Business / Azalea Seafood Gumbo Shoppe

Azalea Seafood Gumbo Shoppe

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Autor:  anton  28 November 2010
Tags:  Azalea,  Seafood,  Shoppe
Words: 2481   |   Pages: 10
Views: 388

1. What is your assessment of John Addison and Mike Rathle’s performance as Azalea Seafood Gumbo Shoppe’s chief managers? Should they be commended for their accomplishments since buying the company? How well have they managed the process of crafting and executing strategy?

Within a period of only 12 years, Azalea Seafood Gumbo Shoppe transformed itself from a small local retail food shop to one of the largest producers of gumbo in the U.S with sales of more than one million dollars. This was largely due to the vision of Addison and Rathle of moving from retail sales to that of focusing on commercial accounts for future business. From the time they purchased the company, Addison and Rathle’s immediately saw the opportunity to expand their business by marketing to area supermarkets and restaurants. Addison and Rathle adapted to their environment by recognizing the new location of their business would provide them with the ability to expand production but would not support retail sales. This provided the impetus for them to transition to the value-added seafood industry.

Addison and Rathle also responded to adversity when acquired businesses failed affecting their profitability and their customer demand dwindled due to imposed recalls. Addison and Rathle stuck to their vision and began to produce profits the year following. They also realized their core competencies (i.e. seafood gumbo) and used it as their cornerstone to anchor their guarantee of profitability. They also utilized their additional strengths of production, cost effective purchasing and streamlining of operations to increase profits and processes. They also successfully worked to market their product and establish relationships with their customers. They identified weaknesses in the area of food brokers and adjusted their operations to the use of one food broker. Gross and net profits continued on an upward trend and showed a positive balance from 1996 to 2003. They recognized their competitors and focused their operations to remain competitive. They diversified their sales and worked with customers to reduce Azalea’s shipping cost.

Finally, Addison and Rathle identified deficiencies in their business (i.e. expansion vs. increased revenues) and were willing to reevaluate their strategy for the near term and long term goals.

2. What is competition like in the value added seafood industry? What competitive forces seem to have the greatest effect on industry attractiveness from the standpoint of packaged seafood producers?

The competitive environment in the value added seafood industry, while not significantly threatening, does still have its challenges. Addison and Rathle acknowledge that there is not a large competitive market for their specific area, although there are four or five that market gumbo. They acknowledgee that their largest competitors are all the other food items in the store that can be purchased. This also relates to marketing competition as Azalea used a food broker and administrative staff to monitor product delivery and store marketing exposure. Finally, there are corporations that have larger, state of the art facilities which prevent Azalea from expanding into larger demand markets. Michael Porter, a Harvard professor developed a model to assess key components of the competitive environment. First are the competitors. While currently not faced with stiff competition from peer competitors, Azalea’s largest competitors may be the ones yet to arrive as Azalea is based mainly on its gumbo. It is vulnerable to a competitor that may enter the market who have a broader range of products to offer or a better tasting product. More aggressive companies with more aggressive marketing campaigns stand to threaten Azalea’s exposure. Also, while not threatening the niche that Azalea has carved out, large companies with state of the art, USDA approved processes create a “glass ceiling” that Azalea can not break through without expansion or creative marketing. The next element is threat of entry. Azalea appears to have a very loyal base of customers both in the large markets and the smaller individual vendor community. However, the industry could expand at any time and with many unfilled areas of seafood product offering, Azalea could become vulnerable. In regards to the third element, Azalea once again has few competitors in the specific gumbo market and their marketing plan appears to be successful. However, customer preference is fickle and can change based on price, packaging and marketing scheme. Also, as Azalea feared before, there are many competitors (i.e. chicken, steak or fish) that customers can switch to. Lower priced substitutes can become more attractive as the economy rises and falls. The fourth element is suppliers. This is attractive for Azalea as there were many vendors to obtain the necessary ingredients for gumbo production. Also, vendors from California to the Gulf Coast are plentiful. Conversely, small value added producers, like Azalea, do not have the purchasing power to negotiate directly with the producer of the ingredients but can select from a variety of wholesalers to get the best combination of price and quality. Lastly is the element of customers. Customers are apparently loyal, but have considerable leverage to affect price as they have the option to purchase other products. Customers exercise additional leverage as they can switch product manufacturers. Also, customer base can shrink if a market (i.e. Winn-Dixie) goes bankrupt and therefore no longer become a venue to market your product.

3. How is the packaged seafood industry changing? What are the underlying drivers of change and how might those driving forces individually and collectively change competition in the industry.

The seafood industry changed beginning in the 1990s and into early 2000s with the acquisition of smaller companies by larger global food companies as they looked to fill gaps in their product offering and to expand their global reach. These large food companies then leveraged food brokers to execute additional activities on their behalf resulting in the marginalization of the small food company. The competition in the grocery market intensified as supermarkets and grocers consolidated making mega centers. This resulted in greater competition for the value added markets as now there were fewer markets. Also, this increased competition among grocers resulted in some going out of business resulting in loss of sales for those vendors. Also, these large grocery chains demands exceeded the ability for small food companies to provide products in such large volume. This forced these small businesses to focus more on smaller markets and also to identify niches in the market that could be exploited. Small restaurants and food chains now became major purchasers of these products. Also, the frequency of the average American eating out increased further adding to the attractiveness of vendor sales to restaurateurs. Also, certain businesses expanded to meet these large demand markets in the grocery and restaurant market. These state of the art production facilities threatened smaller companies without a competitive product or established market. All of these changes resulted in certain drivers coming to the forefront. The first would be the need to reduce volatility. Competitors in the market would need to select markets wisely to reduce the risk of not being competitive or the uncertainty of the marketability of their product. They also would need to increase their ability to diversify into different products. Large food companies may monopolize a certain product making it necessary for other companies to become creative in developing other products or marketing strategies. On the plus side, the ability of a company to secure a share of the market in one of the large demand markets would ensure long term demand and a greater guarantee of profitability.

