Introduction
The purpose of this paper is to analyze the Just Falafel case study. The aim of the analysis is to determine the factors that influence the performance of the company and how it can improve its competitiveness. In this respect, the paper will begin with an overview of the case study. This will be followed by a detailed internal and external environmental analysis. The key strategies that Just Falafel is using will also be identified and analyzed. The last part of the paper will provide recommendations to solve the problems that Just Falafel is facing.
Background
Just Falafel is one of the fastest-growing companies in the global fast-food industry. The company was founded in Abu Dhabi in the UAE by Mohammad Bitar and Alia Al-Mazroui in 2007 (Jabeen and Katsioloudes 1-8). Currently, the company operates in 18 countries globally. It has established 52 restaurants and 700 franchises to sell its products. Falafel is the main product or food sold by the company. It is essentially a sandwich made using a variety of vegetables such as fava beans and chickpeas. The aim of the company is to promote healthy eating by delivering nutritious food in various markets. Just Falafel is currently expanding its operations by joining new markets through franchising and foreign direct investment (FDI).
Environmental Analysis
External Environment: PEST Analysis
The main political factors that affect the fast-food industry are economic liberalization, environmental regulation, and political instability (Sumei 10634-10644). Removal of non-tariff barriers to trade, such as FDI and franchise restrictions, has enabled Just Falafel and its competitors to join foreign markets. However, it has also led to increased competition in the industry. Most developed countries have strict environmental regulations that affect the production of food commodities. For example, high taxes are often imposed on inorganic fertilizers to discourage their use. As a result, fast food companies must pay high prices to access ingredients. Political instability in countries such as Kuwait, Lebanon, and Jordan also limits sales by interfering with economic activities.
The economic factors that influence the industry are GDP growth and inflation rate. Low economic growth in markets such as the Eurozone reduces demand for fast food. However, robust economic growth in emerging markets in the Middle East, Asia, and North Africa support demand. A high inflation rate (above 10%) in countries such as Egypt reduces demand for fast food by eroding purchasing power (Ranchord and Marandi 86). By contrast, a low inflation rate in markets such as the UK, Japan, and Kuwait supports the demand for fast food.
Rising concern over the health effects of consuming fast food and the challenges associated with cooking at home is the main social factors that affect the industry. Fast foods are associated with lifestyle diseases such as obesity and hypertension (Dunn 10-20). This means that only companies that provide healthy foods can easily penetrate markets where customers are concerned about their health. Cooking at home is increasingly becoming difficult due to lack of time. As a result, people resort to fast food, which is readily available. Rapid urbanization and the young population in developing economies also encourage the consumption of fast food.
Technology is important because it determines efficiency in production and distribution (Steward 45-52). Companies such as McDonald’s use machines to increase productivity while reducing operating costs. Moreover, companies that use sales websites and independent online food ordering firms such as Foodpanda enjoy higher sales than those that depend only on physical stores.
Industry Analysis: Porter’s Five Forces
The main suppliers in the fast-food industry are farmers. Suppliers have low bargaining power because of their large numbers. For instance, thousands of small-scale farmers are ready to supply commodities such as chickpeas in various markets. Supplier bargaining power is also low due to the lack of product differentiation (Khan and Hussain 1-10). Most farmers sell raw food commodities that are similar. Low supplier bargaining power is an advantage since it allows food companies to negotiate for favorable prices for their supplies.
The buyers in the industry are individuals or families that consume fast food. Buyers have strong bargaining power because of their low switching costs (Jabeen and Katsioloudes 1-8). Individuals often switch from one fast-food company to another to obtain better deals in terms of price, quality, and quantity. High buyer bargaining power is a significant risk since only companies that are able to provide services that meet unique tastes and preferences are able to survive.
