Company background
Herfy is a food company located in Saudi Arabia where it has managed to become a household name given its success and popularity in the region. The company has been in existence for over three decades having been established in 1981 (About Herfy, 2010, p.1). Herfy was co-founded by Ahmed bin Hamad Al-Said in a partnership with Hamud Bin Saad Al-Ibrahim.
During the formation of Herfy, Ahmed bin Hamad Al-Said had just completed his studies in the United States of America while Hamud Bin Saad Al-Ibrahim was the General Manager of Panda United. The two came together and established the first Herfy restaurant in 1981, which was located in Riyadh (About Herfy, 2010, p.1).
In a bid to expand, the business Herfy Company engaged in the production of its own bread that was sold in the restaurant as well as in the market. It was a result of this that, the Herfy Bakery was born in 1982. The company operated as a restaurant and a bakery for a long time under the partnership of Panda ltd until in 1994 when the latter was sold to the Savola Group of companies (About Herfy, 2010, p.1). From that time henceforth, Herfy has been under the partnership of the Savola Group.
However, the company has seen tremendous growth with it becoming a closed joint stock company in 2008. In addition to this, the company was the leading company in the Public Joint Stock Company in Saudi Arabia in the year 2010.
This is attributed to the 30 percent of its shares, which were floating making it successfully join the Saudi stock Market. Herfy has seen tremendous growth in terms of expansion where it has been able to expand to other regions bordering Saudi Arabia. Some of Herfy’s branches are found in Egypt, Kuwait, Abu Dhabi, and Bahrain just to mention a few.
As mentioned earlier, Herfy Company manages fast food restaurants whereby they prepare ready-made food, which is sold in the restaurants and supplied, to other companies (Zughaibi and Kabbani, 2001, p.1). In addition to this, the company manufactures sweets and bakes bread, which are both supplied within and without the region.
Recently, the company has ventured in real estate business whereby they buy, lease, sell, and utilize lands and real estates (Zughaibi and Kabbani, 2001, p.1). Additionally, the company also deals with the maintenance of refrigerators as well warehouses. As such, the company has expanded to be a multi-operational company, which deals with various business ventures but under the same business name.
The Company’s vision is “to develop world-class products and, in the process, to play a leading role in the development of the Saudi food industry” (List Company, 2007, p. 1). This vision has been the leading force of the company and through the grace of Allah; the vision has indeed been turned into a reality. This is because the company has depicted tremendous growth by having several branches all over the region. As a result, Herfy has become one of the largest companies in the food service sector.
The Challenges
It is very important for Herfy restaurant to have strategic plans. These plans will help Herfy achieve its long-term goals and objectives. Such plans are dynamic and keep the company’s management on track not to deviate from its strategic plans. There are three levels of strategic plans namely the corporate level, business level and functional level.
The corporate level consists of long-term plans that are set by the top management in Herfy restaurant these plans can be set by the top directors of the restaurant. The decisions deal with the overall firm and would be of great concern to Herfy because it deals with the external environment, which consists of current customers and potential customers. The corporate decisions if wrongly made will have a negative impact on the restaurant or any other business.
The business level strategic goals are critical to Herfy restaurant because they focus on competitive positioning, branding, or benchmarking. These decisions guide the restaurant in the process of international marketing. The business level strategies help to create a competitive advantage over other restaurants, which can only be achieved through marketing.
Herfy restaurant has to look for the best marketing design or method that will enable them out do their competitors in the fast foods industry. The framework of these business level strategies is set and implemented by the business managers. This plan also entails environmental scan, which involves determining the needs of the market and satisfying them accordingly.
The restaurants marketing department has to carry out a research on the market to find out if customers are satisfied by the products they offer. They can then use the findings to either continue offering the same products or consider changing, improving, blending, or branding other products.
Finally, the functional strategy level consists of the departmental heads such as finance, human resource, information technology, marketing and many more. These departments are in charge of implementing the objectives of the restaurant to attain the mission. The most important thing at this level is setting budgets and putting in place an action plan.
For the decisions to function effectively all, the three levels of strategic planning need to work together towards achieving a common objective. With the right decisions in place, Herfy would easily succeed to market its products internationally without any constraints.
Environmental Analysis
The Indian fast food market is currently growing at an annual rate of 40%. However, Herfy has to be cautious that majority of Indians prefer eating at home due to their conservative culture. In some parts of India, fast foods are despised and the culture of eating out has been condemned to the extent that few people if any would dare step into a fast food restaurant.
