Strategies for Local Cafeterias to Gain Competitive Advantages against Fast Food Chains

In Partial Fulfillment of the Requirements for Basic Research Methodology for Business Management (BASIREC) K33 Term 3 AY 2011-2012

Submitted by: Catahan, Cholo Cayetano, Gino Datu. Noel Lim, Carlo Sy, Yuki

Submitted to: Mr. Paderna, Raymond

ACKNOWLEDGEMENT ABSTRACT TABLE OF CONTENTS LIST OF TABLES LIST OF APPENDICES CHAPTER 1: BACKGROUND OF THE STUDY 1.1 1.2 Introduction Statement of the Problem

How can a local cafeteria gain competitive advantage against fast food chains in the vicinity of DLSU, Taft Avenue area? 1.3 Statement of Research Objectives

General Objective: The general objective is to determine how local cafeteria can gain competitive advantage against fast food chains in the vicinity of DLSU, Taft Avenue area. Specific Objective: 1. To list and describe the advantages and disadvantages of a local cafeteria in the vicinity of DLSU, Taft Avenue Area. 2. To identify what are the preferences of a customer in a food establishment. 3. To compare and contrast the similarity and difference of some local cafeterias in DLSU, Taft Avenue Area. 4. Recommend a way for local cafeterias to maintain profitability in an area filled with fast food chains. 1.4 Significance of the Study

The purpose of this study is to help the local cafeteria gain enough profit for them to survive and to gain competitive advantages in the food industry amidst all the fast food chains surrounding the area. This study will help these local cafeterias to have more sustainable profit by providing them knowledge on how to improve their service, quality of food, price, facilities, number of food choices and allocation of resources. Improving on this will help the local cafeterias attract more customers, be more profitable and maximize the utility of the customers.

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Review of Related Literature

Carinderia A carinderia is a small business idea that anyone can do as long as he/she has the passion for cooking and a house. A carinderia will require a small capital investment which will be used in the ingredients, utensils, equipment, tables and chairs. A typical carinderia has tables that can accommodate one to two customers and kitchen equipment such as an LPG stove or a charcoal griller. A carinderia doesn't also need that much people to hire since it is only small. But if one decided to expand his/her business, then help will likely be needed already. For a carinderia, having a good location is very important. A place near or is easy to be accessed by your customers is ideal. Usually a place near tricycle drivers or blue collared workers is good. The owner should also be reasonable with price, preferably very affordable prices. As for advertising, word of mouth advertising can be the best promotional since it has no costs and easy to spread. So satisfying your customers is very important.

De La Salle University Taft Ave. Local Carinderia The location of De La Salle University Taft Ave. is surrounded by many food establishments ranging from small business establishments like carinderias (Belens Canteen, Noels Barbeque, Erics Siomai etc) to large names in the food industry like Jollibee, McDonalds, Tapa King, Yellowcab etc. Surprisingly, the small to medium businesses are gaining competitive advantage over huge food companies in the area. According to Zimmerer T.W. & Scarborough N.M. (2008). when setting prices, entrepreneurs should take into account their competitors prices, but they should not automatically match or beat them. Although price is an important factor in the purchase decision, it is not the only consideration for shoppers. The pricing strategy of local canteens (carinderias) are far different from the pricing of fast food chains. The carinderias are focusing on making their products very cheap but giving attention to the amount of serving to attract their customers whereas fast food chains give unreasonable prices for small rations of the product. An example of this concept is when carinderias have food deals like ulam+gulay+kanin with free soup and drink for P75. However, in fast food chains, P75 can only give you rice and viand with drink or less. Mostly, the students of DLSU have very hectic schedules, causing them to find food establishments that are very near to their previous or next classes. They also want to have a variety of food products even they have limited time to have their meals. According to Schaper M. & Volery T. (2007). for some business, it is an advantage to be physically separated from competitors. On the other hand, sometimes it is useful to be based near competitors when customers want a range of options before making a choice. The carinderias in the vicinity of DLSU like the food stalls in Agno and Castro streets have an advantage in location compared to fast food groups like McDonalds and Jollibee because students only have at least 10 minutes before their next class, making the students avail of the products in the given food stalls. Another important variable why students tend to choose to eat at local canteens rather than fast food chains is because some students consider a particular carinderia as their usual hang out

