Galito’s and Chicken Inn Value Proposition Evaluation Essay

Introduction

Business persons all over the world have been working hard to retain their existing customers as well as in attracting new ones. To ensure that customers are satisfied, there is need to offer them high quality services. Value proposition refers to the unique products or services that a company is able to offer to its customers so as to acquire competitive advantage as well as an identity over its competitors (Reid & Botanic, 2009).

Having a strong brand name and the right value proposition assists the business to remain competitive and continuously improve its services. In the fast food industry, value and customer satisfaction cannot be overlooked. There are many running fast foods enterprises in the world with the competition growing high.

Galito’s is a renowned fast food operator located in eight African nations with over 300 stores in Africa (Kaushik & Cooper, 2000). The company has grown in terms of its recognition of value creation and development. This paper focuses on value proposition in Galito’s; it will analyse the current situation in the company, evaluate its competitors, and finally develop a better value proposition for the company.

History of the Company

Galito’s first store was opened by Louis Germishuys in 1996 in South Africa. It started as a family business and by 2002 it had opened 8 stores in the country. The company market entry strategy was that of a ‘chicken expert’ where it aimed at developing different chicken tastes and brands to its customers.

As time went by, it realised that chicken could not work in its vision alone and thus incorporated other fast foods (like chips, sandwiches, coffee and burger) in its menu. In 2003, the company had built a strong brand name and it started franchising its name.

This led to over 54 branches launched in South Africa; they are situated in Gauteng, Pretoria, Kwa-Zulu Natal, and Limpopo. In 2006, the company started diversifying to other African countries like Kenya, Ghana, and Senegal. So far the company has over 300 stores spread all over Africa (Galito’s Corporate Website, 2010).

Corporate Philosophy & Core Values

1996, Galito’s year of first incorporation, served to shape its corporate philosophy, which has remained largely unchanged. This included the concept that the firm would expand only by forming joint ventures with independent operators as opposed to selling franchises; further, financing would only come from the company’s own profits and never from borrowing.

In addition, Galito’s was to operate from shopping malls alone. The restaurant, however, did venture away from the malls especially after the malls became saturated with competitors.

Business Model

The highly unusual corporate philosophy formed the foundation of the company’s business model, notably its profit sharing operator agreement. The model is such that when the company wishes to expand, instead of seeking out franchises, it carries out a search for highly motivated and responsible operators who are almost always among the existing employees of the company.

The identified operator then commits $5000 after which the restaurant is sub leased to the operator. The operator undergoes a paid six weeks training, after which they go into operation guaranteed of over $30,000 in annual incomes in addition to a 50-50 profit split (of the 85% of the profits) with the company.

Galito’s also takes the 15% of the gross sales as the franchise fee. Operators are offered incentives to develop and make their restaurants profitable.

Among the incentives include regular bonuses, fully paid business trips, and meetings for operators and their families that include training activities among others.

Galito’s staffs officially referred to as ‘team members’ equally enjoy a number of incentives including a $1000 scholarships for high school graduates who have ever worked for the company among others. These have ensured that the company has a 95% staff retention rate as opposed to the industry’s average turnover of 150%.

Value preposition

Firms in the fast food industry are always identifying ways that will help them increase their competitive edge in the market as well as maximize their revenue generating potential. This means that a lot of resources are channelled into research and development; initiating new products and other actions that are projected to increase the level of the work force.

Many firms in the industry start with introducing a new product campaign to the market to create a market niche for other successful products. As time goes, the product life cycle reduces and new products are introduced into the market.

Strategies used by firms to achieve such objectives include differentiation and segmentation of the market. In summary, a new product in the industry will go through the introductory stage then the growth stage followed by the maturity stage and lastly the decline stage (Ketchen & Hult, 2006).

African fast food industry is highly volatile in terms of competition and the management leadership in many firms are very careful in their choice of strategic management tools. Every decision made and action taken should be able to bring value to the firm.

Therefore, the management formulates and implements plan of actions that are aimed at enabling the organization achieve the desired results. The strategic success factors include but are not limited to;

• Changing the competitive position.
• Investing in the latest technological tools.
• New product development.
• Diversification and Corporate growth strategy.
• Christian culture.
• Moral ethics and values (Thomas, 2010).

Galito’s Value preposition Strategy and that of its Competitors

Galito’s trade mark sandwich faces stiff competition from Wimpy and Chicken Inn among other strong brands coupled with an equally indelible presence in the media and the minds of many Africans. Price competition, gift vouchers, and convenience among other such competition have worked to keep the industry’s growth in sales under a tight reign of just under 2%.

