Coral Divers and Loblaws Case Answers

Synopsis
Coral Divers Resort (CDR) is a small, but well-regarded, diving resort in New Providence Island in the Bahamas. It is owned by Jonathon Greywell, who work full-time at the resort and is a diving instructor certified by PADI and NAUI. CDR had established a solid reputation as a safe and knowledgeable scuba diving resort that offered not only diving, but also a beachfront location. Many divers had come to prefer CDR over the other crowded resorts in the Caribbean. It had been in operation for 10 years with annual revenues reaching as high as $554,000. However, over the last three years, financial performance had fallen off. Greywell realized that the resort is not well differentiated in the competitive diving resort industry and needed to do something before the situation worsened.

Issue Identification
For the last three years, revenues have declined, bookings were flat for the first half of the year.

Issue Analysis
1. What external factors affect Coral Divers’ competitive position? How do these factors affect Coral Divers’ strategy? There are several external factors that affect CDR’s competitive position: Economic: Scuba diving trips to Bahamas tend to be luxury items and therefore it is more likely people would travel during good economic conditions. This will affect the number of bookings and revenue for CDR because it depends on the state of the economy and the amount of disposable income people have (Magnifico). Environmental: The bleaching impact of climate change on coral reefs brings impact to the scuba diving industry. This is the main attraction and the main reason for the divers to keep coming back to the resort. When the coral reefs lose its beauty, less divers will come to the resort and they will find new locations for scuba diving. Social: Air travel has been a concern since the event of 9/11. The changes in demographics of customer base and market taste may affect the demand of scuba diving activity.

The average age of new divers is increasing to 36 and almost half of the divers are married and many of the 36-year old divers have children. There is also an increase in the number of families travelling together because parents want to spend more time with their children. Extreme sports such as diving are becoming more popular. All of these changes have given opportunities for Greywell to build upon. However, the safety of shark diving has been questioned recently because of some rare fatal accidents that had been prominently exposed through TV news channels and newspapers. As one student mentioned in class, there is a possibility that shark feeding activity will be banned in the Caribbean.

This is a threat to Greywell if he considers adding any new diving attractions to his resort. Competitors: There are many competitors in the Bahamas, especially in New Providence Island. These competitors have low barriers to entry, which means they pose a threat to CDR (Chang, Li, Magnifico). Technology & Labour: Suppliers offer their technology and equipment to anyone with money, this means that Greywell has the opportunity to improve the technology equipment for CDR. The labour pool for workers is also international and adequate. Please refer to Appendix 1 for the SWOT Analysis Table.

2. What are Coral Divers’ resources? How is Coral Divers’ strategy affected by its resources? There are three different types of resources for businesses to make a strategic plan. These resources include physical, human, and financial (PHF). A full list of Coral Divers’ resources can be found in Appendix 2. Coral Divers’ strategy is affected by the resources because a change in strategy will require a change in resources. For example, if Greywell focuses on family outings, many changes would be required such as upgrading the property to accommodate families and make it a more family-friendly resort. If Greywell focuses on adventure diving, changes would also be required such as hiring new instructors for new diving attractions. CDR has two disadvantages. Firstly, they have no competitive advantage. Greywell needs to differentiate his resort from competition, and one such way is to add some specialized features. Secondly, its finances are weak. Revenues had declined, Greywell needed to do something to increase business before the situation worsened. Therefore, Greywell is in a generally good position in terms of his resources. The challenge for Greywell is to effectively and efficiently implement these resources to create a resort that is profitable and different from competitors.

Recommendations/Solutions
3. What strategy would you recommend to Greywell?
Note: All numbers and calculations used below can be found in Appendix 3. Our recommendation would be for Greywell to focus on family diving. This is because 45% of divers now prefer to travel with their families. With the median age of divers (36 years old) steadily increasing, the resort could focus solely on a niche market that could bring higher revenues by attracting a premium category of vacationers and charging a higher premium price. To encourage a whole family diving experience, young adults below the ages of 18, and even below 13, will be encouraged to sign up for low-risk diving classes – as part of the whole family package – and they will be watched under the careful guidance of the resort’s qualified diving instructors in swimming pools and shallower diving spots.

