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competitive advantage

Product extension

When you think of McDonald’s food you think of burgers.  Maybe other things too but mainly burgers.  However, back in the late-80s/early-90s the Golden Arches tried to expand into pizzas.

mcdonalds_pizza
Image Credit:  Collecingcandy.com

This was ultimately an unsuccessful expansion for reasons beyond a confusing palate.  They failed because they expanded beyond their core competency:  making hamburgers.

Operations

From an operational stand point hamburgers are different than pizzas.  Making pizzas require different equipment and ingredients.  One reason for McDonald’s profitability at relatively inexpensive pricing is due to cost efficiencies from economies of scale; every inch of a McDonald’s kitchen is optimized.  Fry pans have a designated size that fit with the size of the patty, that are heat up at a certain rate.  Pizzas don’t need frying pans.  They need ovens.  Ovens that are expensive to put into existing restaurants and take up valuable kitchen space.  Pizzas also took longer to prepare than the fast food burger.  People had to wait longer; an unusual thing for a fast food company to ask of their customers.  Lastly, pizzas not fit through the drive through window as easily as a bag of burgers and fries.

Marketing

They could’ve had success with pizzas if they approached it from a different angle.  McDonald’s found success with a production expansion with the Egg McMuffin.  Originally, skeptically received, breakfast is a McDonald’s staple now.  Burgers are lunch thing, but they successfully introduced breakfast.  Pizza is a dinner thing.  Therefore, instead of pizzas, McDonald’s should have brought in pizza by the slice (a very well-known concept at pizzerias) or at least personal sized /small pizzas.  A slice of pizza for lunch is not a foreign concept.  An entire pizza for lunch is.  

The difficulty in making and selling different types of food is probably why even large chain restaurants choose to differentiate different palates under different brands as Pizza Hut is doing with WingStreet and Carl’s Jr. with Green Burrito.

pizzahutwingstreetcarlsjrgreenburrito

Now it will be harder to reintroduce pizzas because McDonald’s is busy rebranding itself to health with marginal success.  Pizzas aren’t considered to be healthy.  Nonetheless, it is not hitting their market value with a 5 year high at $118/share.

mcd stock price

McDonald’s might set up for another go at extension but instead of a product extension (i.e. new product), they might go brand extension (i.e. new company).  The popularity of fast casual dining such as Chipotle (before the e-coli debacle) and Blaze Pizza might be an attractive direction to expand McDonald’s.

Walmart hits the slumps

sad walmart

Walmart lost $21 billion in market value after it forecasts drop in 2017 earnings resulting in the steepest decline of the company’s stock in 25 years.

In layman’s terms:  Because Walmart said it’s expecting to earn less in 2017, lots of their shareholders sold their stock and lots of potential buyers said they weren’t willing to buy unless the asking stock price is lower.

Why

  1.  Amazon.

Amazon is crushing pretty much every retailer (except some custom designers; however with Amazon Local they are partnering with may of those product/service providers).  Amazon sells practically everything you can put in a box and ship.  At extremely competitive prices.  Free overnight/2-day shipping in some cases.

Walmart offers very very competitive prices and has locations pretty much anywhere in the US.  However, they are still a brick and mortar business so there is a limitation on floor space thus a limitation on product offerings.  I say brick and mortar instead of ‘click and mortar’ because even though they have an online store, it sucks.  Last year, I purchased a product online and selected in-store pick-up.  5 days later it was available for pick-up at he Walmart that is down the street from my office.  Walmart’s supply chain management system is one of the best in the world.  However, somewhere down the road there was an implementation issue of the online business with the existing business.

Walmart’s situation has similar elements to that of Blockbuster.  They have a size and first mover advantage.  However, over time they lost their position.  I doubt Walmart will face the same fate as Blockbuster but with a $21 billion dollar loss, it is not nothing.  You can read about Netflix/Blockbuster here.

2.  Other competitors

  • Dollar stores:  Walmart is known for low prices but no one goes lower than dollar stores.  Furthermore with the long-going Great Recession and great income disparity dollar stores enjoyed great profitability.
  • Grocery stores:  Walmart has Neighborhood Market stores in some markets and super stores (all encompassing stores) in other markets.  Nonetheless, companies that are just grocery stores are a big and aggressive competitor to Walmart.

Other Factors

Walmart is also facing PR issues:  1)  It is considered low-class.  There is a search term “people of Walmart” which shows rather uncouth individuals shopping in Walmart stores.  2)  Also, Walmart is criticized for killing off small, independent stores.