Galito’s had an initial edge over its hamburger selling competitors by offering a much tastier and healthier alternative, the Galito’s sandwich. Its marketing and advertising campaigns thus have always dwelt on winning the Africans Public off hamburgers in favour of the Galito’s sandwich.

In addition, the restaurant’s target clientele is slightly out of the usual children and teens. It comprises more of adults especially women with more education, incomes as well as more active lifestyles (possibly in white collar jobs) relative to the mainstream hamburger loving patrons to the likes of Chicken Inn.

Faced with big budget marketing campaigns, Galito’s with the help of The Richards group has always aimed at achieving the following objectives without increasing its budget;

1. Double the industry’s standard per store sales,
2. A 7% customer loyalty base to 30%,
3. A 10% points advert awareness and
4. Generate over 300 million in free publicity along with over five million impressions.

The restaurants marketing campaign has always aimed at positioning Galito’s sandwich as a better alternative to hamburgers as well as using highly memorable and engaging advertising strategies that would in turn generate self perpetuating word of mouth.

With the market demographics, Galito’s usually locates in areas with high concentrations of professionals such as suburban malls and shopping centres. The ‘Eat Mor Chikin’ campaign was launched and has kept on to date in outdoor media, print as well as radio targeting Galito’s highly mobile clientele. In the next five years the restaurant chain has plans to open 50 stand-alone restaurants in North Africa, mainly in Cameroon and Egypt.

Chicken Inn

Chicken Inn is the major Competitor of Galito’s. It has been in the market since 1970’s and enjoys a big customer base especially from corporate sector. The company has a speciality in making different tastes of chicken which are served to the destination of the customer.

One strategy the chain of hotels have adopted, which Galito’s have not managed, is collaboration with farmers to deliver fresh chicken and other products. It has joint efforts with local nongovernmental organisations to facilitate farmer’s rear chicken and deliver them to the company. It’s preferred by suppliers because of its good prices and timely pay;

The following are the areas that the company has an advantage over Galito’s

• It has a stronger brand name; this has been built over years of operation in Africa.
• It has established suppliers who are reliable even in times of low supply; the company has a constant supply. The better prices that it offers make customers be willing to supply to it at the time of high season.
• It is strategically placed in major cities and airports; this creates a fast access.
• Through its farmer-relation policy, the company works with farmers to ensure that they get quality supply.

Galito’s is facing the challenge of competing with Chicken Inn due to the above competitive advantages that the company (Chicken Inn) has. On the other hand, the company has been in the trade for a longer period of time and thus has more market information than the case of Galito’s. With increased competition, market information is used as a competitive advantage especially in the area of making decision.

How to get customers who are loyal to Chicken Inn to buy from Galito’s is offering another challenge. Ways to counter the already existing customers is becoming a challenge. On the other hand, Chicken Inn has branded some of its chicken tastes and this has hampered Galito’s from copying them (Chicken Inn Official Website, 2010).

Industry Analysis (Opportunities and Threats)

Porter’s Five Forces Model

This model is used to evaluate the level of profitability of a given industry using five forces that influence the ability of a company to attend to the customer’s needs as well as the ability to generate profit. In addition, these forces are the sole determinants of the competitive intensity existing in the industry under study.

The porter’s five forces include rivalry among competitors, threat of substitute products, threat of entry of new competitors, bargaining power of buyers, bargaining power of suppliers, and other relative power of unions, governments among others (Porter, 2008).

Porter Five Force Analysis of Galito’s

Threat of Entry of New Competitors

Competition in African fast food industry can be termed as being extremely stiff because of the attractiveness in market profitability. As a result, a large number of new entrants are getting into the market and therefore profitability levels are more or less likely to reduce. For instance, in every 10 restaurants in South Africa, 4 are new entrants. This can be attested to the low barriers of entry existing in the market.

For example, the entry of new firms is high as compared to the number of firms exiting the market. This increases the number of overall threats that Galito’s is likely to encounter. There are both local and international competitors such as McDonald’s, Papa John’s, Kentucky Fried Chicken, Wendy’s, Popeye’s, Burger King and Starbuck’s.

On the other hand, the barriers to entry are advantageous to Galito’s because it is an established company in the industry. The opportunities include;

• Its brand loyalty that enables it to maintain its market share,
• It has an absolute cost advantage in its production operations,
• It enjoys large economies of scale,
• Convenient and effective service delivery, and
• Favour from government regulations that restricts entry of new firms (Kontopoulos, 2009).

