Jamba Juice Case Study Essay Example

the other hand, as baby boomers are reaching retirement age and become more focused on prolonging their life, concerns such as cholesterol and diabetes become far more important and serve as an opportunity for the juice bar industry to benefit from. Within a socio-cultural perspective, juice bars are right on the money. Trends toward healthier options in the U. S. are evident with an increased concern for physical fitness, employers encouraging healthy lifestyles (to lower health insurance costs) and parent’s supplication of school boards to give kids healthy options in the lunchroom.

Finally, as the smoothie market becomes more and more saturated in the United States, the opportunities to expand globally are nearly infinite. The Competitive Environment and Porter’s Five Forces The Threat of New Entrants The threat of new entrants in the smoothie business are fairly low, meaning that Jamba may see new competitors in the market at any given time. This fact can erode the company’s competitive advantage unless Jamba takes measures to ensure its differentiation from other juice bars and smoothie cafes. Smoothies are not mass-produced and therefore cannot achieve economies of scale.

The small scale of the industry means that starting up a new smoothie shop will not include large outlays of cash for capital investments. Product differentiation is subtle at Jamba Juice stores. Their core competency is all inclusive of several factors; a healthy product with portability served in a fun atmosphere. This may offer a subtle differentiator, but is relatively insignificant in deterring new entrants. These threats are compounded by the fact that the smoothie product line can and has been added to many established fast food

companies with a renewed appreciation for the health conscious consumer.

Other factors contributing the high threat of new entrants include; relatively low capital requirement, zero switching costs, immediate access to distribution channels, and the availability of the raw materials to any buyer. The Bargaining Power of Buyers According to the Jamba’s income statement, revenues are derived from two avenues; company stores and franchising. Thus, buyers include business franchise owners as well as end users consuming the products. In analyzing the bargaining power of buyers, it is important to look at both categories under a separate scope.

End users are those individuals walking in the company stores, ordering a smoothie and a cookie, paying the cashier and then telling her friend how wonderful the ambiance is. This buyer segment does not purchase large amounts of product at one time and likely chooses Jamba because of the quality of the ingredients. With no switching costs and a growing industry offering many options, patrons of smoothie cafes can freely purchase their delightful cool beverage anywhere.

According to the U. S. Census Bureau the number of stores within the “snack and nonalcoholic beverage bars” industry grew from 36,036 in 2002 to 49,463 in 2007 [ (U. S. Census Bureau) ]. This trend means that Jamba Juice will have to increase customer loyalty to battle the increased competition. The second type of buyer is the franchisee, which pays Jamba Juice for the right to use its trademarks and proprietary business information (recipes, processes, menus, and other resources). As noted in the case, Jamba engaged in a growth strategy in 2007 that involved acquisition of a majority of the

franchised locations.

This approach reduced the franchisee’s buying power and allowed Jamba to have the upper hand. With the downturn of the economy forthcoming, franchise demands would likely deteriorate. In spite of the growth opportunities offered by franchises, Jamba maintained control over the bargaining power over its buyers by curbing its availability of licenses and increasing requirements. Some potential disadvantages of Jamba’s reluctance to license include; increased growth of the competition, increased consumer awareness of the competition, and increased market share of the competition.

For example, Jamba Juice requires its franchisee’s to have a minimum net worth of $1,000,000 in order to become a Jamba franchisee [ (Jamba Juice) ]. On the other hand, Smoothie King offers franchising opportunities to those with a minimum net worth of just $75,000 [ (Smoothie King) ]. Smoothie King only owns one of its 615 stores [ (Entrepreneur) ]. While Jamba Juice now owns only 42% of their 746 locations in the United States, this wasn’t the case back in August of 2008 [ (Jamba, inc. ) ]. In their quarterly SEC filings, Jamba noted that as of July 15, 2008 they owned 518 of their 736 locations [ (Jamba, inc) ].

Profitability has increased since December of 2008. The profit margin as of the December 30, 2008 income statement was -$0. 46, and has increased to -$0. 06 at the end of the fiscal year of 2010 [ (Jamba, Inc. ) ]. The trend toward higher profitability will increase franchisee’s desire to buy a license and further increases the bargaining power of Jamba with its franchise buyers. The Bargaining Power of Suppliers In an effort

to deliver high quality, fresh, and healthy products to its customers, Jamba Juice is heavily dependent on suppliers for fresh fruits and vegetables.

