THX

PRIMABLEND
BAKESHOP
CLASS CASE
“Exploring further into the town, urban icons continue to manifest their power. Sure
one can have a Jollibee sundae or a Chowking halo-halo in the plaza, but San Mateo
prefers the delectable pastries and the mouthwatering butter-rich cakes whipped
only by Primablend..” – traveleronfoot.wordpress.com

Alberto | De Joya | Gulanes | Japinan | Jumarang | Lauraya | Toledo | Versoza

BA 190
THX
Problem Statement

How can Primablend re-establish its brand in the face of competition? How should Primablend re-
evaluate its business model in the changing environment?

Analysis

a. SWOT Analysis

Strengths Weaknesses
Equity Stagnant company growth in a growing industry
Icon in local culture Accessibility of the products
Destination store
First mover
Loyal
Stable customer base
Strong financial capabilities (cash based)
Flexible business operations
Opportunities Threats
Expansion Competitors (fast-food, small bakeries, large
Corporatization national brands, etc) penetrating local market
Marketing campaign Expensive raw materials
Growing industry Products can be easily imitated

It is very clearly shown in the case that Primablend is very strong, both as a brand and as a
business. Its brand equity is deeply rooted in the culture of San Mateo, and the company and its products
are considered to be icons of the baked goods industry by their loyal buyers. Because it used to be the
only establishment of its kind within the area for such a long period and because of the superiority of its
products, Primablend is also considered to be a destination store, with many customers coming from
other areas just to purchase their pastries. The company has a strong, cash-based financial system, with
high liquidity and no debt. Its business operations are extremely lean and flexible due to the dynamic
staffing, store layout, and production system of the company, and the store can usually accommodate
rush orders and changes in specifications.

However, in the big picture, Primablend is not doing so well compared to its competitors.
Despite years of strong business, Primablend’s growth is stagnant while the rest of the industry is
growing. This is a problem because inflation of raw materials and other factors may outpace
Primablend’s growth, especially since Primablend serves only a fraction of the demand for its products.
Also, although there is value in its being a destination store with superior-quality products, the fact
remains that its products are not very accessible for such lucrative markets as the larger cities of Metro
Manila, or in the other urban regions throughout the country.

There are many opportunities that the company can make use of in the growing industry. There
is the compelling need to expand their business: the company can add new product lines and, more
importantly, create a larger distribution system and put up more branches. Also, the company may open
itself to investors to help fund its expansion, turning the company into a family corporation where the
CEO and her daughters will still make final decisions but with the support and expertise of professional
managers. There is also the possibility of conducting a marketing campaign, leveraging Primablend’s
colossal brand equity and word-of-mouth to garner new business throughout the country.

The company needs to be more aware of the capabilities of its competitors, as these could
severely eat into Primablend’s market, both literally and figuratively. Competitors of all sizes can attack
from all sides, capturing the market’s need for cakes, pastries, snacks, and dining options, while leaving
Primablend irrelevant. There is also the problem with the way the company sources its raw materials,
which become more expensive every year. The company must find new and more affordable ingredients
for its products. Finally, the company must guard its recipes and formulations even more tightly as its
products can be easily imitated, now that competitors are positioned to overtake Primablend’s business
in an industry where it is not the bakery with the best recipe that wins but the bakery that sells the most
of a recipe.

b. Porter’s 5 Forces

Threat of
New
Entrants
HIGH

Bargaining Rivalry Bargaining

Power of among Power of
Suppliers Firms Buyers
HIGH HIGH HIGH

Threat of
Substitutes
HIGH

Threat of New Entrants

Given the nature of the bakery industry, threat of new entrants is high as there are relatively low
barriers to entry. There is low initial capital outlay as equipment cost is low and there is little research
and development cost incurred prior to starting the business. Furthermore, product differentiation is
present though it is hardly a deterrent factor as many businesses sell the same products or imitate
quickly.

