作者：張苑荺、陳頤杰
本文為國立陽明交通大學經營管理研究所《Business Analysis and Valuation》學期計畫期末報告之部分內容
(1) Brief description of the industry in which the focal companies operate
Both our focal companies operate in the food and beverage industry. Specifically, Yummy Town is registered under tourism industry, while Jamba Juice was registered under SIC Code 5812 (Eating Places) and NAICS Code 722511 (Full-Service Restaurants). We analyze the profitability of this industry using the framework of Porter’s five forces. In a nutshell, we find that the industry has modest profitability (which explains why beverage business has been popular for entrepreneurs), while profitability for companies that are more innovative, systematic, and financially sound is higher than that for other companies.
| Forces | Analysis | Profitability |
| Rivalry among existing firms | – Consider the modest level of industry growth, high level of concentration and low level of differentiation, the rivalry within this industry is high. – Moreover, the ratio of fixed to variable cost is small and switching cost is minimal, indicating high chance of price competition amongst existing firms. – Though, to certain extent scale and learning economies benefit surviving companies. Low exit barrier means failing companies can opt to leave the market, allowing the survivors to acquire capacity at lower price and make themselves even stronger in this industry. |
Low |
| Threat of new entrant | – The industry has little legal barrier or technology challenge to enter, and distribution is generally accessible (as storefront is available in most of the time). Consequently, many entrants join the market without issue. – Yet, scale economies and customer relations benefit large brands in this market. |
Modest to Low |
| Substitute product | – For beverage consumers at mass market level, many alternatives exist (e.g., package drinks). But the superior performance of freshly-made beverage and the modest price premium make package drink an unlikely substitute to freshly-made ones. – Moreover, consumers are less willing to substitute freshly-made beverage with other drinks, so long as the quality expectation is matched (i.e., hygiene), pointing to an advantage of companies that have a quality assurance system. |
High |
| Bargaining power of buyer | – The buyers in this industry are mainly consumers, whose number is huge and buying volume is small, indicating lower bargaining power. – Though, buyers bear hardly any switching cost. The importance of product is trivial for its buyers in this industry, pertaining to the need of product differentiation. – Thus, constant innovation is required for firms in this industry, further decreases profitability outlook in general. But it might be an opportunity for companies whose innovation prowess is strong. |
Modest |
| Bargaining power of supplier | – The beverage industry relies on materials that are commonly available. Hence, switching cost is low for the firms, pointing to higher profitability. – Nonetheless, good supplies matter for differentiation needs and affect cost and quality largely. For companies that require higher level ingredients, supplier relation is critical. |
Modest to High |
| Availability of complements | – Payment system (i.e., POS and App-based membership) largely reduces the cost for operating beverage stores. – Supply of cheap labor force in metropolitan areas allow beverage firms to hire easily. (note: we add this sixth force because it allows more in-depth understanding of the environment which an industry is composed of) |
High |
(2) Brief business description of the two companies
Yummy Town (Cayman) Holdings Corporation
Yummy Town is a food and beverage company founded in 1996 and incorporated in 2006. It operates at retail level. In beverage business, it owns three brands (Real Brew Tea, Happy Lemon, and H!PPO BOBATEA) and holds 20% of the shares of KEBUKE Tea Co. In restaurant business, Yummy Town partners with other companies to operate brands including The Spiceland, Fresh Tea (both are under the partnership with Keio Group of Japan), Alma (Spanish restaurant) and Tea Opal (Chinese). It’s reported that the company currently operates more than 1,100 stores globally, while the majority of its stores are located in mainland China.
The company has strong competence in developing chain store businesses. Namely, it’s succeeded in identifying customer needs and wants, developing business ideas which serve the unfulfilled desires, and commercializing the ideas with product and service that are tailored to specific segments. In brief, the company adopts a focus strategy as its competitive advantage. For instance, Tea Opal (whose Chinese brand name is 茶閣里的貓眼石) focuses on the upper-middle class consumers by offering a deluxe seating area with cutting-edge ordering technology. The business model, once proved by market acceptance, undergoes a rapid replication to other geographies via expansion, licensing, or franchising.