Walmart is doing many things to try to turn their path around.  We’ll see how effect these efforts are.

How Quiksilver (and surf brands in general) can save it/themselves

Last week I highlighted aspects about Quiksilver’s bankruptcy.  So this is what Quiksilver and other surf brands do should to save themselves.

Sector downturn

Looks like the other big surf brand, Billabong is also hurting too with diminishing revenues and net losses from 2012 to 2014.

billabong financials

Recently Billabong also sold its other assets: DaKine, Swell.com and Surfstitch to enhance liquidity.

Billabong also thought about selling RVCA but didn’t.  I’ll get to that in a bit.

As I discussed in my previous post, Quiksilver bankruptcy is partly due to surfing not being as cool as it used to be.

So what is cool?

If extreme sports was cool in the ’90s and ’00s, extreme athletics is cool now.  MMA and CrossFit is cool.

In March 2015 WWE announced a 50/50 joint venture partnership with MMA brand, TapOut.  Founded in 1997, the brand had $200 million in revenues in 2010.   Later that year the founders sold it to Canadian company Authentic Brands Group LLC for an undisclosed sum.

CrossFit had 8,000 affiliates in October 2013.  As of January 2014 the company had 9,000.  In May 2014 it hit 10,000 affiliates.

As shown by strategyandanalytics.com’s graph featured in Fast Company’s article, CrossFit’s popularity growth is amazing.

3035118-inline-i-1-infographic-the-popularity-of-trendy-workouts-over-ten-years

Of course, most people don’t actually want to do WODs and armbars.  They only want to dress like they do, much like surfing and snowboarding.

This is why it’s no coincidence that Reebok (doing well financially with 5% growth in 2014 and seven consecutive quarters of growth) has its hand in the UFC and CrossFit.

Under Armour is so popular.  Under Armour which also makes products for MMA and CrossFit enthusiasts were named as one of the most valuable American brands by Fashionista and as one of the top 10 MMA brands by FightState.

Heck, even Adidas (Reebok’s parent company) makes judo gis!

But Reebok isn’t a surf brand!!  Quiksilver isn’t an MMA/CrossFit brand!!!

So going back to RVCA.  RVCA, is a popular surf brand that is also popular amongst the brazilian jiujitsu crowd with its sponsored athletes such as MMA star BJ Penn amongst BJJ stars.  RVCA recently did a collaboration gi with uber popular gi brand Shoyoroll.  Billabong decided to keep this brand.

As RVCA has shown, it is possible for a surf brand to do a brand extension into other lifestyle activities.

So what should Quiksilver do?

Change their marketing communications.  Surf ads right now are blondes in exotic tropical locations.  Unfortunately for Quiksilver and other surf brands is that demographics are changing:  wealth discrepancy is large also Hispanics and Asians are the fastest-growing minorities in the US.  This growing market segment might not have the money or time to travel to exotic destinations nor do they even look like a pro surfer such as Alana Blanchard.

So abandon their existing surf model?  No, look at the other elements of surf.  The aspects of the lifestyle that are more relatable to this large, young, and growing market segment:

  • Surf spots:  Urban surf spots such as old Huntington Beach (it wasn’t always the gentrified “Surf City USA” it is now), Long Beach, Rockaway Beach NY, San Pedro, etc.  Even urban Honolulu can be a little edgy.
  • Embrace their connections with the skate world.
  • Athletes:  Add famous MMA and/or CrossFit athletes that also surf.  Especially with the Reebok-UFC deal, lots of MMA fighters are looking for more sponsorship money.  UFC middleweight contender Luke Rockhold surfs in Santa Cruz.
  • Other lifestyle images:  Tattoos and asphalt instead of sunsets and palm trees, turntables instead of ukeleles.
  • Diversify:  Buy or strategic partnership with boxing/muay Thai brand Fairtex/etc. or Brazilian jiujitsu brand Gameness/etc.

We’ll see what the future brings.

Product/Service life cycle

I was asked for help on a franchise business plan.  One of the elements was determining where on the product/service life cycle curve the franchise sits.  It is always helpful in any Industry and Market Analysis to get a macro view of where the product/service is in its life cycle.  What is the product/service life cycle?

It is the birth, growth, progression and ultimate passing of any product/service.  For example a CD came into the market around the early 90s.  This is the birth/introduction stage.  It gained popularity and was one of the most preferred method of data transfer until recently.  So for the next 10 years it was in the growth and in the early 2010s entered the maturity phase.  Now in the second half of the 2010s it is in the decline phase.  Last week I purchased a new laptop and installed Microsoft Office via online.  No more CDs.