The threat of substitutes is medium. The main substitutes for fast food are healthy or nutritious meals (Jabeen and Katsioloudes 1-8). Healthy meals are readily available in restaurants and supermarket chains. They can also be prepared at home. However, the high prices of healthy meals limit their ability to compete with cheap fast foods. The main factor that supports the demand for healthy foods is the need to avoid lifestyle diseases. This means that fast food companies are likely to gain market share in countries where customers are concerned about price rather than food quality. The implication of the medium threat of substitutes is that companies are likely to be more competitive if they enhance food quality without increasing their prices significantly.
New entrants pose a significant threat to the industry. Joining the industry is easy due to the standardization of fast food menus and low capital requirements (Khan and Hussain 1-10). A company with limited financial resources can easily sign franchise deals to expand its branch network. New entrants expect to make high profits, especially in developing countries where rapid population growth calls for an increased supply of cheap food. The implication of the threat posed by new entrants is that firms such as Just Falafel are likely to lose their market share as more companies join the industry.
Competitive rivalry is high in the industry. This is attributed to a large number of fast-food companies in the UAE and other markets. Large food retailers such as McDonald’s, Wendy’s, and Burger King have high economies of scale, which allows them to reduce production costs in order to charge low prices. This has led to price-based competition. High competition is a threat since it leads to a reduction in profit margins and loses market share (Ranchord and Marandi 88).
SWOT Analysis
Just Falafel has the following strengths. First, the company is capable of providing nutritious and delicious fast food (Jabeen and Katsioloudes 1-8). This allows it to serve customers who believe in healthy eating. Second, the company has focused on product innovation to improve customer loyalty. Just Falafel is able to overcome competition by selling customized rather than standardized fast food. Third, the company has an effective supply chain management (SCM) strategy. It has partnered with several farmers in various markets to enhance its access to fresh ingredients, which improve the quality of its foods. Finally, the company has a large network of franchisees that have adequate knowledge of various overseas markets. This facilitates rapid market penetration.
Just Falafel has several weaknesses. To begin with, it charges premium prices because of the high cost of preparing nutritious meals. High prices expose the company to the risk of losing customers to its competitors (Gamble, Thompson, and Peteraf 5-350). Just Falafel also has a narrow product range. It specializes in selling vegetarian food, which prevents it from serving customers who are interested in beef and chicken. Another weakness of Just Falafel is an overreliance on franchising. This exposes the company to the risk of losing control over its products in terms of quality and distribution.
The opportunities in the industry include rapid economic growth in emerging markets. This will improve the demand for fast food. The rise in the popularity of online food ordering companies is also an opportunity to serve more customers. Food ordering firms are important distributors who link thousands of clients with restaurants (Steward 45-52). Rising concern over the health effects of consuming fast food is also an opportunity for Just Falafel because it provides nutritious rather than junk food. The company can increase sales by positioning itself as a brand that promotes healthy eating.
The main threat in the industry is high competition. Just Falafel will not be able to achieve its expansion objectives if it fails to overcome competition in various markets. Low economic growth in developed markets such as Europe where the company has a significant number of branches will negatively affect its earnings. Lack of market entry barriers is another threat in the industry (Sumei 10634-10644). As more firms join the fast-food market, Just Falafel will have to adopt innovative ways of improving its products in order to remain competitive.
Key Strategies
Just Falafel’s main strategy is focused on differentiation. The company focuses on making its food unique in terms of nutrition and taste to overcome competition. It also focuses on serving the vegetarian fast food segment rather than the mass market. One of the factors that enable Just Falafel to pursue the strategy is the ability to conduct market research (Jabeen and Katsioloudes 1-8). The company uses customer surveys to collect information concerning market needs.
It also tests its products in the UAE, which has a multicultural population to avoid failure in new markets. Market research provides valuable insights that allow the company to differentiate its products through innovation. The company also has an effective marketing strategy that allows it to interact with and involve customers in product development. This leads to the development of products that meet customer expectations.
The company promotes sustainability by supporting its franchisees. Just Falafel provides training programs that enable franchise owners to produce high-quality meals. It also provides marketing services to enhance the sales of its franchisees. Corporate social responsibility (CSR) is another strategy that the company uses to ensure sustainability (Jabeen and Katsioloudes 1-8). It supports local farmers through fair prices to ensure a reliable supply of ingredients. The company also supports its local communities. For instance, it provides scholarships to needy students to access quality education. Supporting communities ensures acceptance, which in turn creates customer loyalty.