While the Family Resort only has a 43% return on investment (very low compared to the other two options as seen in Appendix 3), it has a much viable future for Greywell due to its stability. In accordance with family diving, we would propose incorporating an efficiency strategy as well, as it would add an additional $12,000 to overall revenue — all at zero costs. In upgrading the resorts and its facilities, Greywell could focus on retaining its client base as well as attracting new customer segments who are attracted to modern resorts — together, this integrative approach to strategy could reverse the resort’s declining revenues.

Implementation/Action
If Greywell were to go ahead with the family resort option, he would need to focus his efforts on his finance, marketing, personnel, and infrastructure. Firstly, Greywell will need to improve his current financial condition to be able to go ahead with his strategy, as it requires a lot of initial capital. This is where the 10% efficiency strategy comes in. This will free up some cash flow for CDR to begin working with. In addition, Greywell will also need to speak to his banker about obtaining additional funds through refinancing his mortgage. Secondly, CDR’s main weakness was that it was not able to differentiate itself from the crowd. Effective and aggressive marketing could greatly aid CDR in this aspect. With the help of Rascal’s, he can create a new image of his resort through new brochures and its packaged pricing options, geared more towards creating a positive family experience. Also, because CDR’s pricing is lower than Rascal’s, it could charge first time customers the pricing equivalent to Rascal’s, and long time customers a cheaper pricing as a reward for their loyalty.

Thirdly, personnel will need to be changed to meet the new demands of the family resort. Staff will need to be trained to handle children. Rascals can help out with the escorts for the guests while Greywell can hire babysitters and either charge the parents by the hour, or include the cost of babysitting in the family package. Lastly, CDR’s infrastructure needs to be changed to accommodate the growing number of customers it will be expecting. While Greywell has a number of renovated villas, it needs to focus on the ones that require some work. CDR has financial weaknesses, so it would be in Greywell’s interest to gradually renovate its villas to spread out costs each month. The main additions to the facility include upgraded villas, a kids play room, and possibly a restaurant/bar for families to enjoy. By implementing these four improvements, CDR should be profitable for many years to come.

Appendices
Appendix 1
SWOT Analysis Table

Strengths
Weaknesses
Opportunities
Threats
Safe and knowledgeable scuba diving resort
No specialized features
Families – rapidly growing market segment
Difficulties surrounding air travel
Offers diving and a beachfront location
Decline in revenues
Shark diving popularity
Bleaching impact of climate change on coral reefs
Coral Divers Resort preferred by divers to other resorts

Technology and equipment easy to get
Safety of shark diving

Possibility of shark feeding to be banned in Caribbean

Low barriers to entry

Appendix 2
Coral Divers’ Resources
Tangible Resources
Diving equipment and facilities
Villas and rooms
Three boats
Three-acre property with beachfront location
Financial condition
Intangible Resources
Up-to-date technology
Loyal customer base
Safe and knowledgeable resort
Human Resources
Greywell’s experience and knowledge
Eleven knowledgeable staff

Appendix 3: Calculations for Options 1, 2, 3
10% increase through efficiency:
This strategy has no costs and can yield $12,100 of profit.
Calculations:
550,000 annual rev x 2% margin = $11,000 net profits. 11,000 x 10% efficiency improvement = $1,100 . Total
$12,100 increase in net profits. Adventure Diving:

Requires about $20,000 of capital to get started.
Calculations:
8 divers x $100/diver = $800/trip.
$800 x 2 dives/week = $1,600/week
1,600 x 52 weeks = $83,200 annual revenue.
Family Resort:
Requires around 110,000 to complete renovations and such.
Calculations:
Let x = total seasonal revenue
Occupancy during high season = 0.90x
Occupancy during low season = 0.50x
Additional revenue to be realized if occupancy rate during low season rose to 90% (as said by Rascals): First, find the value of X:
0.09x + 0.50 x = $550,00 current annual revenue
1.40x = 550,000
x = 392,800 If the low season rose to 90% (from previous 50%)
Unfulfilled potential:
0.40x = $157,120
Potential Annual Revenue:
550,000 current annual revenue + 157,120 potential annual revenue = $707,120 potential total revenue.

