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Chapter 3 Evaluating a Company’s External Environment
138
ASSURANCE OF LEARNING EXERCISES
1. Prepare a brief analysis of the organic food industry using the information provided by the Organic Trade
Association at www.ota.com and the Organic Report magazine at theorganicreport.com. That is, based on
theinformationprovidedonthesewebsites,drawaveforcesdiagramfortheorganicfoodindustryand
brieydiscussthenatureandstrengthofeachofthevecompetitiveforces.
ACTIVITY
This Assurance of Learning exercise is available as a Connect Assignment. The assignment can be
graded and posted automatically.
Response:
Thestudentshoulddrawave-forcesdiagramsimilartogure3.2inthetext.Thediagramshouldshow
thattheveforcesare:(1)rmsinotherindustriesoeringsubstituteproducts,(2)buyers,(3)potentialnew
entrants,(4)suppliersofrawmaterials,parts,components,orotherresourceinputs,and(5)rivalryamong
competing sellers in the industry.
Student responses might identify:
Shift in power from Buyers to Producers:
• Americanconsumersspendmorethan$43Bonorganicproductsin2015
• StrongupwardtrendinUSsalesfrom2006to2015
Threat from new entrants is high:
Supplier power is low:
• Factors of production are readily available and well understood
• Signicantresearchisunderwaytodeveloporganicfoodproductionmethodstoincreaseproduction
and keep costs down
Threat from substitute products is low:
Chapter 3 Evaluating a Company’s External Environment
139
2. Based on the strategic group map in Illustration Capsule 3.1, which casual dining chains are Applebee’s
closest competitors? With which strategic group does California Pizza Kitchen compete the least, according
to this map? Why do you think no casual dining chains are positioned in the area above the Olive Garden’s
group?
ACTIVITY
This Assurance of Learning exercise is available as a Connect Assignment. The assignment can be
graded and posted automatically.
Response:
Applebee’s closest competitors: The student should identify Chili’s, On the Border, and TGI Friday’s as
Applebee’s closest competitors based upon an international coverage. However, based upon Price, Service,
and Restaurant Ambiance, the student should also identify Cracker Barrel, Red Lobster, and Golden
Corral as close competitors strictly in the US Market. The student should identify that these two groups of
restaurantspursuedierentinternationalvs.domesticstrategieswhileprovidingsimilarinPrice,Service,
and Restaurant Ambiance characteristics.
baseduponthesetwoexpensivedierentiatingelements.
3. The National Restaurant Association publishes an annual industry fact book that can be found at imis.
restaurant.org/store/detail.aspx?id=FOR2016FB.Basedoninformationinthelatestreport,doesitappear
that macro-environmental factors and the economic characteristics of the industry will present industry
participantswithattractiveopportunitiesforgrowthandprotability?Explain.
Response:
From publically available news stories and research items, students should identify factors shaping the
competitive arena. These might include:
• There are a growing number of restaurants—Over 1 million restaurant locations in the United States.
• Restaurants represent a growing percentage of overall food dollars—47%: Restaurant-industry share of
the food dollar.
• Fewer restaurants are purchasing capital equipment due to economic concerns.
• Utility and energy costs expected to rise in 2016
Chapter 3 Evaluating a Company’s External Environment
140
Thestudentcoulduseave-forcesdiagramsimilartogure3.9inthetextinordertoconductthisanalysis.
Fromtheperspectiveofthetraditionalrestaurant,thestudentmightndthat1)theQuickservicesegment
oersastrongsubstitutechoiceoverthetraditionalrestaurant,2)buyersareinastrongpositionwithmany
choices in the industry, 3) there is pressure from new entrants, 4) there is supply pressure from wages and
wholesalefoodprices,and5)thereispressurefromrivalryamongcompetingsellersbaseduponthelarge
number of restaurants in the industry.
Takentogether,costsarebeingforcedhigherandpricesarebeingforcedlower,puttingpressureonprots.
meaningful way that resonates with their customer base.
