Using analytical tools to evaluate the opportunity identified by Chris and Val
Dry-cleaning Acquisition Group (DAG)
The group has identified the prospective returns accruing from acquiring the Superb Cleaners. First, Chris and Val assessed the gains and opportunities that are associated with the firm. Superb is an already established firm that is strategically situated in an isolated building within a busy avenue. Thus, this increases the hope for gaining additional customers. The firm had established numerous drycleaners and business interests. However, the cost involved in identifying and starting a new cleaner is a challenge to the group. Owing to the availability of the expansion prospects accruing from the spacious nature of the Superb, acquiring the firm is advantageous to the group. The current situation of the business opportunity can be analyzed using various tools.
Porter’s Five Forces
Rivalry amongst competitors
The major force in this sector grows from the rivalry existing amongst market competitors. Johnson Group and Concord Custom Cleaners are leaders in the overall dry-cleaning industry. Johnson Group made its presence felt through buying another large dry-cleaning company called Dry-Clean USA. Both companies enjoy economies of scale while the competition between them can be matched fairly. However, they are market rivals when contending for disposable consumer income. DAG can achieve success in the market through emphasizing and delivering quality services to its customers.
Threats from substitute commodities
From the increase in the number of dry-cleaning companies over the years, the already established firms face increased threats. The new firms base their competitions on the increased use of coupons as well as emphasizing on the quality of services provided. Conversely, the established firms are unable to solve their customers’ grievances in terms of quality and improvements in the settings. Therefore, such established firms are likely to be unappealing to the customers as a result of their poor services.
The buyers bargaining powers
Consumers have powers to bargain in the Dry-Cleaning market, given that there are diversified alternatives for the buyers to choose. The rivalry amongst firms in the Dry-Cleaning industry is also immensely leading to industrial price competition. Consequently, these actions increase the buyers’ purchasing powers. The Superb Cleaners customers will reach market decisions concerning the services they consume and the firms that they will be frequenting.
The suppliers bargaining power
The suppliers in the Dry-Cleaning industry have weak powers to bargain. From the emissions of harmful wastes by such an industry, Dry-Cleaning firms have been forced into contracts with discarding firms. As a result, firms are forced to improve on their machines. The developments intensify the competition between the suppliers in the Dry-Cleaner industry. This benefits the consumers of the services. Also, low labor-cost will enable Superb-Cleaners suppliers to generate low priced services.
Threats caused by new market entrants
In the Dry-Cleaning industry, about ninety-five percent of the stores are solely operated. However, the eminent market rivals include the Johnson Group and Concord Custom Cleaners. The rival market commodities for these companies are identical. From the increased competition levels, the firms have to consolidate their market shares to gain a competitive edge. For instance, the Johnson consolidated its market share through buying the Dry-Clean USA. These firms have opened other stores globally. Through such undertakings, the Superb Cleaners Corp expects to offer low-priced services and anticipates making huge returns.
The SWOT Analysis
Like any other company, DAG Company has its strengths, weaknesses, emerging opportunities, and threats expected from the market.
The company strengths
Through the acquisition of Superb, the groups will have a strong market, given that the Superb Cleaner has diversified its company businesses. Besides, from its size and the availability of resources, the firm has realized economic balance. The firm also boasts of its strategic location and the provision of quality services. Based on this fact, the company can attract a large number of clients and charge high prices on classified products. The company generates profits compared to Dynasty cleaners that incur losses. Therefore, the firm can expand its stores and refashion its operations strategies.
Weaknesses
Despite having several strengths, the company has its points of weaknesses. To start with, the setting of the company is not ideal, given that it is situated on the home side of the road. Consequently, clients that go to work find it difficult to branch to the parking lot. In addition, the firm has many personnel thus making it to incur unnecessary costs.
Possible opportunities
Through the acquisition of Superb Cleaners, the group expects continuous growth. Nevertheless, with the existence of the running firm, compassion, and experienced personnel, improving the business would be easy and certain. The growth in the dry-cleaning industry over the years has been an emerging opportunity. The group is thus able to take advantage of the opportunity by acquiring the Superb Cleaners that are already established.
Threats
One of the threats that DAG Company will experience is the increasing competition. Several competitors have emerged, including the Johnson group, and Concord Custom Cleaners. The organizations bring price competitions, which lead to the consolidations in the provision of dry-cleaning services among different companies. For instance, Johnson consolidated its market share through buying Dry-Clean USA.
The PEST analysis
Political analysis
Dry-Cleaning Firms experience the effects of the changing international political situations. The effects greatly touch on the approach in which the firms function. They range from the worldwide occurrences and political engagements to global trade procedures. The maintenance of the real expenditure has done well in the universal dry-cleaning business. These markets gain from the accessibility of the stumpy cost of manual labor at present. Therefore, the firm can offer services at low prices, given the reduced industrial costs that lower the dry-cleaning service costs.
Economic analysis
For returns, the overall revenue of the company greatly depends on its expenses. The owner of the Superb-Cleaners was responsible for the costs incurred in the business. Also, the firm has experienced low costs due to constant and real spending over the years. Customers have also turned out to be careful in their spending behavior due to the alarming caution on the quality of dry-cleaning services offered. The firm must, therefore, apply the price leadership approach. The firm should consider fixing large amounts of disposable revenue to cater for the dry-cleaning operational costs.
Social analysis
Understanding the consumers’ requirements and wants is very significant in the provision of Dry-Cleaning services by firms. The DAG Company could be susceptible to other firms concentrating on the consumers’ anxieties. It results from the firm’s fault not to recognize its existing social schedule. The customers desire to acquire services of their choice at accessible and well-lit areas. Superb cleaners take advantage of this through its location and accessibility. The firm has brightly fashioned premises.
