Introduction
Awfully Chocolate was founded in 1998 in Singapore, by Lyn Lee and her husband (then fiancé). The company has 17 outlets all over Asia in places such as Hong Kong, Guangzhou, Taipei, Dalian, Jakarta, and Shenzhen through franchising. It has 14 shops in Singapore. The top level management is by the founder, then accounts and retail managers at middle levels and retail assistants at first line management (awfullychocolate.com, 2017). Awfully Chocolate brand is well known for making high quality chocolate cakes that the customers keep coming back for. They specialize only in chocolate cake and do not make other flavors of cake. They also sell only full cake and their business is a cake shop whereby a cake is ordered, made and collected without any cake display.
EXTERNAL AND INTERNAL BUSINESS ENVIRONMENTAL ANALYSIS
Macro Environment analysis
| Demographic | Population of young people with disposable income |
| Economic | Economy of Singapore growing fast (1.8% in 2016) |
| Political / Legal | Not much legalities involved in cake shop |
| Sociocultural | Singapore people have a culture of celebrating using cakes |
| Technological | Uses IBM customer management technology |
| Global | Franchises in other Asian cities, such as Hong Kong, Taipei etc |
| Physical | Location is in Central Business District |
- The economic environment for Singapore city areas has high disposable income and increased consumer spending. This provides a good business environment for Awfully Chocolate. There is also the increase in overall country GDP that makes customers have more buying power. The economy of Singapore grew by 1.8% in the last quarter of 2016 (Kit, 2017).
- In the Socio- Cultural environment, most of the population in city areas is young people who have shopping habits and taste and preferences that are favorable to Awfully Chocolate. The young generation also enjoys cakes and confectioneries, and there is the culture of celebrating events such as birthdays with cakes. The young customers also provide a good marketing platform for Awfully Chocolate since they can be reached via social media where they have very high presence.
- The technological environment is making dynamic advances which are making labor easier. This could be in preparation of the cakes as well as customer management. Technology also encourages online shopping and advertising through websites and social media. There is great connection in Singapore cities enabling an online shopping culture. In 2007, Awfully chocolate got help by Solution Details a product of IBM to help transform it operations and processes by use of technology. This helped them to reduce human error that occurs during order taking, reduce missing orders and improve order consolidation time (Solutiondetails.com, 2017).
Micro Environment analysis
| Strengths | High quality chocolate Customer loyalty Recognized brand |
| Weakness | No advertising Limited brand portfolio |
| Opportunity | Opportunity to expand portfolio |
| Threats | Change to healthy eating habits |
1. In the Strengths of the company, The brand name Awfully Chocolate is associated with high quality chocolate cake and value for money. This ensures they have loyal customers. Their focus on quality is their main source of repeat customers. Awfully Chocolate has well trained employees that give high quality of service for the customers that keeps them coming back. The franchising companies are also proud to be associated with the Awfully Chocolate brand, creating an internationally recognized brand.
2. The opportunities of the company are such as; awfully chocolate has the opportunity to expand, into areas outside the city centers as well as expand in their product portfolio. This could be through offering other products of chocolate such as milkshakes, since they have recently introduced chocolate ice cream. There is also the growing information about the health benefits of dark chocolate which could earn them more customers.
3. Among the threats facing the company is that there is intense competition from other cake shops that have a wider range of products, as well as a café set up where people can sit in and enjoy the cakes. There is also competition from international markets too, especially in other cities that Awfully Chocolate has ventured. The main competition that Awfully Chocolate faces is BakerZin and Chocolate Amer. There is the threat of imitation of their product which is what makes them unique. Other companies could imitate the same cakes and sell at different locations at different prices. Lastly, there are campaigns of eating healthy which make the customers opt for healthier options other than eating cake and chocolate desserts. This could reduce the popularity of the cake and desserts. There has also been the challenge of competition by opening malls and cafes that offer confectioneries. In fact, Awfully Chocolate experienced a slump in revenue between 2013-2015 due to competition by malls and restaurants and had to close down their restaurant at Esplanade (Helfand-Rogers, 2016).
Industrial Analysis – Five Forces
| Threat of new entrants | High |
| Competitive rivalry | High |
| Bargaining power of suppliers | High |
| Bargaining power of customers | High |
| Threat of substitutes | High |
Porters five forces analysis provides a structure for analyzing the industrial forces and competitive forces in an industry (Porter M. , 1980).
a. Threat of new entrants, High
In the industry that Awfully Chocolate is operating in, there is the barriers of entry are low, therefore there is high threat of new entrants. Low barriers of entry makes the industry attractive for new entry since there are low economies of scale, low product differentiation and strict government policies. This is easy to get into by new entrants.
- The buying power of customers is high, as they have a lot of other choices when it comes to confectioneries, hence Awfully Chocolate has to create value to keep them coming. The use of word of mouth as a means of reaching ot other customers gives the customers higher bargaining power as they can easily bad mouth the business to potential customers. the customers change of tastes and preferences could also change and this would mean Awfully Chocolate would suffer since they do not have a wide product portfolio.