Rivalry among Established Competitors

This force determines market prices and profitability levels in the industry. Strong rivalry means that firms will try to outdo each other in price determination and eventually a price war will ensue. A reduction in profitability levels is likely due to reduced margins in sales. Galito’s rivalry can be determined using a number of factors, which include;

The industry’s competitive structure which consists of small, medium, and large-sized firms (although there is no dominant firm in the market). This is largely due to low existence of barriers to entry as well as identical products sold in the market. Therefore, the competitive structure can be said to be interdependent and hence actions from one firm impacts market influence and profitability levels of other firms.

Demand conditions in the market are influenced by the choice of customers and their preferences. Galito’s has been able to expand its line of production in order to meet the ever increasing needs of customers, increase the market share, and as well increase its profitability levels. This is an opportunity to Galito’s because it takes the market share away from its competitors.

The barriers to exit are also favourable to Galito’s because large economies of scale enable the firm to stay in the market during times of low returns. It also has a diversity of food chains and a wide variety of foods as evidenced in the types of food offered in their menu. The powerful financial position of the company enables it to effectively run its operations (Pepper, 1995).

Buyer’s Bargaining Power

In any firm, buyers are the end users of the products and services delivered by the company. Many a times, stakeholders that form up the distribution channels such as wholesalers and retailers are also categorized as buyers. Therefore, their influence to the firm can be an opportunity as well as a threat as evidenced by their demand for better services and price changes.

Using the Porter’s model to describe the fast food industry, it is evident that the bargaining power of buyers is a threat to Galito’s since consumers are always demanding better services and other alternatives. The market trends are always changing as time goes by. Notable changes include;

• The deviation of customers from consuming fried products,
• Demand for home delivery food items,
• The increased demand for high quality food items at low prices,
• Galito’s orders are highly dependent on customer’s request,
• Customers have power over the firms and often they force the firms to reduce prices.

Supplier’s Bargaining Power

The competitive threat of suppliers in the market usually comes in their ability to change the quality of products and also for their position in the determination of product quality. They therefore play a role in determining profitability levels of firms. In the fast food industry, there are low threat levels from suppliers because there are quite a substantial number of various sellers supplying the same products.

Additionally, the biggest threat comes from the buyers due to their likelihood to purchase food items from the competitors. Galito’s also enjoys vertical integration based on its ability to supply its own input needs. It also has diversified operation outlets owing to its strong financial position.

Profitability levels in the industry are not so dependent on the suppliers and therefore the bargaining power of suppliers can be termed as weak. Food items in the industry have a wide variety of substitutes hence the consumers have an upper hand as compared to the sellers (Kouvelis, Chambers & Wang, 2006).

Threat of Substitute Products

These products enable the customer to obtain the same level of satisfaction in relation to those supplied by the fast food firms in the industry. In case of product changes in the industry, customers will have an option of shifting their choices to the substitute products. This is a major threat to Galito’s because the availability of these substitute food items hinders its ability to increase prices and profit levels.

This explains the reason as to why there is a wide variety of food items offered in the menus of many fast food companies in the industry. Furthermore, customers are now careful with their health needs and majority of them are on diet. This trend is notable in situations where there is a decreasing demand for fried food items and consumers are always settling for alternative food items (Larson & Halldorsson, 2004).

Strategic Groups

African fast food industry is characterized by firms with well established corporate strategies. Majority of these firms enjoy a portion of the market share and have built their brand images in the fast food industry.

These firms have invested much effort and resources to ensure that all the client’s needs have been met as well as maintaining strong relationships with their customers. Successful firms in the industry include McDonald’s, Popeye’s, Hardees, Burger King, Wendy’s and Kentucky Fried Chicken (KFC).

Unlike the above mentioned successful companies, there have been new entrants and other small and medium-sized companies that have not yet succeeded in penetrating the market and are yet to register high levels of profitability. These firms include Papa John’s, Chicken Treat, and Chicken Inn. It can also be due to their inability to understand the needs of consumers (Meyer, 2002).

New Value Proposition

To have a new value preposition, the company will have to undertake some adjustments and polishing of its processes. This will ensure that there is an increased customer satisfaction from the company’s product. To undertake this task, the management should ensure;

• Domestic and Global expansion of the company (in time) for the peak of the global economic recovery.
• Adoption of up to date knowledge sharing technologies besides other technologies to enhance efficiency.
• Change from vertical to horizontal organizational structure.
• Increased product/brand differentiation to meet the changing demographics as well as tastes, cultures, and customer values.
• Increased flexibility in the company’s corporate culture (Anon, 2002).

