June 2018 | Przegląd Piekarski i Cukierniczy (Baking and Confectionery Review)
SELLING THE COMPANY
This is the sixth article helping to prepare bakeries and confectioners’ shops for sale. The last three articles were devoted to the areas in which a company’s market value is concentrated. Today the problem of building a company’s value through strengthening its competitive advantage will be raised.
Competitive advantage is a feature which makes it possible to sell in a competitive market. It is not possible to sell on the free market products which are uncompetitive, unfavourable for the customer in terms of price or quality. One may therefore say that those who sell their products achieve a competitive advantage over the other participants in the market. Competitive advantage is therefore the engine of sales.
Building competitive advantage is also a key element in building the value of a company intended for sale. The value of a prospering bakery or confectioner’s shop is above all goodwill – that is, the well-known and recognisable brand of the bakery; it is the permits and licences; it is also the lease agreements for the best locations for retail sales. Goodwill therefore contains the components which constitute competitive advantage, the components thanks to which the bakery conducts its sales.
W-MOSZCZYNSKI ppic 6-18Today we will show how to strengthen goodwill, which plays a decisive role in the process of investment evaluation.
There are three strategies for achieving competitive advantage. A bakery or confectioner’s shop which decides to choose one of these three strategies must at the same time maintain the highest market standards in the remaining two strategies. The principle of the three strategies is the basic doctrine of strategic planning, commonly applied all over the world.
Strategy one: achieving competitive advantage through operational excellence
Operational excellence in the case of a bakery’s sales network is, among other things, an excellent location. That is, for example, a location near a railway or bus station. An excellent location builds consumer habits – the purchase of bread by people travelling to or returning from work.
Operational excellence is commonly achieved in the form of the lowest price, or of always the same quality of products, in the form of punctual deliveries or of an identical interior decor. The strategy of operational excellence is applied, for example, by the great restaurant chains McDonald’s, KFS, Burger King, HRC. Customers, regardless of where in the world they are, can always expect the same quality, the same decor and the same price. This strategy reduces the subconscious risk of a new place. Thanks to this, customers choose places which they already know. In the case of a confectioner’s shop or bakery, the strategy of operational excellence in the area of price does not make much sense. In this market what counts is quality and availability, whereby it appears from observation that availability wins over quality. A simple recipe for enlarging competitive advantage is to improve the location of the points of sale and to work on the repeatability of the products, that is, on quality. The extension of this approach is the development of mass sales.
Strategy two: closeness with customers
A bakery with a history going back many years has managed to win the hearts of the local residents. If its products are not inferior in quality and price, customers will keep coming back, because they are bound to the bakery by attachment. Bakeries may try to tempt customers with an additional confectionery range; they may also tempt them with free coffee „with the cake”. However, nothing will replace customers’ natural attachment to the brand. That is why this strategy cannot be realised quickly and dynamically, especially in the period preceding the sale of the company. This strategy can be realised by popularising the brand. The bakery should take part in all kinds of local events, such as harvest festivals or church fairs. It is also important that the shops of one’s own sales network should be well marked with the bakery’s brand.
Strategy three: technological advantage
This is the most dynamic strategy, which gives the greatest profits, but also carries with it the highest risk. A new product may significantly raise the volume of sales; it may also turn out to be unappreciated by customers and generate a loss. In the case of a bakery or confectioner’s shop this may be a new, unusual product, or a cake made to a quality and technology unattainable for competitors. The carrier of technological advantage may be an excellent confectioner able to make exquisite cakes, or a technologist who develops a recipe for dietetic or medicinal bread. Technological advantage may also be the organisation of sales. One can develop a new system of distributing cakes and baked goods over the internet; one can introduce a new, better system of information and settlements. The scope for innovation is truly large. This strategy seems attractive, but it is connected with the high costs of implementation and promotion, without which the novelties will not be noticed by the market. It should be remembered that all new, innovative recipes and formulas should be protected legally as well as possible. Registered recipes and patents are an important element of goodwill value for investors interested in buying the company.
The theory of the three alternative strategies is commonly known and applied in the market. Observing the retail market, we can easily indicate which of the strategies particular corporations have chosen. For example, Mercedes has chosen the strategy of closeness with customers, whereas Toyota – hitherto the leader of the strategy of operational excellence – is now investing very heavily in the technological strategy. The majority of the great Polish bread producers – SPC, Oskroba or Kłos – have chosen the direction of operational excellence, realised through the mass distribution of bread in supermarkets. Crispbread sold by WASA, or the packaged products of Seven Days, are an example of advantage in the technological area. Companies such as Mars, Adidas or Coca-Cola owe their success to technological advantage. Regardless of which of the three strategies these companies have chosen, they maintain the remaining two competitive areas at a high market level.
The basic goodwill value in every company is competitive advantage. It is thanks to it that daily sales are made. Systematic and conscious investment in the chosen strategy can effectively raise market share and significantly increase the company’s value.
Wojciech Moszczyński
owner of the consulting company K12 Equity Council
Wojciech Moszczyński — graduate of the Department of Econometrics and Statistics of Nicolaus Copernicus University in Toruń; specialist in econometrics, finance, data science, and management accounting. He specializes in the optimization of production and logistics processes. He conducts research in the area of the development and application of artificial intelligence. For years he has been engaged in the popularization of machine learning and data science in business environments.
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