4. What key factors determine the success of a packaged food producer?

No one set of factors determines the success of a packaged food producer. Success is found in the identification and exploitation of a company’s core competencies. These are defined as those things a company does especially well in comparison to its competitors. In the case of Azalea, its success is in it identification of its core product- gumbo. This staple provides the base of revenue to continue production, distribution and marketing. Key to this is also the purchase of the best and freshest ingredients. Also, is Azalea’s just in time distribution plan. They also market their product well and ensure good visibility of the product. Sound customer relations through their food broker ensure exposure in stores and the ability to market their product in an attractive manner. Streamlining of costs also results in reasonable pricing. Azalea also works hard to keep its distribution costs down and delivering their product in a timely manner to ensure completeness of the order and freshness of the product. Diversification of its product ensures widest exposure of their product. Sales to restaurants, food chains and jobbers provide multiple avenues to market their product. Lastly, inventory control allow Azalea to minimize waste and helped keep costs low.

5. What is Azalea Seafood Gumbo Shoppe’s strategy to compete in the packaged food industry? Has the strategy been effective?

Azalea’s strategy to compete is to move away from the past market of local seafood sales to the market of value added seafood industry. Their strategy is to use their core competencies of product quality (i.e. gumbo) to form the base of expanding to reach supermarkets and additional restaurants and to use a refined production process to reduce cost and increase distribution proficiency. Their strategy is sound as they use personal contacts and capitalize on a larger facility to expand its production capabilities. Their strategy is also not to compete with the large food companies but to exploit their niche of specialized product offering with timely delivery. Their strategy also includes an aggressive marketing campaign using effective interpersonal skills by ways of the food broker. Their strategy proves to be effective as they are able to expand their sales into new markets and effectively reduce cost through innovative initiative and customer support while continuing to show a net increase in profits.

6. What are Azalea’s key resource strengths and weaknesses? What new market opportunities does the company have? What threats do you see to the company’s future well being?

Using the model of strengths, weaknesses, opportunities and threats (SWOT) Azalea’s business posture can be assessed. Azalea first and foremost strength is its product. The seafood gumbo is an award winning product and it accounts for approximately 90% of their annual sales. Secondly is their other product- crawfish etouffee, which had also won an award. Azalea’s production processes are also a strength as it provides timely deliveries. Another strength is their marketing approach, which uses a combination of a food broker with strong interpersonal skills with a staff who followed up on distribution. This results in the possibility to place their products in more stores. Finally, their diversification of sales is a strength as it prevents them from becoming over dependent on one customer. Their weaknesses could potentially be a failure to offer more products. By only offering a few select products they increase the effect that may occur if one of the product sales falters. Also, while there production methods are streamlined to eliminate waste, their failure to maintain a inventory of product on hand affects potential sales to the jobbers. Their facility is also a weakness as its austere appearance and lack of state of the art processes, discourages would be large demand customers. Add to this the lack of a USDA approval and perceptions could be that the product may be inferior. From an opportunity aspect, the rapidly growing industry of the food service industry provides an environment for expansion of their production facilities and to increase processes to compete with larger corporations and gain USDA approval. They can also look to expand side street opportunities such as catering and special events as mentioned at the end. From a threat perspective, there is always the risk of new competitors with better tasting products and more efficient production, distribution and marketing techniques. The environment is a risk as any type of catastrophe can impact seafood availability. Also, dependence on wholesale providers can be cut off at any time and force a reduction or complete loss of product. Customers can always change their preferences as well, choosing to select a different type of meat (i.e. fish, chicken or beef).

7. What is your evaluation of Azalea Seafood Gumbo Shoppe’s financial performance? Should John Addison and Mike Rathle be pleased with the company’s performance?

While they experienced a setback in 2000, Azalea has rebounded remarkably well. They have been able to increase their total revenues over the 8 year period reflected. In addition, their cost of goods sold has decreased yet their gross profit has increased. In addition, their total expenses have increased by only $30,000 while their net profits have increased by 6 fold over the eight-year period. Whether or not Addison and Rathle should be pleased is up to them. Their business will allow them to increase annual sales by $1.5 million without any further investment. They could, however, risk further investment, incurring long term debt in anticipation of increasing sales to a level that they would be an attractive candidate for acquisition by a large food company of food distributor.

8. What recommendations would you make to John Addison and Mike Rathle concerning the future of the company? Which opportunities seem best-matched to Azalea Seafood’s resource strengths and competitive capabilities?

In order to compete in the future with larger corporations, Azalea should consider upgrading its facilities to increase production output and decrease production cost. This would also allow them to receive USDA status, which would signify to potential customers governmental approval. They should perhaps look to market more aggressively the recognition of their award winning gumbo and crawfish etouffee and use this to potentially open additional markets. Lastly, Azalea should reevaluate their long term strategy for growth and determine if they want to grow up or out. Growing up would include upgraded facilities and more efficient production processes to attractive large end buyers. This would result in potentially greater revenues and potential attractiveness for acquisition. If this is not their focus, then they should consider expanding into catering and special events which would give them more diversity with potentially not as much capital required to expand.

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