By 2005, the fast-food industry in India was generating sales worth a billion dollars. The raw material required for fast foods are readily available in India and multi-national fast-food companies have flocked the sector. By 2005, the global fast –food chains were raking in revenues of approximately 70 billion Rupees.
The market size in India is very large and has space to accommodate more multi-nationals in the food industry. Changing gender roles have led females to work outside the home reducing availability of time for cooking for the family. Fast food comes in as the efficient solution when they are busy or when they are feeling exhausted. Customers are also becoming more sophisticated and abhor spending time preparing food in the house. They want to use their time doing other things such as leisure activities.
The fact that women in India are working means families are enjoying double income and therefore they have more income to spend on outdoor activities. Most outdoor activities require use of fast foods. Working women do not want to be confined in the kitchen; apace they view as a limitation to their freedom. They are abandoning the traditional roles of cooking and rearing children. As they widen the scope of their activities, they are finding fast foods more convenient to feed their children themselves.
India’s large population is an asset to any marketer. It is the second largest country population wise creating a large market for all products and services. Numerous fast-food joints can therefore find space in the industry, ad depending on their marketing strategies become successful.
The rules and regulations regulating businesses in India have been relaxed by the government since 1991.Barriers relating to tariffs, and even non-tariff ones, have been greatly minimized, or are completely phased out. Entry of multi-national companies into The Indian market is therefore very easy as thee re no major obstacles.
Segmenting The Indian market is a new trend among multi-national fast-food providers. Products are being introduced with various categories in consideration uh as sex, income level, and age. Social class is also a key factor to consider due to stratification of The Indian society into social classes based on the caste system. Capturing a market segment will be fundamental to building ad customizing a brand.
Customer profile and Market Segmentation
Children are the major customers of fast-food enterprises in India. They are risk-takers and they are rarely inhibited by the social-cultural beliefs that pull away the parents. For Herfy to be successful, it must manufacture and sell products that are appealing to children. Because their parents usually accompany children, Herfy’s products must also incorporate the preferences of such parents.
Consumers in India do not normally commit and stick to one fast-food provider. Heavy presence of multi-nationals means that they have a wide range of options and they tend to shift their interest from one fast-food chain to the other. A company that would be able to enjoy high levels of consumer commitment would easily become the dominant fast-food chain provider in India. Herfy’s approach should be tailored towards branding the restaurants and capturing consumer loyalty.
Competitor analyses
Herfy has to brace itself for competition with other global restaurants with a heavy market presence in India. Herfy’s directors have to be aware that Domino’s Pizza is the fastest growing fast food South Asia. It has great influence in The Indian market having opened its first outlet in New Delhi in1996. It is the top fast-food brand in India with operation in 42 cities. Their delivery arm is the best-rated taking less than 30 minutes free deliveries in New Delhi.
Mac Donald also controls a vast segment of the market having established more than 75 outlets. Pizza hut is also a potential competitor since it has about 125 outlets. The fast-food chain, Subways, has 40 restaurants Nirulas, which operated in only two of India’s towns (Noida and Delhi) cater for a clientele of 50,000 customers per day. The other competitors include KFC, Barista, and Coffee Day.
SWOT Analysis for Competitors
Strengths
- The reason for the success of McDonalds, KFC and the others has been dexterity and expertise in development of their products
- They have also been able to set very high standards of quality.
- Their service is fast and excellent and they have managed to optimize standard procedures for operation borrowing from their experiences in other parts of the world.
- Establishing brand loyalty results in increased sales
- Franchising and having joint ventures with domestic fast foods has made most of the multi-national companies in India such as Kentucky Fried Chicken to be successful (Pipes, 2011, p.1).
- Diversification in the menu and offering a wide variety of products to choose from entices customers.
- High annual revenues and landmark profits, not only, in India but also in other countries of the word
- Strength in cash-flows through hiring out licenses to local fast food chains
- Strong public relations departments that ensure relation-base advertisement
- Invention of trademarked recipes ensures market relevance of a fast-food outlet.
- Reduction of operating costs by reduction of overhead expenses.
