Spentrep Red Crab Case Analysis by JP Molina

J.P. Molina
SENTREP

Red Crab Case

Relevant Facts

• ·         Red Crab started in 1998 by Raymond’s mother in Clark, Pampanga. She herself made the recipes herself and ran the restaurant.
• ·         The initial store was very simple and had no personality yet but everyone knew that the food was very good.
• ·         1 year later they seized the opportunity to open another branch in Malate, Manila. The sales was good at first but eventually declined because of emergence of different locations where the people go to.
• ·         In 2001 two more branches opened. One in Morato in March, the other in Alabang in November. When the Alabang branch opened, that’s when they started to do a little market research. They found out their market was from the 26 – 35 age group bracket.
• ·         In 2002 they were invited to open a new restaurant in Greenbelt 3, a new upscale mall. They had to change the name and the concept of their brand as per requirement of Greenbelt so they came out with seafood club.
• ·         By 2004, they already have 5 restaurants up and running and all were profitable when they opened Crustasia in Rockwell. By 2005 they had 13 restaurants including Blackbeard’s Seafood Island.
• ·         It seemed to the owners that the formula is to find a spot with a big market and then tailor-fit the restaurant for the market in that spot.

Problem

                The restaurants that Red Crab group made were all large successes. Each though was not planned in a clear cut set of standards. It even seems that they just got lucky.

                The problem for me is that 13 restaurants doesn’t prove market dominance. The market is big and people have to eat every day. No one eats in the same restaurant all the time. The problem for me is how to create more restaurants and differentiate it from the existing ones. To be the best

Objective

                Therefore the objective is to create more brand names and give alternatives for people to eat in.

Analysis

                Red Crap Goup is primarily a seafood group. They have found a niche and they are very successful. But as a businessman, one must never be satisfied with current earnings even if they’re good. As our leaders in our company have said in the wake of our current success in the market, “one must not get drunk with success”.

                At Red Crab, if I were in charge, this is what I would also tell myself. As an entrepreneur, I can see that the opportunities for more growth is close to endless. Now they have the capital backed up by great food researchers and cutting edge workforce, I believe the Red Crab group has the potential to be a big force in the restaurant industry and perhaps the food industry as a whole.

Possible Alternatives

1.       Expand more in NCR and eventually to the provinces using the Red Crab/Seafood Island/Crustacia brand names which already have goodwill.

2.       Create another brand name and move into the Quick Service Industry.

3.       Diversify further and create other themes other than seafood.

Decision

I

                Number one alternative is a good direction for the company. 13 restaurants I believe is not enough to saturate the Restaurant Industry. But as you add more restaurant, I believe laws in economics can catch up with the Red Crab Group.

                The law of diminishing marginal returns states that for every input of resources, the income generated from the additional input will be smaller than the previous inputs’ contribution to income.

                People from the different target expansion areas might already be going a lot to the current red crab restaurants and when you put up one that is near to this people, they will just switch restaurants that is why profit from one restaurant will just move to another restaurant.

II

                The number 2 alternative seems logical, related and doable but not feasible at the moment. For one, the Group’s strength lies in the Restaurant business. They do not have the expertise in running a quick service food chain thus it would be inefficient and they might not be able to compete with the big market players like Mc Donalds, Jollibee, KFC etc.

                The market is already saturated with the big companies, that is why many good business die in the first place. Take the place of Texas Chicken which used to be a great up and coming QSR in the early 20’s. The chickens they serve were big and tasty and it seemed that they had great value for money. Eventually however they were not really able to compete with the big market players like Mc Donalds, Jollibee, and KFC.

III

                I believe the third alternative to be the most logical because offering a new choice to customers would not necessarily eat up the market of the other restaurants.  One may argue that if they put up additional restaurants, they may shoot themselves in the foot and current customers will just transfer to the new restaurant.

                But I believe this is not always true in the case of Phohoa and Jack’s loft in Eastwood city which shares the same venue, same kitchen, but customers of Phohoa do not necessarily go to jacks loft. This is because the theme for the two restaurants are not the same.

                People also cannot eat in the same restaurant every day. I for one eat only twice a month at my favorite restaurant in Eastwood because I do not want to eat the same kind of food everyday.

                Making a new restaurant with a different theme like a steakhouse will deliver the same kind of experience that his previous restaurants would offer, same excellent quality of food, but a different theme for a change.