To build up its core competence, the company initially hired an executive and her team from a leading chain store company, McDonald’s Taiwan, Ms. 盧小慧 in 2016 to lay out development foundation for the company. Some thirty employees were reported to work for Yummy subsequent to the hiring of this new executive. To sustain its core competence, the company partners with Keio Group of Japan to expand from beverage line into restaurant business. Therefore, Yummy Town has equipped itself with solid capability of brand management and chain store development. Although this competence is hard to replicate by its competitor within short time horizon, head-hunt might be a risk for the company because such capability is inbred in its managers, rather than explicitly recorded. To sum up, the key success factors of Yummy Town include economies of scale (i.e., bulk purchase of ingredient), storefront development, and brand development.
Jamba Juice Franchisor SPV LLC.
Jamba Juice is a beverage company founded in 1990. It had been publicly traded in NASDAQ until 2018 when it was acquired by Focus Brands , an affiliate of private equity firm Roark Capital Group. There are more than 6,000 stores globally under the Jamba Juice brand, including five stores in Taiwan.
The company has strong competence in marketing, namely, it carefully locates its target customers and opens storefronts that are more accessible by its potential consumers. The menu items it develops are tailored to a tiny yet niche segment that health is the main proposition. For example, it used to open an Innovation Bar during 2015 to 2017 demonstrating its product expansion. The key success factor of Jamba Juice is new product development (NPD) that focuses on health smoothie. In other words, the company adopts a focus strategy in devising its competitive advantages. This competence is further proven as the company has been acquired by a private equity firm that owns several other brands complementing Jamba’s, such as Cinnabon, Schlotzsky’s, and Auntie Anne’s on snack line, as well as Moe’s Southwest Grill and McAlister’s Deli on the restaurant line. We argue that Jamba develops and owns unique competence that is sustainable and hard to duplicate by its competitors. Therefore, the private equity firm decided to acquire Jamba instead of duplicating one.
(3) Summarize major differences in the two companies with respect to business and risk factors
Business factors
| Yummy Town | Jamba Juice |
| 1. Exploiting the growth in tea beverage segment, the company develops a wide brand portfolio and expands it via networks of company-owned stores as well as franchising. In fiscal year 2017, 10.9% of the company’s revenue came from loyalties. 2. The company is likely to further growth its business in international markets via new brand/product development as well as partnerships (such as its current partnership with Keio Group of Japan), or even brand acquisition. 3. As the company expands to international markets, it diversifies its operation risks albeit most of its products are centered at tea beverage. Its Taiwanese founder allows the company to establish reputation via its connection with Ila Formosa to promote its brands. |
1. Following the trend of health dietary, the company focuses on a single set of products which best address the needs of modern generation. 2. The company emphasizes product development as well as storefront layout design in an attempt to boost customer experience in both company-owned and franchising stores. In fiscal year 2017, 37% of the company’s revenue came from franchise and other revenue. 3. The adaptability and modularization of its menu allow frequent updates that match the well-being currents, with more feasibility in creating new items. |
Risk factors
| Yummy Town | Jamba Juice |
| 1. Lock down (i.e., pandemic) decreases walk-in consumers and revenue, further limits the company in expanding to foreign markets. 2. A more differentiated portfolio of brands requires more sophisticated management, which incurs higher level of overhead (e.g., supporting staffs). 3. Recent development of App-based channel service providers and the commission they charge reduces the profit of the company. 4. The more differentiated the company wants its product to be, the more product development budget it has to allocate. However, specialty drinks are, in many cases, fashionable for a short while, leaving the company spending uncovered. |
1. The fruit-based ingredient the company relies costs more and has shorter shell life. Consequently, its inventory is very perishable compared to its competitors. 2. The fruit-based drink is easily substituted by other beverages, such as package juice. Moreover, competitors may easily copy the recipe of the company, forfeiting its development efforts. 3. The main calling of the brand, health, further limits the expandability of the company. Consumers might not change their perception about the company even when a new product line is developed to serve their changing needs. |
Reference
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