- The competitive rivalry is high showing the vigor in competitiveness of the industry. An industry is highly competitive if it has high number of competitors, high fixed costs and low product differentiation (Porter M. , 1980). This is a very competitive industry due to the low entry barriers, low switching costs and high availability of substitutes. Actually at some point, Awfully Chocolate had to close one of its shops due to competition from the malls. This is not therefore a very attractive industry for the organization and they have to adopt strategies that will keep them at a competitive advantage.
Value Chain Analysis
Appraising Resources
| Resource | Characteristics | Indicators | |
| Tangible resources | Financial | High returns Franchising capacity | High revenue Liquid cash flow |
| Physical | Unique designed shops Strategic CBD location Reliable raw materials supply | Continuous orders Return customers | |
| Intangible resources | Technology | IBM order management technology | Efficient order system |
| Reputation | Return customers Word of mouth High quality cakes | Customer satisfaction Customer loyalty | |
| Human Resources | Well trained employees | Excellent customer service | |
Awfully Chocolate activities that contribute to the value of the product are both tangible and intangible resources.
1. Tangible resources
From the past transaction, Awfully Chocolate has high profits that has helped them expand to opening different shops as well as franchises. They also have a liquid cash flow that ensures they have no problem at all delivering to customers and paying suppliers. In their physical location, Awfully Chocolate have uniquely designed shops located in central business district making them more accessible to customers. They also have a reliable supply of raw materials which makes them get continuous orders since they have reliable consistency.
2. Intangible resources
From the reliable raw materials supply, the awfully chocolate products are made from Belgian chocolate, and natural ingredients with high quality of cocoa. The company started with a dark chocolate cake, rich, tasty and light that anyone would find themselves craving for, and never tire of. They also sell only full cakes, no slices, unless in recent times when they have been trying to meet the needs of their customers in different cities where they have franchises, and customers have different tastes and preferences such as smaller or slices of cakes. They chose not to use display as their method but be creative on the hotel design that does not focus on display for products so as to stimulate the client to buy (awfullychocolate.com, 2017). The IBM technology has contributed to ensuring that there is customer satisfaction as a result of the efficient order system. Customers do not get frustrations over orders made since there is no confusion and orders are delivered in a timely manner.
Awfully chocolate uses their reputation to market the company. Most of the marketing is done through word of mouth, whereby the customers enjoy the cake and refer others for the same. This is in consistence with the model that they do not have displays in their shops to appeal to people but instead those who experience the quality get others talking. The location is also in the Central Business District of major towns, which makes them very accessible to customers. Their positioning is to target the younger generations, the millennials from teenagers to 35 years. They target the middle call mostly women and their product consider all races and religion since they are halal. They sell premium chocolate at a fair value which is very high quality hence a target of the upper middle class. Their distinct brand name has become their selling point as they are associated with high quality chocolate cakes. With the identification of the unique customers to focus on, Awfully chocolate position themselves in that they will only concentrate on the quality and give value to those who will pay for it (Porter, 1985)
Core Competencies
Organizational capabilities
| Functional Area | Capability | VRIO |
| Production | High quality cake High quality raw materials | Rare Rare |
| Customer Care | Efficient order processing Timely order delivery Friendly customer services | Value Value |
| Marketing | Word of mouth | Value |
| Franchising | Strong brand name Franchise support International reach | Not imitable Rare Value |
| Design | Unique cake delivery | Rare |
| Reputation | Recognized brand name | Not imitable |
a) Reputation:
For awfully chocolate, the core competencies they possess have to be the uniqueness of their cake, the high quality that offers value to the consumer, the well trained staff offering the best of services to the customers, as well as their ordering system by IBM which makes the ordering processes very efficient. The cake quality is valuable, not easily imitable due to the unique recipe they possess as well as rare. People come from all parts of the city for the uniqueness of the chocolate cake
b) Explanation for reputation
Awfully chocolate owes most of its success so far to its unique strategy. The core competencies possessed by the company contribute to its competitive advantage. According to Barney (1991) a firm can gain sustainable competitive advantage by exploiting its resources and core competencies. The industrial analysis for Awfully Chocolate shows that the competitive intensity is very high, and it is through core competencies that they can exploit and develop a sustainable competitive advantage. In the Barney’s resource based view, the competencies the organization possessed must be valuable, rare, and difficult to imitate and organization be in a position to exploit them for sustainability (VRIO) (Barney, 1991). In the resource based view, the core competencies are valuable, rare and not easy to imitate hence help in maintaining a competitive edge (Barney, 1991)
c. Why is the factor important? How this factor will impact on the firm?
The reason the reputation of the organization is one of the most prominent core competencies is that without advertising, it is what has kept the customers coming back for more. It is the same that makes others in different cities and countries want to franchise the name because it is reputable for the name and their unique and quality cake recipe. Considering that the company doesn’t have much marketing strategy, the products and services they have offered so far is what has earned them a good name, such that when they open shops in any areas it gets customers because then name sells itself. This is the most prominent of the core competencies.
