The ice cream industry has been one the fastest growing industry in the recent past. This is because the customers’ behavior has significantly changed from the consumption of cold drinks such as coca cola and 92% have chosen to consume ice cream as a means of quenching thirst. Due to high demand of ice cream many companies are putting strategies to meet the demand. (Corper, 2013)
Overview of the Firm
Frost Gelato is an Italian restaurant that was founded by Jeffrey Kaiseman and Stephen Ochoa in 2003.The firm is based on Tucson, Arizon.The company is located across the street from Port Clinton Square, which is home to numerous events throughout the year, and in the midst of a number of fine restaurants, 50% of our business each day is usually after dinner. In addition, The Company is fortunate to have tremendous landlords whom bring partnerships. (Liebebenson, 2014)
The place is strategically chosen due to the population traffic and the availability of consumers. The firm deals in the provision of authentic Italian Gelato, ice cream products, provision of coffee and other products. The main include gelato and other, creameries, cakes and drinks. They also deal with shop fitting restaurants, designing and also deal with specialized events actions agency. (Villareal, 2011)
The company serves mostly artisan gelato and sorbet (24 gelato flavors; 12 sorbet flavors) made fresh daily in their kitchen on site. They also serve specialty products made from dairy, including cakes, Frostbites (small balls of gelato/sorbet hand dipped in chocolate), milkshakes, sorbettinis (sorbet and Pellegrino), the world’s finest root beer floats and assorted coffee drinks. (Liebebenson, 2014)
The business is growing steadily across the content. Over the last years the turnover has increased significantly. This has enabled the profitability of the company to also increase as the company opens other branches in UK, US and other Europeans countries. The upward trend has enabled the company to strategies in expansion. The ice cream in the US has saturated mature markets with 92% of household consumption. The ice cream sells about $25.1B in 2012 and its growth is 2.4% annually. (Corper, 2013)
Analysis of External Environment
Frost gelato operates in a competitive environment. It lies within the perfect competition market where there is free entrance and exit of customers. There is perfect competition from Nestle and Uniliver who have about 24% and 18% respectively of market share. The ice cream in the US has saturated mature markets with 92% of household consumption. The ice cream sells about $25.1B in 2012 and its growth is 2.4% annually implying that there are more potential customers. (Corper, 2013)
The company is affected by the US legal factors that tend to not to recognize galeto as ice cream. This is because it has3.5% less fat. The company had to work on strategies to ensuring its acceptance. The consumer behavior has changed and most prefer to get products through online purchase. The company has responded to the technological changes through the usage of online selling platforms. (Godin, 2010)
The ice cream industry has changed significantly in terms of sales. Most customers and many households about 92% have chosen to buy the products. The industries are going online to meet the huge demand. There are more than 1000 ice cream makers selling ice cream in small quantities. They serve small areas making the industry very competitive. (Corper, 2013)
The industry consist of products which are cold since they have ice. Ordinarilly, the consumption of ice is usually high during summers or hot periods than cold periods. This has made the industry to become seasonal and most companies have to involve strategies so as to remain in the market to avoid being faced out due to the change in climate. The consumer’s behavior has also changed significantly. Most consumers prefer to have ice cream that has reduced fat and sugar. This trend in the market has enabled many companies to have strategies so as to be on a competitive advantage. (Michael, 2010)
Analysis of the Competitive Environment
The company is surrounded by a series of competitors, the major being Uniliver and Nestle company. Other competitors in UK include Café Nero, Wetherspoon, Pret A Manger, Café Roge, Costa coffee and Starbucks. Pret A and Café Roge have 54% of the market share with 30% of population visiting the coffee shops in a week. Frost Gelato has endeavored to diversify in cakes and other drinks apart from selling ice cream, gelato and coffee to be on the competitive advantage. The company also gets stiff competition from Nestle and Uniliver who have market share of 24% and 19 % respectively and besides this there are other 1000 plus makers of ice cream in small quantities that serve the area. (Matt, 2009)
This means that the area has become very competitive and therefore Frost Gelato has to brand its products to attract more customers. The company uses the RBV model to gain competitive advantage. This comes from the value of the company. It is endowed with good décor and spacious restaurant which are very clean and conducive for attracting more customers.
The industry that Frost Gelato shop operates in can also be analyzed using the Porters five forces analysis. (Mike, 2011)
- Supplier power. There are different supplies and most companies are looking for those that are providing the product at a low costs. This is to minimize the cost of production and intern lower the price of the ice cream. Gelato Shoppe obtains most of its raw materials from Italy since the product is majorly made from the place. This is to ensure that they remain faithful to produce the real gelato with its flavours.This is to make it testier than modern ice cream ensuring that Frost Gelato remains at competitive advantage.
- Buyer’s power. There are more consumers of ice cream in US. This involves 92% of households that consume the products. This has enabled the many key players such as Uniliver and Nestle to open more stores. Frost Gelato produces gelato which is a type of the best ice cream to be on the competitive advantage.