Evaluation of the Above Strategies

To grow domestically, Galito’s will have to price off some part of the casual dining restaurants’ market and attract more customers who prefer domestic cooking through diversification of the menus, health options as well as reduced prices.

The emerging markets present virgin growth areas that could be seized upon by Galito’s. While its competitors may face difficulties owing to unavailability of credit, Galito’s that never relies on borrowed capital and has a strong revenue base could gain an advantage. With the projected recovery to the global economy, the expansions would pay handsomely for the company when the recovery peaks (Levitt, 1965).

Knowledge Management / Acquisition of Technology

High employee retentions go a long way in helping boost learning and sharing of knowledge at Galito’s. However, the company has old systems that cannot ensure efficient knowledge management throughout the organization even with the bumper revenues. Increased knowledge sharing would remarkably enhance employee learning and performance.

Product Strategy

Increased awareness among customers and the rise of healthy eating habits among other factors call for increased diversification in the firm’s offerings to the different market segments. These segments must be carefully selected. Beside joint marketing and public relations, Galito’s must draw on its chain operators allowing them a level of product flexibility to suit the fast changing demographics and varied local tastes.

This should however be controlled to see to it that the quality and standards of the organization are met and this could be accomplished by sending out teams of quality auditors to the company’s restaurants for review.

Product differentiation is particularly crucial during the economic recovery when inflation rates are low and thus limiting the ability of firms to pass on costs to consumers. This effectively limits price competition and instead increases product competition (Eaton, 2001).

Organizational Strategy

The current organizational structure that is common to many private/family businesses is vertical. This structure comes with varied difficulties including delayed decision making and a failure to harness the leadership synergies fro the many operators among other disadvantages which are particularly emphasized for a company that deals directly with clients. As such, the structure needs to be horizontal.

This could however be balanced out by mentorship, training, and careful succession planning that would avoid leadership vacuums at any given time.

Recommendations

1. Give more leeway to individual operators in decisions regarding menu prices, the choice of marketing, and promotional activities.
2. Introduce the use of credit cards not only for convenience but also to cater for the techno-savvy young generations
3. Use only a tenth of its revenues for charities while the rest of the revenues should be put to the expansion of the business, innovation, and acquisition of technology.
4. Adopt Wendy’s concept for combo’s options. This would alter the product’s shape and size without altering the prices (Hall, Jones, and Raffo, 2002).

Implementation of Strategic Alternatives and Control Plans

Functional Action Strategies

Galito’s exhibits strong growth opportunities through its corporate culture. This can help the organization to increase its sales in the domestic market.

Quality assurance is one of Galito’s policies and therefore focusing on quality improvement strengthens growth capabilities of the organization. In addition, branding and multi-branding will enable the organization to increase the company’s market share and as a result high sales volume will be recorded.

New product development is an essential activity that increases the competitive advantage of any organization and also enables the organization to increase its market share control; Galito’s need to increase its focus on research and development to ensure that it maintains the lead in the provision of a variety of services.

Currently, Galito’s concentrates only on the domestic African market as opposed to its competitors. Therefore, market penetration and development is needed to ensure that it serves a wider region including international markets.

Present Structure

The company is driven by the corporate structure characterized with strong religious and social beliefs. Organizational and management strategies are all structured to fit this strategy. It is also stated in the organization’s mission and vision statements (Gurvis, 2007).

Cultural Fit with Strategy

The strong religious foundation is the driving force for Galito’s and all operations within the organization are designed to be compatible with the cultural strategy.

The organization, through its leadership, engages in many charities within the community that increases the organization’s corporate social responsibility. For instance, helping the needy in the community and awarding scholarships to bright and deprived students. This is achieved under the umbrella of WinShape Foundation.

Measurement and Control System(s)

Galito’s aims to be America’s best among the quick service restaurants and therefore it has identified the benefits associated with consistent and effective technological advancements.

This has seen it invest in high-tech facilities to aid in transactions, monitor sales volumes and employees’ performance. It also plans to roll out Smart network solutions that will enable it to accept major debit and credit cards. The projected sales are expected to hit the ten billion dollar mark by the year 2015 (Alderson, 2006).

Conclusion

Galito’s is perhaps best known for its corporate culture where it has done a tremendous job in communicating to the public. However, in order to enhance greater client satisfaction, greater productivity on the part of its employees, increased efficiency as well as productivity, there is still need to make a number of changes.

The company must strike the right balance between charitable contribution and the need to fund its marketing and expansion efforts. It’s marketing campaigns are undeniably creative and effective but there is more need to use marking strategies in the market.

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