- Efficient advertising systems have ensured that their products reach a wide audience
Weaknesses
- Unplanned and unpredictable drops in sales
- Poor relationships with local employees and suppliers leading to labor unrest and cancellation of orders
- Provision of quality below the expected international standards
- Lack of in-depth knowledge of the Indian cultural and religious beliefs and their impact on consumption trends
- Leasing of licenses and franchise deal cause reduction in quality levels
Opportunities
- Change in demographics in that more women are entering the labor market and are becoming major consumers.
- Existence of a high population in India, particularly the age bracket if between 18-24 who go for dates or casual meetings in fast-food restaurants translates into high room for expansion.
- Segmentation of the market offers increases opportunities for ale and revenues.
- Appointment of new leadership widens the scope for creativity and innovation.
Threats
- Hindu religious beliefs present a challenge to companies who try to introduce their global formulas into The Indian market. Due to adherence to religious principles, some Indians do not consume meat, garlic, and onion products. MC Donalds encountered failure on first entry to the market because of failure to learn and analyze the Indian culture.
- Entry of super-market chain into The Indian fast-food industry reduces the number of consumers for fast-food outlet
- Turbulence in the international financial market, especially the rise in fuel prices and the weakening of the dollar affected the business of multi-national companies.
- The health concerns raised by consumption of fast-foods such as obesity are driving consumers from the fast-food industry t consumption of home-cooked foods
- Lack of brand-commitment from consumer
- Presence of many fast-food multinational companies increases the rate of competition which sometimes leads to reduction in prices to increase consume base.
- Challenges are presented by competition from the local food chains to which Indians owe strong allegiance.
PEST analyses (political, economic, social, and technological environment)
Political
Laws and legislations are in place to control the fast-food industry in India. Particular emphasis is on the use of biodegradable products. Such products are expensive to buy and costly to maintain as opposed to the regular products used by the companies to package or wrap the products.
India has is a multi-party democracy with plural political parties at both national and state levels. Successful launch of a multi-national business involves establishment of ties and connections with the main leaders of the political parties. It is very difficult to establish affiliations with the leaders and come to a similar consensus or gain their support because they belong to various factions and ideologies. Political interference may hinder successful establishment of a business.
Economic
The government of India has formulated a policy on use of biodegradable products in packaging of products in The Indian market. Use of plate, silverware, and glasses has been expressly prohibited. Disposable products such as paper cups and plates, plastic glasses and polythene bottles are used.They are then not recycled and are disposed carelessly leading to pollution of soil and water. The government now wants biodegradable products to be used and Herfy will enjoy good relations with the government if it is able to do so.
Workers do not economically favor entry of multi-nationals in The Indian fast-food market. This is because their high competition levels drive local operators out of business causing them to make losses. They are then forced to retrench their workers. To change the hostile economic atmosphere, the best thing for Harvey to do is to employ as many locals as possible.
Another key area of focus in The Indian economy is the effect of profits made by multi-national companies. The government and The Indian people always hope that entry of a multi-national into the industry will boost the rates of employments and propel growth in the economy.
Quite often, this only happens in the short run. The long-term effects is that the rate of employment does not row and neither does The GDP increase because multi-nationals are capitalistic ventures and most profits often go back to their home countries. Finding a way of reducing the profit-repatriation effect would greatly enhance Herfy’s chances of success in The Indian market.
Social
The major social challenge is the beliefs of The Hindu religion. Hindus tend to avoid foods that interfere with their spiritual beliefs. Even though eating meat is not categorically outlawed, most Hindus avoid it due to the aspect of Ahimsa in their religion. Ahimsa means to avoid harm or cause injury.
This makes most Hindus to be vegetarian. Others avoid garlic and onion due to the belief that consumption of these products will hinder their spiritual cohesion and unity. Purity is another concept that affects their beliefs. Products such as beef and alcohol are considered impure and polluted and the effect of their impurity cannot be reserved. On the other hand, dairy products such as milk, butter, yoghurt etc. are believed to be pure and can be used to improve impure foods.
A more liberal sector of Indians is emerging and is shifting away from these beliefs. Traditionalists oppose this shift, which they see as confrontation of their beliefs, and they are inciting the liberals not to consume fast foods.
Health related issues also cause challenges for fast-food chains to penetrate into a market. They contain high cholesterol levels that normally cause obesity. They also have very high-density level increasing appetite and making people to consume more food than their usual amounts or more than the level required by the stomach. The trend in the Indian industry is introduction of foods with reduced levels if fat and low calories. Mac Donald has propelled the trend through introduction of white meat.