- Competitive rivalry.There is high competition not only in the US but also internationally. The companies have to be smart in their strategies. Frost Gelato is endeavoring to open more stores so as to have more concentration of market share. Frost Gelato has also been strategized by going Internationally to be on the competitive advantage
- Threat of substitution. The entire industry is full of substitution. Products of diverse restaurants are similar. Pret A Manger, Café Roge,Café Nero and Buskin Robins sales ice creams with the same flavours.This means that when prices are set to be the same customers will not have preference but to buy from any shop and therefore there would be no customer loyalty.
- Threats of new entry. Since there is high consumption, more countries are willing to enter the industry .There are1000 small artisanal ice cream makers who also have dreams of becoming big and this also acts as a threat.
Competition is high from Nestle and Uniliver who service from the freezer. They are everywhere and they have shops across the UK and US. In UK the competitors include Hill Station Mango and Tesco. They have affordable prices and there is availability of ice cream at request. (Pol, 2007)
There is more advertising on the websites and this has also been done in various social sites to reach a wide market base. Small business and large businesses have been on the move to been on the move to sell online. This is because the customer behavior is changing and his buying power is being influenced by technology. (Godin, 2010)
Frost Gelato has purposed to produce the products of high quality. They have authentic Italian gelato. The company tries to be faithful in the production of original gelato retaining its sweetness. The product is made of milk or cream, sugar, eggs and binding elements. It has less than 20% of air and 3.5% less fat. Modern ice cream has a lot of air and fat which makes it not healthier as compared to gelato. This makes many customers to buy the gelato enabling the company to be on the competitive advantage. The brand name has been tuned to reflect the name of the product. This is very professional. The décor of the restaurant has the branding feeling. The shops are huge, bright airy, clean and super modern to attract customers. The servers have a warm welcome and are cooperative (Porter, 2008)
Analysis of Customers
Ordinarilly, the profitability often increases when the needs of the customers are usually met. The market is saturated and the demands of ice cream are so high. The consumers behavior have changed significantly, majorly consumers prefer the products with less fats and sugar with the exception of some kids. Frost Gelato has strategized on this to be on the competitive advantage. (Doyle, 2008)
Most customers also prefer goods of high quality with low prices. The nature of buyers is to save every coin when there is opportunity. In UK, Hill Station Mango has a price of £3.95 while Tesco has £0.185 including VAT of 20% and this also consists of tube, lid and label costs. This helps Tesco to sell at a faster speed keeping the cost of inventory low and thus balancing the cash flow without losses. The customers will tend to buy more from Tesco because of the low prices. In US, Uniliver and Tesco have varying price across the stores. Frost Gelato has been on the move to strategies their prices so that it becomes competitive. (Kelvin, 2013)
Most customers have the bargaining power. Frost Gelato has strategized in place such that it has put $ 0.12 margin for the bargaining customers. This enables it not only not to make losses but also to allow customers to bargin.The customers that frost targets are basically high income consumers. (Doyle, 2008)This is because the poor consider it a luxury and not the basic need and therefore many of these categories will tend not to buy ice cream or gelato. If it is the issue to do with quenching thirst, the middle earners will use water. Some customers have the perception that ice cream is for kids and this has slightly affected the sale of Frost Gelato. (Villareal, 2011)
Frost Gelato products are authentic made from the real milk, sugar, eggs and binding elements. These premium products are healthier since they have less fats and sugar with real flavors and not artificial. The brand name of the restaurant reflects the product. Most customers are happy about the product since there is high purchase and there is more customer traffic. There are more branches and expansion needs implying more demand of gelato. (Vincent, 2009)
The company has been on the move of expansion of more shops not only in US but also in UK, Europe countries such as Germany, France and Poland. However financial constraints have remained its major challenge. The aim of frost Gelato is to go national wide which is opening 600 stores each costing $250000.The initial investment would entirely cost $200M of Frost finances. This huge investment will make the company not to keep margin therefore making it riskier. (Liebebenson, 2014)
Analysis of Frosts Situation
The Company has Strength, weakness, opportunity and weakness. Its main strength includes the establishment of a strong brand name which reflects the name of the products. It also has products which are healthier with low fats and sugar. Frost Gelato has also weaknesses. This involves the financial constraints that the company encounters. (Pol, 2007)
The company is not in a position to have money for expansion of the stores while keeping the margins. The company has therefore strategized to franchise so as to save costs. The opportunities that Frost Gelato has are the technological advancement that involves machines which will produce 18 different drinks at a time and this will nullify the wastage of time due to long lines. There are also opportunities of expanding in European counties and UK. (Villareal, 2011)
The Company is undergoing various threats. The major threats involve the competitors who involve Nestle and Unlived in UK and USA.Pret A manger Café Nero, Costa coffee, Starbucks and Wetherspoons.The competitors sell the same products and this makes competition high. To be on the competitive advantage Frost Gelato sells the ice cream, cakes and some drinks so as to increase the diversification which is essential for the stability of business. (Porter, 2008)
Resources and Capabilities
Frost Gelato sells unique Gelato with Italian tastes. The company has endeavored to remain faithful in the production of real gelato. It has also diversified in the Milkshakes, Sorbettini, PintQuaarts, and Frostbitos, other drinks such as coffee, hot chocolate, Bottled water and bottled soda. This diversification is to enable it to be on the competitive advantage. Apart for running the Frost Gelato, they also do shop fitting business that fits restaurants layouts and they also serve as specialized event agency.
