The general assessment of an industry’s environment and what affects the companies with that industry entails a review of the political, economic, social, technical, environment and legal factors in determining the factors that promote or hinder the development of a company in that niche. This, measured with Porter’s five forces of threats to entry into the market, threat of substitution of goods, competitive rivalry, supplier and buyer power help to establish the factors that affecting a given corporation within that company.
The company being assessed is CEC Entertainment Inc., a publicly traded corporation in the service industry. This is a company that owns a chain of restaurants identified by the name “Chuck E. Cheese’s” whose headquarter is in Irving in Texas, and founded by Nolan Bushnell. The company prides itself in providing family entertainment by providing animatronic displays and arcade games, in addition to serving foods such as pizza, salads, sandwiches, breadsticks and other gluten-free foods such as wine, beer and tea. The restaurants under the corporation also provide locations where families can hold birthday parties for their children, by providing birthday gold tickets that offer different children prizes such as free trips to designated places, gift cars and free cotton candy for those celebrating birthdays in the restaurants among others. (Chuck E. Cheese’s, N.d.). Other tickets won from plying the games are used to purchase toys and candy within the restaurant. Other than that, the restaurants also provides toys for children and great service that ensures that families do not have to wait long to be served. The corporation was recently sold to Apollo Global Management (Sec, 2014). This was as a result of its inability to manage its resources to gain profits.
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A study of the information provided by the Securities and Exchange Commission provides details on financial statements of a company by stating the income and cash flows within the corporation, its plans and latest developments. Looking at the financial data and company filings regarding the CEC Entertainment, there has been a decrease in the total revenue the sales made in all the restaurants in the chain. Total depreciation amount was $28.3 million, and the accounts payable as at April 2017 was $39,652. Total debt owned by the company was $967,503. The weighted average effective interest rate on their secured credit facilities was at 4.7%. Effective income rate for the corporation was at 37.6% after tax deduction. Total accrued interest is currently at $1.2 million (SEC, 2017). This shows that at the moment, the company is not profitable.
When looking at the general environment of the company, bearing in mind that it operates in the service industry, the two segments that most likely affect it are the social and economic environments. The social environment consists of the trends in the demographics, that is, age, ethnic mix, and size, and cultural trends that rely on customer attitudes towards different products provided by the market and this affects the company in that it has the inability to predict the future based on the social environment. The immediate social environment of the company consists of its customers, the labor market, competitors and financial resources (Asdullah, Rehman and Ahmad, 2015). This means that any change occurring in the external social environment that may cause a decrease or an increase in numbers of a particular element has the ability to alter the production of service by the company. Looking at cultural trends, customer preferences tend to shift over time as other may decide to adopt healthier lifestyles or ingest more fatty foods. The company’s restaurants sell more glutinous foods and this may reduce its customer base in the event that its customers decide to start eating organic foods. Fear of being obese or having other lifestyle diseases may discourage consumers from making purchases at the company’s restaurants since it has a limited number of gluten-free products. Parents may also limit the number of gluten foods ingested by their children and this may result in a decrease in purchases made, resulting in low income. Change in age may also result in change in preferences. Many children like to have cotton candy, which the corporation offers for free at most times. With time, however, children age and may prefer to have other foods and may thus seek other alternative restaurants where their preferential foods are offered for free in large amounts. However, this can also work on the upside since the glutinous foods they offer may also be what customers of a certain age group prefer. The popularity of the games they offer is also set for customers of a particular age group and this may change over time when preferences shift. The corporation within the industry faces stiff competition from other companies that have chain restaurants and provide similar services, provide differentiated products, or even products that may appeal to most customers. Its main competition is Peter Piper Pizza, which also provides an entertainment ground for families and sells foods such as pizza, just like Chuck E. Cheese’s. However, competition promotes the overall growth of companies within the industry, seeing as CEC Entertainment Inc. has experienced constant growth since its establishment, and its acquisition by a different company has further promoted its growth.