place. The students in that establishment more often than not, know each other or better yet, know the owner of the food joint. An example is when a team of varsity athletes or students from an organization meet in a specific food establishment because their fellow teammates are there and because they are suki in that place. Blackwell R.D., Miniard P.W., Engel J.F. studied how loyalty programs can increase consumer motivation (p252) Tips on how to put up a carinderia This article talks about an old but successful carinderia named Aling Sosings carinderia. At first, it did not look like it would succeed because the ambiance was undesirable. The place was old and was surrounded by the vehicles honking and engines running. The roofs were rusted and the walls were very old. There were only plastic tables and chairs and sterilized utensils. But despite this, people from different walks of life still go the carinderia. So, why did this carinderia become so successful? Well first of all it had a good location. It was easily accessible to drivers and the mass. Second, the owner of the carinderia made a good investment in the kitchen equipment so service was very fast. Third, it had a numerous amount of choices in the menu so people won't get tired of the food. It had an appetizer, a main course and desert. It was very clean, even though the ambiance is not that clean. And lastly, it had very affordable prices. Prices that wouldn't go up 60 pesos.

Basic Strategies that can be applied in business A. Competitive Strategy In the world of business in order to be successful there are a lot of strategies that can help an organization to achieve their mission and goals in their particular business. According to Camposano (2004), Competitive strategy is knowing what approaches can be employed to give the product or the business an effective competition edge (p.181). This is a strategy where the business will have an advantage over the other competitor. This will make the business unique in its own way. There are four strategies that a business can use in order to gain competitive advantage which are the Differentiation, Cost Leadership, Differentiation Focus, and Cost Focus. (Porter, Tutor2u, Competitive advantage, para. 2). In these four strategies two are seeking a broad range of the market which are Differentiation and Cost Leadership while the other two is a narrow target market which are Differentiation Focus and Cost Focus. In a small business, entrepreneurs will likely use the strategies that will attract a specific consumer or narrow target market. In the differentiation focus strategy, a business aims to differentiate within just one or a small number of target market segments. The special customer needs of the segment mean that there are opportunities to provide products that are clearly different from competitors who may be targeting a broader group of customers []. (Porter, Tutor2u, para.

6). Cost focus is where a business aims to lower cost by creating a product that is simple and basic compared to a higher priced product offered by the competitor.(para.7) B. Market Strategy Camposano (2004) Market strategy is defined as knowing and analyzing what is the best target market. (p.180).This strategy allows the organization or business to concentrate their products and services to a specific target market which will increase their opportunity to gain more sales. According to Mondoy (2011), knowing your market is very important in doing a business. Know your consumers habits and lifestyle and always get feedback even if it is negative. (p.26). He also quoted Ive seen bad products succeed because they targeted the right market, and Ive seen good products fail because they were tapping the wrong market. (p.26)

C. Product Strategy In a recent study of entrepreneurship, one good strategy is knowing what product best meets the needs of the target market ( Camposano, 2004, p.181). Marketing is not about providing products or services it is essentially about providing changing benefits to the changing needs and demands of the customer (P.Tailor 7/00 as cited in leanmarketing.net. para 2.). This strategy aims to help the business determine and list what benefits will the customer gain from your products and how is it different from the product offered by similar businesses. Pricing Strategy for small business A pricing strategy for an SME is very important because it determines the fate of the business. Having high prices can push away customers while having low prices can make you lose potential profit. Calculating the mix of costs, price, and competitive nature of products are very important in a pricing strategy. Usually, a marketing study or finding out the trend of the market is one way to make the pricing strategy better. Being aware of competitors cost is also key to getting the prices right. Blue Ocean Strategy Kim and Mauborgne (2011) explain how blue ocean strategy can make competition irrelevant and create uncontested market space. (p.47). The definition of 'Blue Ocean' is a slang term for the uncontested market space for an unknown industry or innovation. Coined by professors W. Chan Kim and Renee Mauborgne in their book "Blue Ocean Strategy: How to Create Uncontested Market Space and the Make Competition Irrelevant" (2005), blue oceans are associated with high potential profits. (Investopedia, 2011, Blue Ocean, para. 1). There are two different side of the market universe which is metaphorically compared to a

