Types Of Business Organisations, Macro Environmental Factors, And Porters 5 Forces Analysis: A Case Study On Fra-Pa’s Frozen Yoghurt Shop

Demonstrate good knowledge of the different types of business organisations and apply this knowledge in the context of the case study reference to Partnership.

Demonstrate an understanding of the Macro Environmental factors and how they impact on businesses.

Demonstrate an ability to analyse the ease and also use the Porters 5 forces to determine competition within an industry.

Frank and Paddy are in a dilemma regarding their supply of yoghurt. On the one hand they are attracted by low prices and the convenience of buying in bulk from the cash & carry.

This helps them to keep the prices of their desserts low. On the other hand they would like to use fresher, organic ingredients and experiment with more premium products, but are anxious about how this would affect their prices and margins and whether potential customers would pay for this. They think the chances of their business being a long-term viable success may increase if they looked to cater for differing needs of customers, were able to target different market segments, understand the macro environmental factors and take advantage of the opportunities they bring.

END Questions You have been asked by Frank Jones and his business partner, Paddy Jackson to advise them on the following issues,

1. Evaluate Partnership as a business's type reference to Frank Jones and Paddy Jacksons Fra-Pas Frozen Yoghurt Shop.
2. Use the Porters 5 Forces to analyse Fra-Pas Yoghurt business and advice on how they can achieve competitive advantage by managing the relationships with these forces.
3. Discuss any Three of the Macro environmental factors with particular reference to how they can help improve the Frozen Yoghurt business

Partnership as a Form of Business Unit

Partnership as a form of business unit portrays a much broader scope compared to other business units such as sole proprietorship (Boddy, 2014). It is when two or more persons combine their effort to start and operate a business based on their common and shared duty with regards to profits and losses that lead to partnership. In a nutshell, it is when sole proprietorship is transformed into a partnership when more than one individual is integrated as a partner in the enterprise (Kwat, 2013). The partnership involves individuals who may either be friends, relatives or acquaintances.

In this case Frank and his partner Paddy Jackson in the business established a business known as Fra-Pa’s Frozen Yoghurt Shop in the past eighteen months. The shop can be categorized as an ice-cream parlor enterprise that uniquely deals with selling frozen yoghurt. The ice-cream parlor is situated in the busy Bullring Shopping Center, Birmingham (Boddy, 2014). The kind of partnership exhibited here seems symbiotic as both partners have relevant experience in the hospitality sector and that makes it ideal in managing and operating the parlor. Frank, for instance, is said to have worked for catering restaurant chain as a chef while Paddy o the other hand, was a hospitality manager of a local hotel. It is the blending of such skills and competencies that will transition the business as competitor marketing it as a unique enterprise in the region. The idea to establish the parlor was inspired by the redundancy they experienced in their previous place of work, and it is the little savings from their last redundant jobs that gave them capital to start the business enterprise.

Regarding capital contribution, they both contributed €30000 which enabled them to secure a three-year lease on the parlor and a working capital allowing them to pay their suppliers and also have adequate stock to sustain their supply.

Power of suppliers. This entails an evaluation of how easy it becomes for suppliers to push prices up. It is a product of the number of suppliers of every significant input, relative size, and power of the supplier (CGMA, 2012). Regarding the parlor, it seems Frank and Parlor have only one supplier where they purchase all their frozen yoghurt from local cash and carry. However, they are in a dilemma as to whether obtaining it from a local organic would accord them a high-quality product that they could charge high prices due to its superiority. Their desire to switch to another supplier is noble as they want quality products for their consumers. Having many suppliers where they can their inputs from is much better as they can negotiate for better prices for such products enabling them to get good returns.

About Fra-Pa’s Frozen Yoghurt Shop

Buyers power. This involves evaluating how easy it is for buyers to drag down the prices. It is an outcome of several factors at play, for instance, many buyers in the market, switching costs involved when a buyer moves from one supplier to another. The presence of few yet powerful buyers enables them dictates the terms. Fra-Pa’s appeals to an array of customers who frequent the shop during the weekdays or weekends. The parlor attracts workers from the area during the day and is accustomed to shoppers with children during the day. During the weekends, the teenagers and young adults visit the shop as a meeting place with their friends. In this case, the power of the buyers seems less powerful as Fra-Pa’s is the only frozen ice cream vendor in town making them control the demand of their product thus they can also maneuver prices the way they want.

Competitive rivalry. The primary driver here is the number and the ability of competitors in both the industry and the market. The presence of many competitors who offer similar commodities tends to reduce the attractiveness of the market. In this scenario, Fra-Pa’s seems to have fewer competitors as there is no parlor offering frozen yoghurt in the region though there are other food venues none serves the products such as those by Fra-Pa’s.

