Gatmaitan, Ma. Lenar Fel R.

MG11a 3:00- 4:30

Title of the Case: Time Context:

Kem Chicks 1985

Summary of the Case/ Abstract: The Kem Chicks Group of Companies, founded by Mr. Bob Sadino in 1970. The Group also includes the core business Kem Chicks Supermarket, as well as Kem Foods, Kem Farms. Bob Sadino, owner of Kem Group of business started with a small business that sells eggs and raises chickens in 1970. This thought of having that kind of business was triggered when he realized that being a worker in a company is just a slow way of having a good life. So for him to meet the ends he wanted, he started to have his own business inspired by a book on poultry raising given by Srimulyono Herlambang, a neighbor of him. With his wife, Sulami, he was able to make the business in a growing state enabling it to expand in much bigger arena of industry. In fact, between 1971 and 1984, a significant increased in sales was achieved by the company enabling Kem to hire competent workers and administrative directors. The attitude of Bob Sadino is a major factor in the continuous success of the business during those years. He was able to make his employees his friends and he was able to establish a good rapport on them enabling the workers to become efficient and effective on their work and in 1975, the company was named Kem Chicks. Because of the continuing success of the business it has grown to a bigger one and facilitated to expand into other line of products in 1985. The organizational structure was then expanded because they legalized the papers as a corporation. Positions in the organization were occupied by competent individuals like Indah Chaidir, Faisal Amir, Henny Karyadi and company, all of them finished in outstanding schools with very good accomplishments. Being a corporation now, the company was able to sell its shares to those people who possessed same kind of attitude of Bob Sadino. The shareholders were come from the old-timers or experienced one coming also within the company prior its incorporation. Bob Sadino granted these shareholders to have whatever percentage they want to have since they can pay for it. On the present, the parent company is now called the Kem group, where subsidiaries are focused on various food industries like in supermarkets, poultry and others. But Bob Sadino and company have this intuition in the future that relates to the growing market competition. The management of the Kem group, specifically the subsidiary Kem Chicks, wished to achieve certain objectives for them to become the yardstick of the economies existing supermarket in terms of meat and other food selling items since Kem Chicks was the starter of the local meat industry in the country. The alternative for this is to choose on the three types of franchise activity.

Gatmaitan, Ma. Lenar Fel R. MG11a 3:00- 4:30

I. Statement of the Objective To maintain and develop a competitive position in the growing industry. To formulate a strategy in order to gain economies scale for existing supermarkets.

II. Central Problem How will Kem Chicks expand its supermarket by its own investment while sustaining its growing operations and without putting the quality of their products into a risk?

III. Areas of Consideration Strengths

Valuable Human Assets Good personnel management Caters the needs of immediate community. First quality meat The organization is leading Harmonious relationship between employer and employees. Flexibility BOB SANDINO DOESNT HAVE ANY PROGRAMS, BECAUSE HE IS FLEXIBLE.

Weaknesses Lack of marketing strategies Unwillingness of Bob Sadino to know the important details of the financial information of the company Weak long-term strategic planning. Difficulty with over-the-counter communication Lack of internal control.

Gatmaitan, Ma. Lenar Fel R. MG11a 3:00- 4:30 No particular designation of job.

Opportunities Acquisition of rival firms Diversification of the business. Expansion of the business. Customers word of mouth. Threats Declining price of oil Which has substantial effect on the economy that may lead to s decline in Gross Domestic Product (GDP). Change in customers preferences. Increasing in Bargaining Positions of the consumers, thus, resulting in the increased risks in capital expansion. Investment risk is at high level. Increasing Competition Rising interest rates. Natural calamities. Government regulations, rules and policies

IV. Alternative Courses of Action Given the facts examined, the alternative course of action will then focused on the types of franchising alternatives since it is stated that franchising has been thoroughly studied by group of individuals for Kem Chicks existing problem. 1. Product Distribution Is the simplest form of franchising contractual arrangement in which Kem Chicks as the franchisor offers the franchisee the right to market Kem Chicks products in an essentially unchanged state within a designated market area. In return the franchisee would pay a fee to Kem Chicks. Advantages:

Gatmaitan, Ma. Lenar Fel R. MG11a 3:00- 4:30 Increase in sales volume of parent company.