Key Problem Areas
The problems that Just Falafel is likely to face in the future include the following. First, the company is likely to lose its competitiveness due to strategy imitation. This problem arises from the fact that mainstream fast food companies have realized that they have to offer safe and nutritious food in order to survive (Dunn 10-20). For instance, large fast food companies such as Burger Fuel and Gourmet Burger Kitchen have already embarked on selling nutritious meals. As more companies adopt a premium positioning strategy, Just Falafel will find it difficult to differentiate its products based on quality.
Second, the company is likely to experience little or no growth in revenue in the future. This problem is attributed to the focused strategy followed by the company. In the future, the vegetarian fast food market will be saturated as mainstream fast food companies join it to increase their revenue. The resulting increase in competition will limit growth in revenue and profits.
Finally, Just Falafel is likely to experience a significant increase in operating costs in the future. One of the factors that contribute to this problem is product customization. Cost efficiency can hardly be achieved if products have to be modified regularly (Ranchord and Marandi, 93). Modification calls for increased investment in research and development. In addition, the company must invest in marketing activities such as advertising to popularize new products. This increases operating costs.
Solutions and Recommendations
First, the company should adopt a hybrid rather than a focused differentiation strategy. A hybrid strategy involves maintaining high quality through differentiation while reducing operating costs in order to charge affordable prices (Ranchord and Marandi 96). This strategy will allow Just Falafel to overcome competition from companies that are able to provide nutritious meals at a low cost.
Second, Just Falafel should exploit new market segments to improve its revenue and profits. It can still maintain its brand image by providing high quality or nutritious dairy and poultry food products to serve customers who are not interested in vegetarian fast food. Generally, exploiting new market segments will enable the company to extend its product line (Gamble, Thompson, and Peteraf 5-350). As a result, it will serve more customers and increase its market share.
Finally, the company should focus on joining emerging markets in Asia, South America, and Africa rather than developed countries such as the US and the UK. Developed countries are home to some of the world’s largest fast-food companies that have a strong brand image and customer loyalty. Moreover, the fast-food industry in developed countries is experiencing slow growth due to poor economic recovery (Khan and Hussain 1-10). Emerging markets such as South Africa, Russia, and China have strong demand and low competition. Thus, they present great growth opportunities.
Conclusion
Just Falafel has enjoyed rapid growth in the last five years. This achievement is attributed to its strengths, which include product innovation and effective marketing strategies. The company overcomes competition by providing high-quality fast food. However, it has a narrow product range. It also focuses on serving only the vegetarian fast food market. These weaknesses will limit the ability of the company to increase revenue in the future. Thus, Just Falafel should adopt a hybrid strategy that focuses on improving product quality and reducing operating costs to improve its competitiveness. It should also consider serving new market segments to increase revenue.
Works Cited
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Gamble, John, Arthur Thompson and Margaret Peteraf. Essentials of StrategicManagement: The Quest for Competitive Advantage, New York: McGraw-Hill, 2013. Print.
Jabeen, Fauzia and Marios Katsioloudes. “Just Falafel: A Success Story of an International Expansion.” Emerald Emerging Markets Case Studies 3.2 (2013): 1-8. Print.
Khan, Shahzad and Syed Hussain. “Determinants of Customer Satisfaction in Fast Food Industry: A Study of Fast Food Restaurants in Pakistan.” Journal of Marketing Research 6.21 (2013): 1-10. Print.
Ranchord, Anthony and Edward Marandi. Strategic Marketing in Practice, New York: McGraw-Hill, 2005. Print.
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Sumei, Lin. “Marketing Mix (7P) and Performance assessment of Western Fast Food Industry in Taiwan: An Application by Associating DEMATEL and ANP.” African Journal of Business Management 5.26 (2011): 10634-10644. Print.