Technological
Expansion of technology and upgrading of technological services related to provision of fast foods is taking place at rapid and spontaneous speeds in India, This is because fast foods are perishable and end to be spoiled very easily. Technology is mainly employed through use of machines that enable food to retain freshness for lengthier periods.
It is also being used in the financial sector to ensure financial services are discharged efficiently and more quickly. Receipt processing is usually done digitally and so is maintenance of financial records. High technological equipment increase efficiency but on the downside, they increase the overhead expenses of the company.
There are concerns about technologically produced food materials such as chicken produced through genetic modification so they can grow and put on weight at a faster rate.
Marketing objectives
Marketing objectives is what an organization intends to achieve over a period from its marketing activities. According to Herfy, the main objective is to make maximum profits from the sale of fast foods. Herfy being the biggest fast food restaurant with over 170 restaurants in Saudi Arabia still needs to expand more and open up more fast foods outlets.
An effective marketing objective is characterized by the following five factors. First, it ought to be specific. This means that it should clearly show what Herfy wants from the completely marketing process. With Herfy branches in Bahrain, Kuwait and Egypt clearly shows that Herfy is targeting on becoming the largest fast food restaurant in the world.
Secondly, the marketing objective should be realistic. The adequate staff available at Herfy can see this. The staff are also qualified and well trained on their job. The awarding of the 27 employees by the CEO Mr. Ahmad Bin Hamad Al-Saeed makes the employees to work harder. The objective should be attainable and the number of Herfy outlets in Saudi Arabia and other countries witnesses this. This shows that they have the ability.
The objective should also be measurable. The number of outlets in the various countries and the profit and the market share they serve can measure Herfy’s objective. Lastly, the marketing objectives should also be time specific. This implies that there should be a time span in which the objective is to be achieved. This can be either long term or short term. For instance, Herfy can plan to achieve the objective in five or ten years.
International marketing strategies
In strategy planning, it is very crucial to understand and manage the stakeholders of the organisation and must be considered in growth strategy. Stakeholders are workforce, customers, shareholders, suppliers, the government, regulators, the public, contractors, and even lobby groups amongst other groups. This is done by first, drawing a list and trying to make out their demands, then drawing a map that illustrates the relationship between the organization and the stakeholders as well as relationships between one another.
Still under marketing, Herfy has experienced different types of threats in its sector ranging from the competitors to the new entrants (Coughlan et al, 2006). First is the threat of substitutes, which has seen the company face major threats from other companies, producing products that could be alternatives to theirs, also called the substitutes.
These include things like scones and cakes that are perfect substitutes for bread, or different types of foods that are similar or perfectly different from theirs. Secondly are the new entrants who come into the food service sector with innovations to attract more customers. For instance, most of the new entrants in the food services sector are coming in with the idea of producing foods that are free of cholesterol because of the health campaigns against foods that contain fats.
Herfy requires an aggressive marketing strategy to penetrate into new markets especially those outside inactive markets into the competitive markets. This marketing strategy should also be efficient enough to support product development, market penetration and diversification (Hill, 2007, p. 104).
The Herfy Company should also invest in extensive research and development given the fact that it has wide market with numerous products. Outsourcing will also be instrumental given that it will be hectic for Herfy to run its operations. More resources are also required to ensure performance and coordination of strategic business units. Investment in motivated human resource is also vital.
The ability to attain set targets in an organization within a given period is determined by its long term and short-term goals. The mission of the organization also influences it. They enable an organization to test various ways of implementing these strategies in various departments and test their success.
The restaurant should also continue with its current promotions on the double Herfy and double Herfy combo. It should also work on new promotions to continue increasing its market share. It should also ensure that its prices are fair and concur with those in the market.
Marketing Implementation
Herfy requires numerous resources for implementing a new strategy given that it has wide presence in many countries, markets and products. However, this is made easier by the fact that its brand name gives its ventures an upper hand. One of the strategies is going into markets or industries that are inactive.
For instance, Herfy is now looking manufacturing ‘healthy foods’ that contain less of lifestyle disease causing agents such as fats and carcinogens. This is not just research within the company, but from even outside, especially the young researchers as this will also act as a way of market penetration.
Technology and creative services are key resources that will give Herfy a mileage in terms of strategy planning. To go into new markets and products requires innovation and ability to provide consumers with unique solutions. Ability to come up with an innovation sets the business on a higher level in terms of research and service delivery.
