Grand Metropolitan SWOT Analysis and Strategic Options

8 August 2016

Grand Metropolitan is a multi-industry company that originally operated in hospitality industry but later expanded into food and beverage. The firm later focuses on the latter industry. Due to the economic growth in developing countries, Grand Metropolitan has the opportunity to expand their target markets abroad. However, political and social factors pose some threats to the company to reach their potential revenue. The company’s strengths include the firm infrastructure, procurements, human resource management, and technological developments being valuable and costly to imitate.

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The firm’s weaknesses, however, are their support activities not being rare in the industry except for the human resource management. Some strategic options recommended to exploit opportunities and defend against threats are merger and acquisition as well as backward integration through the procurement of raw material suppliers. Table of Contents 1. Introduction Grand Metropolitan is a multinational conglomeration established in England founded by Maxwell Joseph. The company went public in 1961 on the London Stock Exchange and later merged with Guinness in 1997 to form Diageo.

They initially operated in hospitality industry but later on expanding their markets into several industries but mainly focusing on food and beverage. Grand Metropolitan first entered the food and beverage industry through the purchase of Bateman Catering and Midland Catering in 1967 and 1968 respectively. Other major acquisitions include The Pillsbury Company, Smirnoff, and Ligett. The first part of the assignment is going to analyze the external and internal factors that could have an impact on Grand Metropolitan’s business and suggest strategic options to combat their competitors.

Deeper analysis on the strategic implementations is going to be discussed further in the second part. 2. External Analysis 2. 1. PEST Analysis on the Five Forces Factors that affect an industry externally can be political, economical, social, or technological. These factors have a direct impact on the five forces of the industry framework, which include threats from new entrants and substitutes, and bargaining power of buyers and consumers. Political factors that affect the food and beverage industry include the minimum drinking age in certain countries and obesity laws in Japan.

The minimum age for alcoholic consumption is 18 years old in most countries and 21 years old in America (Potsdam). In 2011, Japan legalized their obesity law, meaning that it is now illegal to be overweight in Japan (Onishi 2008). New entrants will have limited target markets due to the minimum drinking age and obesity laws. Substitutes that offer healthier options will have an advantage since they fight obesity and do not have a minimum age for the consumption of their products. The obesity law which limits the population’s waistline to “33. 5 inches for men and 35.4 inches for women” (Onishi 2008) makes people in Japan to be more reluctant to consume fast food thus increasing the potential reduction in fast food prices. Consumer’s reluctance increases their bargaining power and thus lowering supplier’s bargaining power. The factor influencing the food and beverage industry economically is economic growth. “Many transnational food corporations are moving into emerging markets because their markets in developed countries are at a ‘saturation point’” (Bankman 2013). New entrants and substitutes now have the opportunity of new target markets.

Due to the international market expansion, competition is high for the companies in the industry. This makes the bargaining power of buyers high since they determine the demand of the products. The change in demand allows suppliers to ask for higher price for the same quantity they offer. The social factors that have an impact on the industry are health consciousness, religion, and consumer preferences. Because of the rise of health consciousness and religious laws, new entrants will have a limit in their target market thus reducing their maximum revenue potential.

Healthier substitutes will have an advantage due to health consciousness and religion. Bargaining power of buyers is strong since competition is high in this industry. The pickiness of these consumers lowers suppliers’ bargaining power. Technologically, factors that drive the food and beverage industry are the Internet and affordable Chinese machineries. New entrants will have the advantage by buying cheaper Chinese machineries, which lowers their initial expenses. Substitutes will also have the advantage of promoting their products online.

With the Internet, consumers can access information regarding the companies in the industry. A company’s good reputation can lower consumer and supplier’s bargaining power and vice versa. 2. 2. Opportunities and Threats The economic growth in developing countries give Grand Metropolitan an opportunity to expand their market globally since Grand Metropolitan’s companies already established a fine image to the. The companies’ image also gives them the leverage to increase demand for their products. Despite the potential upsides they procure, Grand Metropolitan also faces a number of threats in the industry.

Since the barrier entry is low in the food and beverage industry, many newcomers will enter the industry thus bringing more competition to Grand Metropolitan. Minimum drinking age in certain countries and obesity laws in Japan may restrict Grand Metropolitan’s maximum potential revenue. Labor union too is a threat to Grand Metropolitan since Burger King pays their store workers at minimum wage (Glassdoor). Unsatisfied employees like Willietta Dukes may protest against Burger King therefore lowering the productivity of the company (Dukes 2013). Consumer preferences also pose some threats to the company.