Technological analysis
Expertise has turned out to be the most significant and dynamic strength in any business. Scholars have shown that consumers tend to build up and fancy peaceful ideas as well as clear-cut shopping knowledge. The firm should list its services on the yellow pages and street lists. Clients will thus be able to track the firm’s services from these list codes.
The Superb acquisition as an attractive opportunity for Chris and Val
The opportunity to acquire the Superb Cleaners by Val and Chris seemed very attractive. However, there are both constraints and benefits that made such acquisition of an unattractive opportunity. The plant was situated in the street full of activities and within a freestanding structure that made such a business ideal. Superb Cleaners had a tidy appearance apart from the excellent work that could attract several customers. The onsite Superb could maintain a high volume than the in-progress 386,000 dollars building owing to its large capacity and space. The plant was also not engaged in the laundry but undertook dry-cleaning activities that only required forty-thousand dollars to purchase the washing machines and computers.
The amount was low compared to the alternative Cleaners like Dynasty that could generate additional liability to Chris and Val. Investing in Superb cleaners could bring the area consumers up to the set commercial standards. The Superb estimated income statement was quite encouraging to make the opportunity attractive for the duo. Given that several cleaners hardly met the criteria required by Val and Chris. At the same time, most stores lacked the expansion capacity making them situated in strip malls; Superb was the only best option. Besides, opening a fresh cleaner was a challenge to Val and Chris. These entrepreneurs had no financial institutions to borrow from, and they had little capital. Hence, acquiring Superb would enable them to get the existing workforce, goodwill, and consumers that could be improved later.
Conversely, the two could purchase Superb with little equity, thus making its acquisition an attractive opportunity. Nonetheless, the building that housed Superb was not ideal as it was on the side going home as opposed to the side, which headed towards work. The former side was a divided street that is preferable. The drivers going to work could find it hard to enter the parking lot through the left turn. The situation made it hard for Val and Chris to prefer the acquisition of Superb as an attractive opportunity. The asking price, owners’ inflexibility costs, as well as the Superb Cleaners’ profit and loss account, were ruined by charges imposed by other business dealings.
The advantages and disadvantages of acquiring a dry cleaner and starting one on their own
The initiative of starting up a fresh or acquiring an existing dry cleaner might be accompanied with advantages and disadvantages. From the case, an ongoing dry cleaning provides for the available going business, which has clientele as opposed to a start-up business. Besides, goodwill is paramount in the ongoing business and not in the new one. The labor force that exists in the ongoing plant of dry cleaning is less hazardous than in fresh business and can be easily enhanced. It is worth noting that the dry cleaner that is already in existence will be bought with little equity compared to staring a new plant.
The dealers in dry cleaning would retract a note from fifty to seventy-five percent of the costs incurred in making purchases through acquiring a dry cleaner rather than a start-up. The take bake of the note may typically go for seven years with an interest of ten percent only. There is a lack of flexibility in asking prices of the ongoing businesses with owners yearning for future upside participation after selling the plant. However, starting a new and personal store is a very big challenge in this industry. The possession of little capital forces the initiators to borrow funds from other businesspersons who later seek more than twenty-five to fifty percent from the commercial returns.
Moreover, the economics of stores hardly appears to be great if the rents applicable while starting a dry cleaning business are high. The total expenses in starting a new dry cleaner exceed its proceeds, as depicted in the industry interviews and costs surveys. Thus, acquiring a dry cleaner also has many problems.
An opportunity for a new entrant to change the dry-cleaning industry game plan
The competition in the industry of dry cleaning may be changed by the new entrants utilizing application the available opportunities. Rivals who render excellent quality services at low prices delimit the lucrative cleaners. The entrepreneurs who venture into the dry cleaning business must, therefore, engage in diverse opportunities to prosper under the fierce competition apparent in the business. Initially, the new entrants should base their operation on exceptional appearance and location. For instance, the new business can be situated in the freestanding accessible buildings having good parking lots on the busy streets. The building should be pleasant and well lit to attract clientele. Hence, the entrepreneurs in this bid should ensure they are the best provider of dry cleaner business in the vicinity.
The new entrant could also incorporate the employment of pleasant and erudite clerks in the counter, timely settlement of claims, provide immediate turnaround, and long working hours. Furthermore, the new entrants could consider themselves as both dry cleaners and businessperson. The competition may augment if they have attached importance to developing, keeping, and hiring good employees via closely monitoring operations, analyzing, and understanding the costs. The new entrants may utilize specialized directors to run and often scrutinize the stores and completed work. Subsequently, the constant offering of the most excellent and reliable quality work, such as attaching the mislaid buttons and eradicating every stain, may bring extra success. Therefore, the opportunity generally entails merging the benefits of both starts up and ongoing dry cleaning business to change the game plan.
Even though Val and Chris tried to employ this opportunity to alter the game in the industry of dry cleaning, they seemed reluctant to capitalize on them. The duo was reluctant to dwell on this opportunity in anticipation of the use of the customer-retention rate strategy they put in place. Val and Chris saw that this strategy was the main driver of profitability in the dry cleaning business. The strategy advocated for the area standard prices of ten to fifteen percent premium that are backed with an unconditional money-back warranty. The plan also appealed to the high use of customer services like alterations, credit cards, same day service, and working on Sundays. Additionally, the strategy provided for the construction of superstores to enable the sale to prop up more than seventy-five thousand dollars.
The proportionate costs of real estate, equipment, and fixed labor would double the yearly average store revenues proceeds. Hence, above five thousand dollars, the total profits would significantly augment but not the net margins. Thus, the two were reluctant to capitalize on the available opportunity to dwell on this strategy as they considered it profitable.