group
Success
Description
Factors
Skills and Joint venture with Japanese company opening a Frozen Dough
Capabilities Factory sharing expertise and industry know-how
7
3.3 Value Chain
Value Chain Description Evaluation
Activities
Firm Adheres to strict Agri-Food & Veterinary Strategy is effective and BreadTalk has won
Infrastructure (AVA) and Food Regulation requirements in numerous brand accolades and gain brand
Singapore. Invests in R&D, innovation and recognition.
training.
Human By 2013, will bring together all the diverse Recognised for providing consistent and quality
Resource departments under one roof at their IHQ training, with in-house R&D and central kitchen
Management facility, which will accelerate their ability to facilities adds value to the company.
innovate and produce.
Procurement Investment in IHQ and costs involved in Strategy is to keep company ahead of its
streamlining businesses lead to increase in competitors and investment will bring about better
operating and administrative costs. returns and add value to company’s sustainability.
Products & Rejuvenated the sunset industry of Bakery Creates value as BreadTalk is not only innovative
Services with its award winning Boutique Bakery in but adapts well to international markets by
year 2000 (SPRING Singapore, 2012) and is identifying local palates.
constantly afloat in developing new and
creative products.
Sales & Opening outlets in high traffic areas and Successfully created a lifestyle F&B brand with a
Marketing reaching into heartlands. Strategically placing strong image that can be easily differentiated.
related businesses next to one another (eg. Concern is in sustainability as its strategies can be
Ding Tai Fung next to BreadTalk and easily imitated.
ToastBox)
Operations Central kitchen and training facilities that will Reassessment of company standing and revising
improve and enhance current operations. A standard operating procedures, keeping true to the
new management structure with division heads company’s vision of an innovative and
under one CEO. trendsetting lifestyle company.
8
3.4 Portfolio Analysis
15
BreadTalk needs to continue focus and invest in its food atrium business in order to
reap more benefits
10
Players in the
Strength Weakness
Industry
•Over 30 Years of experience in •Lack of strategic and
cakes and pastries accessible locations to
•Offering traditional and attract potential customers
"innovative-traditional" premium •Not constantly introducing
quality kueh, cakes, cookies and new products to cater to
various seasonal products for all customers' changing tastes
festivities
11
3.6 Strategic Group Analysis
A strategic group is a cluster of firm which has similar strategies and rivalry would tend to be
greater within such firms (Dess, Lumpkin & Eisner, 2010). A strategic group analysis was
conducted for Breadtalk Group against its competitors, based on the perceived price/ quality
and geographical coverage.
Implications:
Bengawan Solo, Four Leaves and Prima Deli are emerging threats that can challenge
BreadTalk in the Regional market in the near future
Delifrance and Crystal Jade are strong competitors in the Regional market that
possess capabilities of going global
Product and brand differentiation to attract a younger and more affluent crowd and
distinguish itself from its competitors
Recommendations:
BreadTalk to identify their target group and continue to build on the brand image for
the specific target group
To expand and reach into the global market in terms of joint venture or franchise
Needs to stay as a leader in innovation and creativity
12
3.7 Porter’s Five Forces
Porter’s Five Forces is a useful tool which focuses on the forces which shapes the industry
structure which drives competition and profitability (Porter, 2008). The five forces which
impact the industry are threat of new entrants; bargaining power of buyer; bargaining power
of supplier; threat of substitution and rivalry among competitors.
13
Implication
Based on the Porter’s Five Forces analysis, the F&B industry in Singapore is highly
competitive with many competitors offering similar products at a competitive price.
Competitors are able to imitate the winning strategy of their competitors easily and hence
BreadTalk will have pressure to compete on low cost but high quality products. This is
especially so when the consumers are highly price sensitive. BreadTalk will have to work on
the R&D to ensure that their products are innovative, premium, and yet value for money.
14
3.8 TOWS Matrix
Low Barriers to entry for Promote awareness of new Maintain current position
F&B industry and innovative products and streamline all
Cost increasing on Raw businesses
materials Training and Development
Easy imitation of for employees Develop intangible and
products reputable core
competencies
16
4. Problem Definition & Objective
4.1 Problem Definition
5. Recommended Strategies
5.1 Business Level Strategy
5.1.1. Porter’s Generic Strategies
Using the Porter’s Generic strategies, it is recommended that BreadTalk
Group adopt an overall cost leadership strategy & differentiation strategy.
Suggested low cost strategies include the following:
Effective training programs to improve productivity
Use of automated technology to reduce labor cost and wastage
Good working relationship with suppliers to ensure low-cost in raw
materials
17
Shared purchasing operation within the business units to increase
bargaining power and lower cost
18
5.3.2. Joint Ventures
BreadTalk Group can consider working closely with other firms in the foreign
market through joint ventures to increase revenue. A joint venture is an
association of two or more companies engaged in a solitary business enterprise
for profit without the need of actual partnership or incorporation.
Before entering into a joint venture, BreadTalk Group will have to determine
their main purpose and goals to ensure that their partner companies are capable
of assisting them in achieving the goals and objectives.
19
6. Implementation
Below highlights the proposed activities for the different strategies and their estimated cost of
implementation. Activities will be implemented over the next 10 years to spread out the cost
to prevent a sudden surge in expenses due to the changes and to allow monitoring of the new
changes to ensure its sustainability.
Proposed Budget
Proposed Activities 2012 2014 2016 2018 2020 2022 (S$ million)
productivity
Streamline Breadtalk Group 1
value chain activities
Corporate Level Strategy - Diversification
restaurant segment
Setting up of restaurant outlet 3
in Singapore
Setting up of restaurant outlet 4
overseas
International Strategy – Franchising & Joint Venture
20
7. Evaluations and Control
The balance scorecard will be used to assist Breadtalk Group to identify the strategic
objectives and control from the financial, customer, internal and learning & growth
perspective. This will help to achieve sustainability of the business and gain competitive
advantage over their competitors through well managed and integrated planning and
control (Dess, Lumpkin & Eisner, 2010).
Learning L1: Continuous training and upgrading courses Employee’s performance appraisal
& Growth for staff to improve on skills and service standard Training records
L2: Create a innovative and positive working Employee survey
environment
21
Appendix 1: Selected SBU Market Data
Breadtalk Group Limited. (2012). Breadtalk Group Limited Annual Report. Retrived from:
http://breadtalk.listedcompany.com/ar.html on 13 June 2012.
Carruthers, H. (2009). Using PEST Analysis to Improve Business Performance. In practice,
31(1), 37.
Department of Statistic Singapore. (2012). Retail Sales Index – Food & Beverage Servies
Index April 2012. Retrived from: http://www.singstat.gov.sg/pubn/business/mrsapr12.pdf
on 27 June 2012.
Dess.G, Lumpkin.G & Eisner.A. (2010). Strategic Management – Creating Competitive
Advantages. 5th Edition. McGraw-Hill: New York.
International Enterprise Singapore. (2010). Double Tax Deduction for Internationalisation.
Retrieved from: http://www.iesingapore.gov.sg/wps/portal/GCP-MarketAccess/DTD on
15 June 2012.