Some consumers prefer more affordable meals when compared to Burger King’s sandwiches. Religious laws that ban the consumption of certain meat products and alcohol also limits Grand Metropolitan’s target market, as most of Grand Metropolitan’s products include beef and pork meat and alcohol. 3. Internal Analysis 3. 1. VRIO Framework Analysis The framework of a firm’s value, rarity, imitability, and organization can determine the strengths and weaknesses of the company. A firm is able to have a competitive advantage if their products or services they offer are valuable, rare in the market, and costly to imitate.

Grand Metropolitan is able to exploit opportunities by introducing the four-plank strategy, which directs the company to (1) own the distributors, (2) develop new products, (3) maintain a heavy marketing spend, and (4) form alliances to aid geographic expansion. The company implements this strategy through the procurement of firms from the food and beverage industry, thus bringing them value. Their heavy marketing spending bears fruit after Smirnoff won bronze (CLIO Awards 2012) and silver (CLIO Awards 2008) from CLIO, world’s most recognizable international advertising awards.

They also successfully defend against threats by introducing the Centralized Personnel Function, in which employees are trained to detect any issues and react before they appear in the financial statement. CEO Alan Sheppard’s capability in exploiting potentials in human resources allows him to make the firm valuable by placing employees in the right positions, thus enabling them to perform efficiently. The development of technologies such as computers adds value to Grand Metropolitan since they help the firm to manage and process information as well as protecting the company’s knowledge base.

Although the firm’s infrastructure, procurement, and technological development being valuable and costly to imitate, they are not rare in the industry since there are many other conglomerations that acquire their distributors and spend heavily on marketing such as Comcast, Time Warner, and Viacom. Technological developments are also not rare because many of Grand Metropolitan’s competitors also have the same technological advancements to manage and process information. However, the firm’s human resource management is quite rare since there are not many people like Sheppard who can unleash the potential of his employees.

Despite the company’s lack of rarity, Grand Metropolitan’s firm infrastructure proves to be costly to imitate since it costs a lot of capital in order to procure distributors and produce marketing campaigns that can win awards from advertising institutions. Their human resource management is also costly to imitate since it requires effort, time, and money to find someone as brilliant as Alan Sheppard who is able to use the company’s human resource to perform efficiently.

However, Grand Metropolitan’s technological development is not costly to imitate since most of the firm’s competitors can also produce the same kind of advancement. Grand Metropolitan is ready to exploit their resources due to Sheppard’s management changes and technological advancements. The firm’s formal reporting structure is efficient enough to detect issues to appear in financial statements. This proves that the management control system successfully ensures that managers’ decisions align with the company’s strategies. 3. 2.

Strengths and Weaknesses Grand Metropolitan’s firm infrastructure, procurements, technological development, and human resource management’s value and imitation cost are the company’s strengths. Their Four-Plank strategy and centralized personnel function enables them to acquire companies related to the industry. The CEO’s capabilities in managing Grand Metropolitan’s human resource makes the firm run efficiently. These two factors make Grand Metropolitan well organized to exploit opportunities and defend against threats. Technological advancements support the company by manage and process information as well as protecting the company’s knowledge base. The company value chain’s lack in rarity, however, is their weakness. The low barrier entry in the industry and competitors’ strategies and technological developments leave Grand Metropolitan at a temporary competitive advantage. Despite the awards they receive and consumers they attract, the firm’s heavy marketing spending is also part of their weakness since it requires a lot of capital in order to run this operation.

This shows Grand Metropolitan’s weakness in cost management. 4. Conclusion and Strategic Options In order to survive and become a leader in the competition, Grand Metropolitan needs a number of strategies. Some strategic options that are recommended are merger and acquisition and backward integration through the acquisition of raw material suppliers. To overcome their weakness in cost management, Grand Metropolitan needs to merge with a company that is strong in capital and cost efficient.

Other benefits gained from merger and acquisition are access to wider consumer base, product diversification, and the reduction of competitors (MBDA). Through the access of more funds and competitor reduction as well as product diversification, Grand Metropolitan can allocate their capital into other operational activities and gain wider consumer base thus increasing their potential revenue. After acquiring more funds through merger and acquisition, Grand Metropolitan should invest more on the procurement of raw material suppliers to be able to force more quality control.

By outsourcing their raw materials, Grand Metropolitan could give their suppliers bargaining power. However, by buying some percentage of the suppliers’ stocks, Grand Metropolitan will be able to foresee the production of the raw materials and control the quality. In 2013, Burger King admitted that they have been “selling burgers and Whoppers containing horsemeat despite two weeks of denials” (Poulter 2013). By purchasing suppliers’ commodity, Grand Metropolitan can prevent incidents like this to happen in the future.

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