Disadvantages: Will not cater development of Kem Chicks internal management thus it does not support the supermarket as a whole.

2. Enter into a franchising agreement called Entire Business Format franchising. Under this arrangement, the franchisee would be an imitation of what the franchisor is. The franchisee would be offered the right to manufacture, to sell the product, to use franchisors name of trademark and other symbols, management system, architecture, design, and would be provided with super vision, a reporting system and management consultation. Kem Chicks would require certain initial fees, continuous fee based on sales (royalty), a management fee, training and consultation fee, and a fee for design and reporting system. Advantages: Kem Chicks will have full control of the business. Security in the protection of the rights and property of the company.

Disadvantages: 3. Mistake of one franchisee will bear to the image of the company

Product licensing arrangement Under this term, the franchisee would be offered almost the whole operation of the franchisor. The franchisee would have the right to manufacture or modify Kem Chicks in a certain area of distribution. To maintain its standard product and service quality, Kem Chicks would exert tight control over the manufacturing and selling process and set

Gatmaitan, Ma. Lenar Fel R. MG11a 3:00- 4:30 and control specification. In return, the franchisee would pay a royalty and other fees. Advantages: Improve its quality control policies. Right to manufacture or modify Kem Chicks in a certain area of distribution

Disadvantages: No assurance of success. Will pre-empt all important position in the organization V. Strategy Formulation Considering that the industry is reaching toward the peak of its growth phase, Kem Chicks faces tough competition with a limited choice of land and location. Also, an increasing bargaining position on the part of the shoppers, each element of the key success factors should therefore not be neglected. Since the profitability of the investment in a new outlet is highly dependent on the level of sales and cost, each of the success of this investment. Therefore, I have concluded that the best solution to the problem is alternative course of action number 1 which is to enter into a franchising type called entire business format franchising because of the following reasons: Franchisee operates exactly the same as franchisor because the entire franchise was provided by Kem Chicks. Kem Chicks will generate different types of income such as management fee, training fee, reporting system fee and other from the franchisee. Privacy of their field of expertise or specialty will be maintained by Kem Chicks on their own because under this type of franchise, Kem Chicks is the sole provider of all information and needs of the franchisee upon proper payment.

VI. Plan of Action In order to materialize the said recommendation and just like the real process in the world of franchise, Kem Chicks should:
1. The franchise relationship is founded upon a contract, which should contain

all the terms agreed upon.

Gatmaitan, Ma. Lenar Fel R. MG11a 3:00- 4:30

2. The Kem Chicks must develop first a successful business format (the system),

which is identified with a brand name, be it a trademark, service mark and/or trade name.
3. Kem Chicks must initiate and set a period wherein they will train the

franchisee in the operation of the system prior to the opening of the business so that the franchisee is equipped to run the business effectively and successfully. Kem Chicks must also assist with the opening.
4. After the business has opened, the franchisor must maintain a continuing

business relationship with the franchisee to provide the franchisee with support in the operation of the business.
5. The franchisee is permitted, under the control of the franchisor, to operate

under the branding and the business systems developed and owned by the franchisor and to benefit from the goodwill associated therewith.
6. The franchisee must make a significant capital investment from own

resources.

VII. Potential Problems 1. What if there will be a threat of younger employees for which they manipulate all the transaction of the company prior to the implementation of the action? 2. What if the action undertaken is not effective for the said company? 3. What if upon the implementation of the action, there is a significant applications of franchise for which the company lacks inventories from such franchises?

VIII. Contingency Plan 1. If younger employees manipulated all of the transaction for their selfinterest prior to the course of action, have an emergency audit or employ a competent independent auditor that will investigate all of the anomalies and to cure immediately the frauds. 2. If the course of action does not work at all, the company can jump into other alternative courses of actions taking into account their respective advantages and disadvantages.

Gatmaitan, Ma. Lenar Fel R. MG11a 3:00- 4:30 3. If inventories do not cater all the franchisees, the company can first focused on the training side of the action while waiting for additional inventories needed in setting up franchisees branches.