The economic environment encompasses the inflexibility of customers in times of economic recession, as this may result in reduced purchases within the company and result in low revenue (Asdullah, Rehman and Ahmad, 2015). Low revenue is as a result of the reduced prices that a company has to ensure in order to make sales. Being a restaurant with several chains all round America, the different chains may be required to lower their prices in order to attract customers. This also means that in times of economic upturn, the company is able to earn increased revenue since more customers make purchases. Other economic factors that influence the economic segment, other than general state of the economy, include level of disposable income, gross domestic product, the rate of unemployment, interest rates and rates of inflation. The rate of unemployment in the immediate environment of the corporation influences the amount of income that the corporation earns. This can be explained by the fact that a higher number of unemployed people will result in decreased purchases made at the chain restaurants and thus decrease its revenue since most people may opt to eat at alternatively cheaper places. This may cause the corporation to either lower its prices in order to attract customers, or increase incentives provided. Similarly, if the corporation is situated in an environment where most consumers are employed, the purchases made will increase, and the company may even be able to increase pri e of its products, resulting in higher revenue. This also applies to the level of disposable income that its immediate environment has. When families have a lot to spend, their frequency to the corporation’s chains will increase, and this will increase the purchases made. Similarly, if families have less to spend, then there is a reduction in the number of times they make use of CEC’s services as they will opt for cheaper alternatives such as staying at home, or going to the park. Inflation rates play a significant role, since it determines the prices at which the company will purchase its food supplies. During periods of drought when food production is reduced, the prices of food go high. In order to make profits, the company has to increase the prices of its food and the services offered in order to cater for the high cost that they have to incur when making purchases. This means that customers have to pay more, and depending on other economic factors at the time of the inflation, may result in an increase or decrease in the revenue earned.
From the analysis, it is evident that economic and social factors play an important role in the growth of the corporation and the service industry in general due to its high reliance on the same. When looking at the five forces of competition with regards to CEC Entertainment, the two forces that are most significant to the company are the threat of substitution and the competitive rivalry (CGMA, 2013). The threat of substitution is due to the existence of other corporations that offer almost similar services and this may be done at lower prices or by providing better quality service. This force of competition provides alternatives to customer in the event that CEC Entertainment Inc. raises its prices while the other corporation does not raise its prices. Seeing as its main competitor in family entertainment is Peter Piper Pizza, the corporation is required to be constantly making changes to the quality of its service and develop other competitive strategies to increase its competitive advantage. The company has been forced to expand its scope of operations to include adults accompanying children in their provision of entertainment. The company also merged with Peter Piper Pizza (SEC, 2014). This way, it was able to reduce competition and increase the number of restaurants it operated.
Competitive rivalry encompasses the presence and number of capable competitors and the degree of competition provided by the competitors (CGMA, 2013). Competitive rivalry exerts competitive pressure on the corporation by impacting on its competitive strategy, prices of their services and profits earned by the corporation. Seeing that there are many corporations with chain restaurants such as McDonald’s, CEC Entertainment Inc. provided a different feature by providing entertainment grounds for families such as the arcade and animatronic displays to attract families. This helped to increase its competitive advantage as it became a preference to parents who would take their children to the restaurants owned by the corporation. The introduction of skill games such as skee ball, hockey and basketball has further improved its competitive edge (SEC, 2014). By establishing numerous chain restaurants in different locations, the corporation was also able to counter of challenges provide by the low entry barrier to the industry. This reduced the ease with which other corporations entered the market of family entertainment for fear of facing stiff competition. The company has also improved its services to not only cater for children but also meet the needs of adults, thereby making it a preferred destination. There is provision of entertainment for adults and different foods have been added onto the menu for the satisfaction of adults. Another competitive strategy is in the incentives that the corporation offers its customers in the form of free trips and tickets to purchase in-house items (Chuck E. Cheese’s, N.d.). This may seem too expensive to corporations that are new to the industry and thus has increased its overall market share.
In addressing these forces in the near future, the company should provide differentiated products in terms of entertainment in order to maintain children’s interests and make it preferred to its competitors in order to offset competitive rivalry. Providing an assortment of activities, services and foods at cheaper prices will ensure that it increases its competitive advantage over its competitors, hence reduce the threat of substitution.
