Abstract
Case 24 Jamba Juice is a research topic which involves 5 questions to be researched and answered. The first question talks about key trends that affect the general external environment in 2008-2009. The second question talks about the Porter Five Force Model to determine how strong the Intensity of Rivalry and the Threat of New Entrants are in the industry in the late 2000’s. The third question talks about the value chain analysis to determine the internal strengths of Jamba Juice and question four talks about the evaluation of the strengths listed in question 3 and using the resource-based view of the firm. Question five talks about how James White the CEO is faced with a decision on how to expand the business and the number of locations. One approach is to expand through corporately owned stores and the other is to franchise. Why did White choose the refranchising approach? Then list three advantages and three disadvantages of both franchising and company owned locations. Then do a financial analysis using the financial ratios for Jamba Juice that are pertinent to White’s decision and finally answer the question why White went with the refranchising strategy.
In 2008-2009 there were three key trends in the general external environment namely; economy, political environment and accelerating rate of change. The economy was majorly affected by the workforce at the time. The education level of the incoming workers and that of the previous ones were more or less the same. Most of the current workers were reaching retirement age and the numbers of new workers to replace them was insufficient.
With the regression of 2008 this trend highly impacted the recruiting and replacement efforts of companies and government institutions. Lack of the proper trained workforce and increasing number of new born babies greatly affected the economy, since there would be more of consuming than production in a country.
Political environment or policy changes related to education and the work of community colleges. Student success rates in these colleges have prompted better measures for their progress by holding colleges accountable for their progress. The state of California in 2009 through the Academic Senate for California Community Colleges (ASCCC) passed a resolution that would recommend changes to Title 5 that changed the requirements for certain college courses.
Due to budget cuts the community colleges in California have increased the enrollment fees by 30% from 2008-2009 to 2009-2010. As a result of the fee increment many thousands of students were denied access to these colleges and this posed a threat to the social and economic viability of the California state.
In the world at the time and currently the rate of change is rapid. Changes occurred in the fields of medicine, technology, science, economy and governmental regulations. Before people used letters, phone booths for communication, the medicines used and methods of treatment were different. But by 2008-2009 people were using mobile phones for communication, the internet for social networks and as a research engine. The fields of medicine and science had made milestones in their research and were embracing new technology to carry out their work.
The Porter Five Force models are rivalry among competitors, substitute products, powerful suppliers, powerful buyers and threat of entry. In this case I am going to focus on how strong the Intensity of Rivalry and the Threat of New Entrants are in the industry in the late 2000’s.
In 2007, Jamba was the smoothie leader in the industry but it had powerful competitors with similar fitness and health objectives. Planet Smoothie, Juice It Up! and Smoothie King Franchises are among the competitors in the smoothie and fresh juice industry. The competition was very stiff, for instance, Jamba juice produced smoothies of three different flavors whereas Juice It Up, Planet Smoothie and Smoothie King produced smoothies of 22, 6, and 9 different flavors respectively. Each commodity produced by Jamba juice had a powerful substitute from its competitors making the rivalry to be very stiff. (Janice, 2008 pg 5)
When people discovered that smoothies are the new fast foods, the smoothie industry had entries of new companies. According to the demand and supply curve, in short term period many companies enter and leave the industry compared to the long term period of time.
Jamba Juice Company was founded in 1990 and five years down the line it had new entrants into the industry; Planet Smoothie and Juice It Up! The growing number of customers who wanted to live healthy by using fresh drinks and smoothies led to the entry of new companies in the industry. (Janice, 2008 pg 5)
Consumers increasingly demanded for products that could suit their fitness programs, not only were this products low in calories but they were to have good taste. This is the reason behind the many different flavors across the four competing companies since each consumer has different tastes.
Value chain analysis looks at three factors: supporting activities, human resource management and procurement. Supporting activities involves general administration of the company that is how the company identifies a new product in the market and the environmental threats. Human resource generally deals with employees while procurement deals with suppliers.
Jamba hired customer-service- oriented people and awarded them with financial incentives or opportunities for advancement when they performed their duties well. To aid its team members in better performance, Jamba juice provided training programs both for its support staff and leadership team.
Value Chain Analysis
Value Chain Activity Strengths
Operations : product design and effectiveness Colorful and cheerful color theme
Wonderful and relaxed atmosphere
Marketing and sales Brand image
Media attention
Community involvement
Jamba Juice Company consulted with a retail design consultant and came up with a design for its stores such that customers could see their orders being freshly made with all the natural ingredients. The atmosphere created by the casual arrangement of tables and chairs where the customers sat was very relaxing. The stores were also painted using a color scheme that was colorful and cheerful. Such a color scheme attracted a lot of customers and improved sales. Jamba juice believed that this experience was a competitive advantage.
Jamba Juice marketing focused on brand communications, product and the store environment. The company focused on communicating the benefits of the product, its values in a creative and advanced way. The advertisement created a unique brand image that stood out compared to the competitors. The company advertised itself by involving itself in small promotional events and the community around; this strategy enabled Jamba Juice to connect emotionally with its customers. (Janice, 2008 pg 4)
The company also involved itself with the national media; it believed that it benefited from the media attention that gave it a competing advantage over the other competitors in the industry. It was featured in several newspapers and magazines such as, the Wall Street Journal, New York Times, and USA Today. Initially the company had not involved itself with the media, it believed in the use of word of mouth, trade-area marketing and in-store promotions when it came to advertising.
James White, the CEO of Jamba Juice is faced with a dilemma on how to expand the business, he could expand through corporately owned stores or he could expand through franchising. At the end of the day Mr. White chooses to expand through franchising which involves about 150 store locations outside of California.
The franchising initiative had several advantages: one of the advantages was to accelerate the company’s growth outside their California markets; the second advantage was to allow the company better focus their operational resources on their company owned stores in California so that they can improve their performance. Another advantage of the franchising initiative was better cash flow and proceeds that will be used by the company to pay their debts and also fund for future growth. (press release, 2009 paragraph 2)
Franchising also had its disadvantages; one of them was sharing of profits between the owner and the franchisee over a long period of time. The second disadvantage is that the company would lose absolute control of the franchised stores. The third disadvantage is the state and federal disclosure laws that regulate the franchisors making the company obligated to hire a franchising lawyer.
There are several advantages and disadvantages of company owned locations. There are three advantages and they include absorption of excess capacity, which reduces unit costs and spreads the economic risks over the wide market. The second advantage is that the company gets to use up all the profits that it gains over all its stores and can use it for advertisement and maintenance of the company. The third advantage is that losses can be distributed within the company locations.
The disadvantages include high costs are incurred in the running and establishment of these locations. Second disadvantage is that income and capital are not distributed in a flexible manner since anti-streaming laws are applied. The third disadvantage is that in case of winding up of the company’s assets, the company will have to undergo a lot of costs to do so.
References
Janice Duis (September 19, 2008) Jamba Juice Company. Retrieved from http//: www.jambajuice.com (pp 9 )
Dess Lumpkin (2004) Strategic Management. Retrieved from http//: www.marketplace-live.com
Mathew Lugo (March 7,2008) formulation presentation. Retrieved from http//: www.faculty.winthrop.edu/robbinsk/…/Apple%2011.00%20Section.pp
Geoff Leese (September 2005) the Five Forces Models and competitive strategies. Retrieved from http//: www.goldbeach.org.uk/…/M&P%203a%20
(May 2009)Press release Retrieved from http://www.thefranchisemall.com/news/articles/22739-0.htm