Jamba’s suppliers have an increased amount of bargaining power because of Jamba’s Grade-A standard expectations. In spite of the fact that fruit is a standard product, the higher quality required by Jamba differentiates it from the norm and gives suppliers an edge because they are such an integral part of Jamba’s continued operations. Switching costs remain minimal because there is little obligation to current suppliers and forward integration is unlikely however, Jamba could still find itself in a predicament with regard to suppliers. Jamba relies on the suppliers to maintain a sufficient inventory of flash frozen fruit.

Because the suppliers are storing the inventory, Jamba may be compromising its defense against spikes in supply costs that can occur when crops have been impacted by a natural disaster. For example, if a tsunami wiped out the strawberry fields in California, two scenarios might occur. 1) Jamba’s current suppliers in California may be forced to ration their flash frozen products to satisfy all of their buyers (and not just Jamba). 2) Alternate suppliers of strawberries (in Florida, for example) would increase their prices of the fruits as the demand has increased.

Thus, both scenarios result in a price increase for Jamba Juice leading to lower profits. As the company continues to expand into new markets, they will need to consider a broad array of fruit suppliers from all parts of the country. This will serve as a buffer when agricultural conditions in some geographic areas are negatively impacted. And because of

the greater number of supply distribution facilities inbound logistics costs will likely decline. Jamba Juice could further protect itself against the threat of rising costs for raw materials by engaging in backward integration.

Since the success of the company relies on the quality, freshness, and availability of the fruits, it would seem appropriate for Jamba to make some capital investments into the groves, farms, and fields that grow the necessary inputs. In factoring in the financials for 2008, suppliers would find it comforting to know that Jamba’s current ratio is 1. 53 and has been on a steady incline since 2006. Unfortunately, as of 2010, Jamba’s current ratio has fallen below the desired norm with a . 81 and working capital of -$10,495. This means that Jamba may find it difficult to meet its current obligations with its current assets.

While this is not the end-all-be-all for Jamba, it can be an indication of operational inefficiencies. This may also lead to a greater bargaining power for suppliers because some suppliers will not extend credit if current ratios are lower than 1. 0 and other suppliers may require a high rate of interest. On the bright side, the industry’s current ratio for 2010 is even lower than Jamba’s. With the industry coming in at . 6, Jamba is still able to meet its obligations better than others within the trade [ (Microsoft) ].

The Threat of Substitute Products and Services Insofar as Jamba is making an effort to increase traffic by expanding their menu far beyond beverages and snacks, they have in effect initiated an intrusion on both the convenient store and fast food

markets. Thus, it stands to reason that if Jamba adds wraps, salads, sandwiches and soups to their menu then it wouldn’t be long before fast food restaurants, college cafeterias, and convenient stores began adding smoothies to their menu boards, as well. In essence, Jamba has expanded its menu and its competition simultaneously. When McDonalds launched its smoothie campaign in June of 2010, they earned 20. % of the market share in just two months.

And they did it with an advertising budget (specific to the smoothie product line) of $40 million [ (Brandau) ]. The increased consumer awareness bodes well for McDonald’s who can now satisfy the health-conscious parents and still make the kids smile with a Happy Meal. The threat of substitution remains high because nobody can predict what the consumer’s desires will be from one day to the next. Overcoming this threat will rely heavily on creating customer loyalty, offering convenient locations, and fostering innovative new products that meet the standards of the health conscious consumer.

The Intensity of Rivalry among Competitors in an Industry The intensity of rivalry among competitors in the food service industry is high as noted above, the broader the menu at Jamba has led to a greater number of competitors. They have many competitors including the likes of Smoothie King, Dairy Queen, Dunkin Donuts, McDonalds, Starbucks, and local delicatessens. The market is becoming saturated with options, making it difficult to gain and sustain a competitive advantage. Even with a massive attempt to differentiate themselves Jamba may still be lost in the crowd.