Looking at other threats presented on the company by its external environment, the corporation is facing competition both in the restaurant and entertainment sectors (SEC, 2014). The opening up of other cheaper entertainment facilities could put the corporation out of business. Due to upcoming trends, people prefer to go to cinemas to watch movies rather than stay around noisy children.
An opportunity that the corporation can explore is the introduction of organic foods into their chain restaurants, seeing as many people have embraced healthy eating. This will attract more customers to the restaurant and increase its market share.
The company should be able to take advantage of the fact that it has stores in different areas and introduce more organic foods to cater for their increasing demand as people seek to eat healthy. This will further bring more returns if they purchase fresh organic foods directly from farmers. In dealing with the threats presented, the company should provide a wider scope of entertainment which will help to reduce their loss of customers to other upcoming family entertainment centers.
One strength of the corporation is its ability to provide efficient, high quality services to its customers, seeing as it deals in foods and service provision. The entertainment services provided for its customers ensures that children keep entertained and are able to develop computer gaming skills, which may be applied in real life when creating game applications. It thus provides a learning and meeting experience to its customers, in addition to the provision of entertainment (Chuck E. Cheese’s, N.d.). The corporation is constantly improving the forms of entertainment provided to cover a larger age group and people with different interests such as the inclusion of comical and musical entertainment. This also provides a place where families can meet to relax and create memories (SEC, 2014). Establishing a recognized brand has also ensured that they gain a competitive advantage since the corporation’s restaurant are spread out in the US and in Canada. Provision of incentives such as a package deal that allows its customers to purchase a combination of food and drinks at low prices has increased customer loyalty, thereby ensuring that it remains stable within the industry.
A weakness by the corporation is the inability of its leaders to account for their decisions, making the business to make huge losses than in the years when it had just began. The poor treatment of employees with regards to minimum wages has resulted in reduced employee morale, thereby reducing the quality of services offered in the different restaurants. This is generally a weakness of most corporations within the industry, which expect employees to work for long at low wages. The result of this has been a reduction in revenue earned in comparison to 2016, as shown in the fiscal year’s results for the first quarter, 2017. In the previous years, the corporation has been flooded with debts that it has been unable to pay and the inability to cover their insurance (SEC, 2014). This forced it to merge with other companies in order for it to be able to pay back its debts, thereby losing its independence.
Looking at the strengths provided, the corporation has been able to manage its management practices, thereby ensuring that On the other hand, the company should be able to constantly increase the minimum wage of its employees as a way of increasing their morale, in order to revert customer service to its initial high quality.
The company’s resources include its employees who provide services to customers, food sold and the entertainment made available. Its capabilities is in its business strategy while its leadership forms its core competency. As a way of increasing its value chain, the corporation can increase the wages of its employees as a way of providing a conducive work environment and increasing employee morale. They can also provide a wider range of cheaper food, and introduce healthier options. Its business capabilities can help the corporation to expand further using its merger, and increase its franchises. Proper leadership will ensure that the business does not run into financial hardships it experienced in 2014.
References
Asdullah, M. A., Rehman, Z. and Ahmad, R.N. (2015). Impact of External Factors on Fast Food Business. Journal of Resources Development and Management. Vol. 9. Retrieved from http://www.iiste.org/Journals/index.php/JRDM/article/viewFile/23388/23868
CGMA. (2013). Porter’s Five Forces of Competitive Position Analysis. Retrieved from http://www.cgma.org/resources/tools/essential-tools/porters-five-forces.html
Chuck E. Cheese’s. (N.d.). Chuck E. Cheese. Retrieved from https://www.chuckecheese.com
SEC. (2014). Form 10-K. Retrieved from https://www.sec.gov/Archives/edgar/data/813920/0000813920/cecfy201410-k.htm
SEC. (2017). Form 10-Q. Retrieved from https://www.sec.gov/Archives/edgar/data/813920/00008139201700001/cefy201710-qq1.htm