Bargaining Power of Buyers

In this industry, customers enjoy a significant buying power as they incur low switching costs. In
general, the demand for food is highly price elastic. Majority of the customers are sensitive to price
increases and would not hesitate to change their tastes and preferences accordingly. This is especially
pertinent during occurrences of high inflation as the general public switch to cheaper alternatives.

Bargaining Power of Suppliers

Despite the commoditized nature of the suppliers’ products, Primablend faces high bargaining
power from suppliers due to the company’s size. Some inputs have to be sourced directly from the
supplier’s premises, either because the volume usage of Primablend is too low, or because these
suppliers would not want to deliver outside Metro Manila. Primablend is thus a captive buyer in this
situation because it is held hostage by a supplier free to switch to another customer.

Threat of Substitutes

Threat of substitutes is high because there are several alternative establishments such as fast
food chains, industrial bakeries, retail bakery shop chains, retail bakeries in supermarkets as well as
bakeries in high end hotels. Also, price performance can affect the customers’ buying decisions as
mentioned under bargaining power of buyers.

Rivalry among Firms

Rivalry is high among all the firms because the market is already saturated. There are two other
bakeshops in San Mateo as well as major fast-food chains like Jollibee, McDonald’s, Chowking, and
Tropical Hut. The low switching costs that customers enjoy and the diversity of these establishments
increases the rivalry among the firms.

c. VRIO Analysis

*Strength or Weakness
VRIO  VAL  R  DIFFI  EXPL   COMPE
FRAMEWORK UABLE ARE CULT TO OITED OR TITIVE
IMITATE W* IMPLICATIONS
 Marke  Yes  N  No  No   Sustain
ting o able Advantage
 Huma  Yes  Y  Yes  Yes   Sustain
n Resources es able Advantage
 Techn  Yes  N  No  Yes   Tempora
ology o ry Advantage
 Goodw  Yes  Y  Yes  No   Sustain
ill es able Advantage
 Strate  Yes  N  No  No   Tempora
gic o ry Advantage
Partnerships
 Strong  Yes  Y  Yes  Yes   Sustain
Brand es able
Identity Advantage

For the strong competition that Primablend faces, it is important to implement an effective
marketing campaign. However, Mrs. San Juan opted to rely on word-of-mouth promotions by providing
good quality and value for money cakes and pastries. This was an effective rouse for Primablend as it
captured a loyal consumer base, nevertheless, the industry changed. It had become more competitive
and the market became saturated. Primablend doesn’t have enough communication channels to
effectively convey their real value to target market.

Primablend is proud to have their loyal and skilled and skilled workers. They have a very low
employee turnover where 95% of employees have been with them for at least 10 years. Definitely, their
human resource is one of their valuable assets because of their superior skills honed for years. They
have already created an atmosphere of trust and confidence with their employees which not a lot of
companies are fortunate enough to have. Primablend maximizes their use of human resources through
multi-tasking and cross trainings for further flexibility to better satisfy customer needs.

In terms of technology, baking equipments and machineries are readily available in the market.
Primablend acquired all these to further improve manufacturing and operations. The machines and
equipments used in the baking industry is basically very similar because processes are almost the same.
Primablend exploits theirs very well to ensure that resources are used efficiently and quality is
maintained.

Primablend is the first bakeshop in its immediate area, San Mateo, as well as in its neighboring
towns. For a certain period of time, it has maintained its position as the only snack shop in the area. It
was only after a few years that competition begun. These years of enterprise have created a respectable
amount of goodwill for their business from the customers. Even big companies and global brands
weren’t able to steal away the loyalty of consumers. It is important for Primablend to recognize this
emotional attachment to them by their customers and utilize it to their advantage.

Strategic partnerships are a very familiar operation by several companies nowadays. It’s
popular in the food industry. This can be a source of a stable income and a good promotional campaign
for Primablend. They can be sole provider of cakes and pastries of a specific restaurant.

Primablend is already considered an icon in its area because of its years of existence. It is
known for its delicious cakes and pastries. Their brand was able to stand firm amidst the penetrations
of both direct and indirect competition. Primablend can leverage on its strong identity in formulating
their future strategies and plans for the business.