Of course, not all products/services will die out.  They may die out eventually, but will make one or two more resurgences.  Take for example, baking soda (sodium bicarbonate).  The earliest use of naturally forming sodium bicarbonate was used by ancient Egyptians as a component of the paints they used in hieroglyphics.  Sodium bicarbonate was also used in the 1800s in commercial fishing to prevent freshly caught fish from spoiling.  Baking soda continues its long life cycle in many many uses including cleaning, cooking, neutralization of acids and bases, not to mention the elementary school volcano science experiment, and more.

revenue_time_curve

Maybe there will be a new use for CDs that will revive the CD but without major modification (which will essentially change the actual product and will actually create a new/different product) it will be unlikely.  Wherever your product/service is in its life cycle, with enough investigation, a new spin could be created to find a niche demand (market segment).

Competitive advantage and coffee

screenshot2013-03-14at5-03-11pm

When you are asked what is your “competitive advantage” what do you think?  Processes?  Patents/Intellectual property?  Cutting-edge algorithms and data-analytics?

Those are all valid ways to have a leg-up on your competition.  However, not all competitive advantages are high-tech and modern.  Some are old-school.  Tried-and-true methods for (in this case) building customer loyalty/satisfaction/based and making the sale.  There are many areas in which a company can improve effectiveness, but that is for another post.

One of 7-Eleven’s competitive advantages allows one location to sell over 2,500 cups of coffee a day.  2,500 cups. A. Day.  This location sells the most coffee out of any other 7-Eleven location in the world.  Think of every single 7-Eleven you’ve ever driven by in your life.  This 7-Eleven sells more coffee than that one.

How?

Store manager Delores Bisagni.  Delores, who is on kidney dialysis, has been working at her location in Shirley, NY 7-Eleven for 18 years.  Delores’s secret is knowing virtually every single customer’s name.  That’s it.  You go there, she greets you (by name if you’re a regular) sometimes with a hug, you get your coffee and get on your way.  If you’re new, she greets you asks your name.  Overtime, she’ll remember you, make you feel welcome for coming to her store, and causes you to come back.  That is it!!!  That is how she sells 2,500 cups of coffee a day!  No traffic flow algorithm, CRM software, etc.

Delores might have profound name memorization skills and whatnot.  However, I believe it’s more that she cares about her customers.  “Care for our customers” is a slogan most businesses don’t understand and/or believe in.  However, if you can truly understand and apply that concept, I think it will help you.  Maybe not make you the #1 seller in your field, but will help you nonetheless. That is why I offer my services at a deep discount, give free editing for the life of your business, often give free advice, will work with clients that can’t pay right away, and follow-up on how your start-up is doing.  So far it’s been working very well!

Time utilization for startups - Your Startup Guru Time is a finite resource

One of the top five reasons people say they cannot start their own business is lack of time.  I always, always, ALWAYS emphasize time efficiency to my clients.  For example, scheduling calls in advance, taking notes during meetings, making checklists, etc. all can help maximize time efficiency.  I cannot tell you how many times people have called to discuss business but do not have their materials in front of them…even worse, while driving.  Invariably they do not remember everything that was discussed and another meeting will be had.

In a startup, there are so many things to consider and juggle.  Rent, advertising, staffing, licenses, etc.  It becomes very easy to become overwhelmed in the thousands of tasks that need to be done which can cause us to lose sight of direction and lose creativity.  However, according to Economist Joseph Schumpeter business people would be better off if they did less and thought more.

All this “leaning in” is producing an epidemic of overwork, particularly in the United States. Americans now toil for eight-and-a-half hours a week more than they did in 1979. A survey last year by the Centres for Disease Control and Prevention estimated that almost a third of working adults get six hours or less of sleep a night. Another survey last year by Good Technology, a provider of secure mobile systems for businesses, found that more than 80% of respondents continue to work after leaving the office, 69% cannot go to bed without checking their inbox and 38% routinely check their work e-mails at the dinner table.

Managers themselves could benefit. Those at the top are best employed thinking about strategy rather than operations—about whether the company is doing the right thing rather than whether it is sticking to its plans. When he was boss of General Electric, Jack Welch used to spend an hour a day in what he called “looking out of the window time”. When he was in charge of Microsoft Bill Gates used to take two “think weeks” a year when he would lock himself in an isolated cottage. Jim Collins, of “Good to Great” fame, advises all bosses to keep a “stop doing list”. Is there a meeting you can cancel? Or a dinner you can avoid?

Your time is valuable. Make sure you’re spending it wisely.

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