Return on investment for first year:
ROI = (Gains – Cost) / Cost
Efficiency strategy: (12,100 – 0) / 0 = % 12,000
Adventure Diving: (83,200 – 20,000) / 20,000 = % 316
Family Resort: (157,120 – 110,000) / 110,000 =% 43

Loblaws Case:

1. Do you expect Wal-Mart to introduce its Supercenters into Canada? Why or Why Not?

Yes: Walmart will introduce its supercentres into Canada because of the pressures for growth due to pressures in the stock market. Walmart has already significantly planned its expansion into the stock market. It has an expected doubling of international operations from 2002-2005. Lastly, it would be easiest for Wal-Mart to expand into Canada because of the close proximity it has to the US, and it already has prior experience and assets in the Canadian market.

Porter’s Five Forces:

Bargaining power of suppliers – Low/Medium:
Wal-Mart already has a dominance over non-food related items. Wal-Mart will need to build leverage and power with food suppliers as it’s supercentres plan to be selling food as well. Threat of Entry – Medium: The service industry has many barriers, but most of them being capital related, not legislative. Wal-Mart will have no problem entering this industry due to its large capital resources. Barriers to entry – customer loyalty, capital, advertising. Substitutes – Medium: Supercentres can compete with restaurants and fast food outlets as there will be more locations for people to buy food. The supercentre will also need to compete with other discount stores and warehouses that offer items at discounted prices. Competitive Rivalry – High: Loblaws and other retail/food outlets will be large competitors for Wal-Mart when it decides to expand to its supercentres, as these grocery stores already have an established customer base. Bargaining power of Customers – High: Customers have a wide base to choose where to shop.

2. Should Loblaw be afraid of Wal-Mart?
Yes, as Wal-mart is quite an established company in the US and many Canadians are familiar with the company. Loblaw’s has established many entry barriers for Wal-Mart, such as Loblaw’s ownership of many promising locations (leading Wal-Mart to build in less than promising locations) and its loyalty program that it offers to its customers (which acts as a switching cost). However, Wal-Mart’s ROI on assets, and shareholder equity is higher than Loblaws. Wal-Mart owns a huge amount of stores in the US, and their stores are larger than Loblaw’s, meaning they’ll be offer more of a selection and have space to do so. Loblaw will need to keep a close watch on Wal-Mart.

Performance Comparison
Wal-Mart
(U.S. $)
Loblaw
(Cdn. $)
Retail Sq footage (millions)
Average store size (sq. feet)
# of Employees
Return on Sales
Return on Assets (%)
Return on Shareholder’s Equity (%)
Sales per employee
516
116,795
1,383,000
3.1
8
19
157,484
40.4
48,900
122,300
3.2
6.5
17.6
188,733

3. What should Loblaw do to prepare for the entry of Wal-Mart? Design an action plan to counter this competitive threat.

Loblaw should work on strengthening entry barriers against Wal-Mart and work on getting rid of any competitive advantages Wal-Mart may have.

Strengthening Entry Barriers:
Loblaw’s operates on a discount format for it’s stores, leaving Wal-Mart with little room to change it’s format in Canada without risking losing customers. Loblaw’s already has a strong presence in western Canada. Thus it should focus on working towards it’s superstore concepts in Ontario, where Wal-Mart is most like to enter due to Loblaw low presence there.

Loblaw’s also owns many private label brands, most noted, President’s choice, which can be used to differentiate itself from Wal-Mart and gain a competitive advantage. Loblaw should continues to work on it’s control label program and create more products under it’s private labels to work on its strength. Loblaw’s also uses PC Rewards program, which forces customers to use PC financial services. These services tied into mortgages and offered loyalty programs for those who shopped at Loblaw. Offering financial incentives makes it hard for customers to switch banks.

Competitive Advantage:
Loblaw can work on reducing Wal-Mart’s competitive advantage by making it’s store larger (similar to Wal-Mart) and to work on price reductions. Loblaw can attract customers by weekly flyers with specific items targeted items, whereas Wal-Mart’s strategy is more general (everyday low pricing). Loblaw’s can also start expanding it’s store size to rival Wal-Marts, as it has already started to create larger stores such as its Real Canadian Superstores.