Development of new products that can edge out competitors is pegged on technology and creative services that require motivated employees who are given a room to run things and be creative with an understanding of evolutions in these products.
Evaluation and control
Herfy is an organisation with competent internal systems however, this cannot be articulated with a certain degree of certainty especially due to its nature of providing airline services, and therefore little information is exposed. All the same, tangible measures have been put in place like involving the audit team so that it becomes easier to communicate with the management in case of any suspicions.
Therefore, it is more of management controls coupled with a culture of zero tolerance among employees that enhances effectiveness because management controls on their own are not enough to mitigate risks. A form of whistle-blowing outlines ensures the internal audit department on its own can raise alarm. This has called for increased confidence from the management in order to assure the auditors can come to them and that they can deal with issues properly and in discretion.
The management also helps mediate support whenever control weaknesses are discovered therefore it becomes possible to inform audit plans in the future due to these insights in the firm’s control environment. The organization however, should work more on harnessing audit experience that will enable employees to address difficult situations. Therefore, Herfy should strengthen their structured approach and develop an even-handed and objective view.
Financial Evaluation
The financial information of any company of significant importance to the company itself, as well as other stakeholders (Nikolai, et al. 2009). According to the publications, the price per share of the Herfy Company is SR86.00 as depicted in the stock market (Bloomberg, 2012, p.1). This is an indication that the company is doing well in the stock market given it high share price.
“Year over year, Herfy Food Services Company Ltd. has been able to grow revenues from SR517.6M to SR579.9M. Most impressively, the company has been able to reduce the percentage of sales devoted to cost of goods sold from 67.29% to 66.74%. This was a driver that led to a bottom line growth from SR 114.6M to SR 124.3M” (Bloomberg, 2012, p.1).
From the income statements of Herfy Company, the cost of goods sold was SAR 348.3 in 2009 and 387.0 in 2010. This indicates an increase in the cost of goods sold since the trend is uprising. The gross profit was SAR 169.3 and SAR 192.9 in 2009 and 2010 respectively. The same also indicates that the profits of the company shot up which could be because of the increase in the company’s sales (Weygandt, 2008).
From the income statement, it is also depicted that the operating expenses are low to the numbers of SAR 50.5 in 2009 and SAR 64.7 in 2010. The increase in the operating expenses is not health for the company but it is expected given the simultaneous increase in the production of sales of the company as depicted from the figures of cost of sales.
The break even analysis of a company shows the points at which the sales of the company match the expenses of the same company. “Herfy has a net cash
position, negligible noncore investments, and limited working capital requirements (given the nature of its business)” (Herfy 3). As such, the company has budgeted for funds that will be used to expand the market scope thus increasing sales.
Conclusion
Herfy Company has created a name for itself over the years and in various industries. It has touched different industries and it is clear that it requires strategic planning as it seeks to face competition and venture into new markets. Overexpansion could be a problem but with a good strategy, it can only enhance its venture and profits. Herfy Company enjoys a comparative advantage in its brand name (Herfy) as well technology that enables venture into inactive market.
There is also a need to involve various stakeholders especially customers and employees and Herfy Company is doing well so far especially through the “hands-off policy”. However, the challenges in finding new markets need to be addressed if Herfy is to succeed in its quest for a vast empire. It cannot keep on relying on the inactive markets and thus a strategy should be engineered to penetrate the competitive markets. In its attempt to expand, extend or develop new products it is vital that they carry out a proficient research on the market.
Reference List
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Bloomberg. (2012). Herfy food services co (HERFY:Saudi Arabia). Web.
Coughlan, A. et al. (2006) Marketing Channels (7th ed). New Jersey: Prentice Hall.
Hill, C. (2007). International Business: Competing in the Global Marketplace. Irwin: McGraw-Hill.
Keegan, J., and Green, M. (2010). Global Marketing. New Jersey: Pearson Prentice Hall.
List Company. (2007). Herfy Company.
Nikolai, L. et al. (2009). Intermediate Accounting. Boston: Cengage Learning.
Pipes, K. (2011).What Kinds of Opportunities Does Franchising Offer?
Weygandt, J. (2008). Financial Accounting, Sixth Edition. New York: John Wiley & Sons, Inc.
Zughaibi, K., and Kabbani, B. (2001). Herfy Food Services Co.