This has enabled them not to run out of cash. Due to this diversification, the company has remained to be on the competitive advantage. They have also ensured that they hire competent workers who are trained in Tucson by the gurus in gelato making so as to produce products of high quality. (Liebebenson, 2014)
The Frost Gelato Shoppes are very spacious with the professional architecture and design. They have super modern décor which attracts more customers who brings more revenue increasing the profitability of the firm.
The company has franchise which enables it to grow at a faster rate. The unique brand of gelato has enabled the company to have future prospects of expansion. This makes it to be in competitive advantage. (Michael, 2010)
Analysis of Frost Apparent Strategy
The company has endeavored on the differentiation strategy. The company sells other products apart from the gelato. The company sells other products apart from gelato. The company has also specialized in shoplifting business and also specialized event action agency. This enabled the company’s cash flow to remain healthier. To achieve the differentiation strategy, Frost Gelato has focused on the Research of the market niche in the US. The company also produces high quality gelato which is authentic so as to reach the customers. The company has effective sells and marketing. They advertise through the websites and journal to meet more customers this ensures that the differentiation strategy works effectively. (Porter, 2008)
Market penetration. Frost gelato seeks to achieve growth in the existing market using gelato which is its core product. They ensure that they produce a product of high quality to meet the demand and penetrate the market. (Michael, 2010)
Market development. As the company endeavors to expand in other countries it uses its products to reach its new market segment. The company has opened galeto shops across the UK and US. (Michael, 2010)
Product development the firm has developed new product such as espresso and Affogato which have seen the companies sells increase. (Michael, 2010)
Diversification. The company has diversified into other business such as shop fitting business to design layouts and also specialized events action agency. This ensures continuous cash flow. (Corper, 2013)
BCG Growth-Share Matrix
The four categories experienced by the company involve. (Mike, 2011)
- Dogs – The products usually have low market share and have a low growth rate and thus neither generate nor consume a large amount of cash. Frost gelato’s dogs are the bottled water and the bottled soda. They traps cash because of the money tied up in a business that has little potential. This drinks businesses are candidates for divestiture especially when not doing well. (Mike, 2011)
- Question marks –This are company’s products that are growing rapidly and thus consume large amounts of cash. This is because they have low market shares and they do not generate much cash. This includes the espresso and Affogato which have seen the company use large amounts of cash. The result is a large net cash consumption.This products have the potential to gain market share and become a star, and eventually a cash cow especially when the market growth slows.The products have the possibility of not succeeding and becoming the market leader. This will enable cash consumption and can degenerate into a dog when the market growth declines. The company is aware of the trends and it is becoming cautious. They analyze them carefully in order to determine whether they are worth the investment required to grow market share each year before progressing to use them. (Mike, 2011)
- Stars – This generate large amounts of cash because of their strong relative market share. This includes the company main brand product which is the gelato and the shop fitting services. These products consume large amounts of cash because of their high growth rate. If the products can maintain its large market share, they will become a cash cow when the market growth rate declines. Normally, the portfolio of a diversified company always should have stars that will become the next cash cows and ensure future cash generation.(Mike, 2011)
- Cash cows -This involves the hot chocolate, consumption is not high and most customers prefer coffee than the chocolate .This product exhibit a return on assets that is greater than the market growth rate, and thus generate more cash than they consume. Such business units should extracting the profits and investing as little cash as possible. The product provide the cash required to turn Affocato and expresso which is a cash cow into market leaders, to cover the administrative costs of the company, to fund research and development, to service the corporate debt, and to pay dividends to shareholders. (Mike, 2011)
The company will continue to be a giant in the production of Gelato since it has strategized such that no company will come to beat it inters of competition. This is done through appropriate marketing strategies which involved online social sites.
The company will continue to remain a giant since it is working on its strengths producing a real authentic gelato which is a brand of high quality. Most customers have liked the product the behavior has shifted and most customers prefer to have products which have less fats and sugar. They also go for quality products but with low prices. This is due to their nature of saving. The company has understood this trend and is taking advantage over other companies. This has enabled it to remain always at the competitive advantage since it is practicing the mechanisms of retaining the tactics. This has been vital in the progress of the company. (Anonymous, 2008)
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