Recommendation

a. Short Term Plan

“While the company recognizes that a view towards expansion will be necessary to sustain the life of
the business in the long-run, the need to undertake such an expansion is not of topmost priority.” With
this it is necessary that Primablend strengthens its brand in San Mateo as more fast food chains and
small bakeries enter. It can do this through the following:

 Product Line Extension

We can capitalize on the trend of combining western flavors with traditional Philippine cuisine.
This will capture the taste of a younger demographic and attract new customers in general. Primablend
can also incorporate healthy options to their menu to bank on the health trend.
Some examples of new products will be:
-Green tea coolers, green tea cakes, etc
-Ube cakes and mango cakes
-Ice cream cakes
-Incorporation of foreign brands like Snickers Cake, Oreo Cake, Kit Kat Cake, Hersheys Cake, etc.
to provide a more appealing taste.
 Localized Marketing Campaign

In strengthening its brand identity, Primablend Bakeshop should capitalize on being the
“neighborhood” bakery. Furthermore, the company should bank on the long-time loyalty of and goodwill
of its customers. Being the establishment that San Mateo locals grew up with, the brand must emphasize
customer relationship, such as buying cakes for special events and their pastries as pasalubong, only
from Primablend, their neighbourhood bakery.

 Loyalty Programs
This will nurture relationship with long-time loyal customers.  Customers can acquire loyalty
cards, with every purchase and visit corresponding to a scoring system.  Accumulation of a certain
number of points entitles them to freebies and discounts.

b. Long Term Plans

When Primablend has finally regained its foothold in the market, it can then consider the
possibility of expansion and incorporation because by now they have a stronger position in the market
and risks are lessened. Also, this would solve the problem of accessibility raised by customers.

Expansion brought about the issues on quality of products, management control and financial
constraints.  Thus, the group proposes franchising.  This will reduce investment costs at the same time
expand business reach through chain stores.  Franchising would ensure that the quality of products is
maintained with the assumption that a standardized approach is strictly followed.

 Centralized Production Facility

Mrs. San Juan believes that quality can be best kept consistent with a single centralized
production facility. The production facility will be strategically located in Metro Manila to address
proximity issues with their suppliers of inputs - suppliers who don’t want to deliver outside Metro
Manila. As a result, sourcing costs would decrease.

 Business Structure

Given that Mrs. San Juan doesn’t want to handle the operations of multiple branches at the same
time, it is recommended that she franchise the business. With a franchise, a presence is developed more
quickly, and with less franchisor investment. Furthermore, franchisee qualifications for ownership are
set and enforced, and also, agreements require franchisees to abide by stringent operating rules, to be
set my Primablend’s management, thus maintaining product and service quality. Also, franchisees have a
greater incentive to work hard as they are essentially the owners of their business units. From a
financial standpoint, franchising is beneficial to Primablend as franchisees will take the responsibility
for the capital investments of their respective business units. Furthermore, royalties are received
regularly and money is obtained when goods are delivered rather than when they are sold.

Franchisees also enjoy several advantages by investing in Primablend Bakeshops. They acquire
a well-known name and product lines, and benefit from cooperative marketing efforts. Also, standard
operating procedures and management skills may be taught to them.

 Supply Chain Management

Effective supply-chain management requires choosing a type of relationship appropriate to

product and market conditions and adapting management practices to that relationship. Given this, the
group recommends establishing a contract between Primablend and its suppliers. Respect, trust, mutual
benefit and fairness must be considered when negotiating terms. It is also critical for Primablend and its
suppliers to stipulate terms in relation to purchase specifications, including amount and quality,
payment, delivery and returns. Ultimately, Primablend should move toward longer-term collaborative
strategic partnerships with external business partners. 

c. Implementation Plan

Short Term Plans

Month 1 2 3 4 5 6
Launch new marketing
campaign        
Launch loyalty program        
Introduce new products      
Localized Marketing Campaign            

Long Term Plans

Year 1 2 3 4 5
Construction of Centralized Production Facillity      
Implement New Business Structure        
Establish Proper Supply Chain Management