CURRENT STRATEGIC POSITION OF THE FIRM
Focus strategy
Their business was deliberately limited, selling only four samples of cake; chocolate cake, chocolate banana cake, chocolate rum and cherry cake, and premium dark chocolate ice cream. This strategy was so that they could concentrate on quality and offer the best. They don’t display or advertise, and don’t sell slices of cakes as in cafes. This makes the model unique to only Awfully Chocolate. They have spent hours working on keeping high quality standards in terms of the product, service, supplier and even accounting, training their employees to follow their system with zeal (awfullychocolate.com, 2017). They take pride in this model and do not have much intention for changing into a café.
This business model is focus strategy. This is whereby a business differentiates the products and focuses only on a certain segment of customers (Pearce & Robinson, 2005). Awfully chocolate has chosen to differentiate their product such that they offer value in the form of the highest quality of chocolate cake. They choose to focus on the chocolate lovers only, who will only take chocolate cakes and are interested to pay for the value offered at an extra cost.
Franchising
Awfully chocolate has become a strong brand and to venture overseas, they have franchised and licensed businesses in some places such as Taipei, Jakarta, Beuhub and Shanghai. Awfully chocolate hopes for more franchising and are targeting areas such as Seoul, Dubai, Sydney, Tokyo and encourage franchise in their website. While franchising, they had to adjust the business model slightly depending on the area of franchise. For example, since Awfully Chocolate only sells full cakes not slices, they had to reduce the size of the cake in Hong Kong. This is because in Hong Kong, unlike Singapore, people are unlikely to invite friends to their homes, so they prefer to eat cake on the go; therefore they introduced cupcakes (scmp.com, 2012). Franchising is a way of creating partnerships without having active involvement in operations of the business. This is an option to extend the focus strategy to this particular segment of the customers in another country, a niche that thrives in consumption of this product (Porter, 1985).
Recommendations
Franchising seems like a practical and operationally tested model for the expansion of Awfully Chocolate. It is therefore recommended that they consider franchising into more areas. Franchises is a way of building partnerships without having to be fully involved in operations, which means that the company does not suffer in terms of stretching their resources. There are opportunities for franchising into other cities and reaching even more people with the chocolate cakes, hence a very viable direction to take. To get into other countries, they could featured in local TV stations, as they had been featured in a cooking channel in China, before they got into Hong Kong.
Though there is importance of consistence in the product offered using the focus strategy, it is recommended on a little product differentiation, not getting out of the niche. Awfully chocolate could offer other chocolate related products for the chocolate lovers who want to extend their taste a little. This gives them a wider reach of customers and does not limit them so much. In Hong Kong for example, Awfully Chocolate shop there offers chocolate cup cakes for the customers who prefer to consume the product in smaller helpings. This could work in Singapore too, not compromising on the quality at all.
Though Awfully Chocolate does not advertise, they could reach a lot of more customers by use of social media. Here, they could post deals and offers that will give them an even better reach. Most of their target customers are active social media users, hence the perfect platform to reach out to more people.
Through research and development, Awfully Chocolate could use research to find out what the customers want. Thought the current business model works, there are future trends in any industry. Research should be continuous as customer preferences keep changing. Further, they should research on the changes in the very dynamic technological world. Changes in technology could keep them ahead of competition and if they slack they could easily be overtaken.
Conclusion
The current model for Awfully Chocolate seems to be working for them. They have focused on the quality of the product and as a result, they have happy customers. They have had positive reviews from food bloggers, and have satisfied customers who spread the word through word of mouth. However, there is no competitive advantage that cannot be beaten, and they should therefore open their eyes to more opportunities to reach a wider market of people and secure the future sustainability of the organization.
References;
- awfullychocolate.com. (2017). It started with a cake, grew into a model, now it is a standard. Available at: awfullychocolate.com [Accessed 2 Apr. 2017]
- Barney, J. (1991). Firm Resources and Sustained Competitive Advantage. Journal of Management, 17(1), 99-120.
- Helfand-Rogers, C. (2016, December 1). Circling Back: Lyn Lee navigares a business’ ups and downs. Available at: https://thestoryexchange.org/circling-back-lyn-lee/ [Accessed 2 Apr. 2017]
- Kit, T. S. (2017, Jan 3). Singapore economy grows 1.8% in Q4; 2016 GDP at 1.8%. Available at: https://www.channelnewsasia.com/news/business/singapore/singapore-s-economy-grows-1-8-in-q4-2016-gdp-at-1-8/3408294.html [Accessed 2 Apr. 2017]
- Pearce, J. A., & Robinson, R. B. (2005). Formulation, Implementation and Control of Competitive Strategy. New York: McGrawHill.
- Porter, M. (1980). Competitive Strategy. New York: Free press.
- Porter, M. E. (1985). Competitive Advantage: Creating and Maintaining superior Performance. New York: Free Press.
- scmp.com. (2012, Apr 21). Awfully successful at franchising. Available at: https://www.scmp.com/article/998748/awfully-successful-franchising [Accessed: 2 Apr. 2017]
- Solutiondetails.com. (2017). Awfully chocolate: IBM business partner case study, unorthodox and contrarian. Available at: https://www.solutiondetails.com.sg/testimonial/testimonial/1-awfully-chocolate [Accessed 2 Apr. 2017].