red ocean and blue ocean. Below is a table thats shows the difference between the two oceans: Red Ocean Strategy Compete in existing market space Beat the competition Exploit exisiting demands Make the value-cost-trade-off Align the whole system of a companys activities with its strategic choice of differentiation or low cost Blue Ocean Strategy Create uncontested market space Make the competition irrelevant Create and capture new demand Break the value-cost-trade-off Align the whole system of a companys activities in pursuit of differentiation and low cost

The idea of blue ocean strategy is to create something that is unique and different which people have not yet seen before. An example of this is Cirque de Soleil (unique circus format),Gmail it can store tons of email for free, and Nintendo Wii which is the first home gaming console with movement sensor devices for gaming. (Quek, para. 3)

The Value-based Approach Small local cafeterias around the vicinity of DLSU still continuously gain competitive advantage against other commercial fast food chains and restaurants. Due to the convenience of students of not having to walk across Taft Avenue just to eat Jollibee or go all the way to South gate to eat McDonalds, these local cafeterias are then preferred than these restaurants with big names. According to Blackwell, R.D. et al. (2001), a consumer may prefer one retailer but choose another because of a sale or a promotional event at a competitors store, hours or operation, location or traffic-flow problems (p.79). It is more convenient for the students to eat somewhere near in order to save time, knowing that they have busy and hectic schedules. Meanwhile, most of these local cafeterias apply the value-based approach in their business. The Value-based Approach as discussed by Hax (1987) stated that, a quality product is one that provides performance at an acceptable price or conformance at an acceptable cost (p.157). Given the circumstances that students budget their daily, weekly or monthly allowance they tend to spend their money on much cheaper food at the same time food the provides enough satisfaction. In addition to this, another factor that lures students to these local cafeterias are the prices they post just right outside their store price advertising is frequently used to maintain competitive parity, based on a belief that market share between competing retailers is influenced by advertising the lowest price (Blackwell, R.D. et al. 2001, p.154).

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Scope and Limitations of the Study CHAPTER 2: THEORETICAL/CONCEPTUAL FRAMEWORK

2.1

Hypothesis of the Study/ Proposition

Increase the level of competitiveness of local cafeterias in De La Salle University, Taft Avenue area using a variety of strategies. 2.2 1. 2.3 1. 2. 3. 4. 5. 2.4 Assumptions of the Study Local cafeterias known as carinderia have been stapled in the culture of the Philippines for many generations. Operational Definitions Competitive strategy- is knowing what approaches can be employed to give the product or the business an effective competition edge Market strategy- is defined as knowing and analyzing what is the best target market Product strategy- is knowing what product best meets the needs of the target market Blue Ocean strategy- is to create something that is unique and different which people have not yet seen before Value-based approach- an approach where a quality product is one that provides performance at an acceptable price or conformance at an acceptable cost Conceptual Framework

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Operational Framework CHAPTER 3: RESEARCH METHODOLOGY

3.1 3.2 3.3

Research Design Sampling Plan Method of Data Collection 3.3.1 3.3.2 Primary Sources Secondary Sources

3.4

Method of Data Analysis CHAPTER 4: RESULTS AND DISCUSSION

CHAPTER 5: CONCLUSIONS CHAPTER 6: RECOMMENDATIONS BIBLIOGRAPHY APPENDICES