The threat of substitution arises when there are close substitutes to the product exist and raises the chances of customers switching to the alternatives whenever prices of one product get raised. This has the effect of reducing suppliers’ power and the general attractiveness in the market. Though Frank and Paddy are conscious of raising their prices following the launching of their premium product due to the usage of fresh organic products, they should consider consumers’ willingness to switch to other products that serve the same purpose as the ice cream such as beverages served by the surrounding restaurants.

The threat of new entry.it is the existence of profitable markets that lure new entrants and this has the impact of eroding the stream of profits enjoyed by the players in such a market. It is only the robust and durable barriers to entry by the incumbents that protects profitability from declining. Fra-Pa’s has been reported to break even, and the sales revenue growth and this should serve as a signal to other players out there to venture in such a lucrative market to enjoy the benefits and profits from such a demand. Thus, Fra-Pa’s should consider having competitors soon who will want to share in the profits from such a market.

Porters 5 Forces

Economic environment

The economic environment entails economic conditions, policies and the economic system that is crucial to the external elements of a business (Verma, 2012). The overall economic climate in the region, conditions in resource markets, for instance, the market for raw materials elements, supply markets may impact the supply of inputs to a business enterprise, costs of productions. In this case, Frank and Paddy are enjoying a regular supply of raw materials as the cash and carry provide them the convenience of purchasing in bulk enabling them to charge low prices for their products. It is also essential for Frank and Paddy to analyze the purchasing power of their consumers by looking at elements such as their disposable income and savings as there is a correlation between such variables with the buying habits of the consumers. When the disposable income of people increases people to tend to spend more money on buying goods and services, this, in turn, will increase the sales for Fra-Pa’s products.

Conversely, a decrease in disposable income and an increase in savings have adverse effects as they impact business negatively as the consumers spend less on goods and services and this could affect Fra-Pa’s adversely. Issues about levels of inflation, taxes, and levels of unemployment fall under economic elements. Fra-Pa’s should be keen on inflationary levels as high inflations tend to keep prices high, places, where taxes are high also keep prices for Fra-Pa’s expensive and in such a case, should consider operating in areas that have been charged low taxes.

The social-cultural environment is a vital element that should be scrutinized by Fra-Pa’s when formulating its business strategies. Fra-Pa’s consideration with regards to the customs, norms, tastes, and preferences will impact it positively. Fra-Pa’s will only be successful due to effective strategies that are in line with the social-cultural environmental elements. Issues such as workplace ethics are common in a place like the UK, and thus, Fra-Pa’s has to be careful in its operations to avoid conflict of interest when it comes to such matters. Social factors where consumers purchase products depending on several factors for instance changes in lifestyle. A good illustration is how people have shifted their preference to organic foods and in this case, if Fra-Pa’s uses natural nutrients in its products, then demand its products will be high now that people are becoming health conscious.

Political factors here refer to health and safety laws and government stability among other factors. Understanding how such policies work will enable Fra-Pa’s to align its operations to such statutes and regulations eliminating any conflict of interest that may arise.

Demographic environment

It is vital for any business to understand the population profile of the consumers it is dealing with if it is to be successful in its operations and long-term sustainability. Such elements are appropriate to Fra-Pa’s for formulating and implementing the strategy for regulating and achieving the objectives of the business. Demographic elements such as the size of the population, growth rate, occupational status, and employment distribution impact the demand for goods and services either positively or negatively. In this case, Birmingham has been portrayed as a city with people who have high occupations and are therefore always buying luxury products such as ice cream. Fra-Pa’s can take advantage of the size of the population at Birmingham where there are young adults who will still go on weekends in ice cream parlors with their colleagues and friends as they discuss their life. The place has been described to be frequently visited by parents with their children, and this is another area that Fra-Pa’s can benefit from by customizing their products by having some flavors in their premium products that children can be attached to as their preference.

References

Boddy, D., 2014. Management:An Introduction. 6th ed. Harlow: Pearson.

CGMA, 2012. Porter’s Five Forces of Competitive Position Analysis. [Online]  Available at: https://www.cgma.org/resources/tools/essential-tools/porters-five-forces.html [Accessed 15 December 2018].

Kwat, N., 2013. Business Units: Top 5 Types of Business Units. [Online]  Available at: https://www.economicsdiscussion.net/business-economics/business-units-top-5-types-of-business-units/18483 [Accessed 15 December 2018].

Verma, A., 2012. Macro factors affecting Business environment. [Online]  Available at: https://www.slideshare.net/aayush30/macro-factors-affecting-business-environment [Accessed 15 December 2018].