Pricing, Strategy & Managerial Accounting Practices In Food & Beverage Business
Date Issued
2008
Date
2008
Author(s)
Chang, Suo-Pung
Abstract
Even though the Food & Beverage (F&B) business in Taiwan is perceived as a challenging industry, there are still some companies who want to enter this field because the barriers to enter are very low, or even none existent. For this reason, most F&B companies in Taiwan exist in a market very close to perfect competition. Those new entrants who fight for survival in this cruel market have no idea when to forgo and how to exit. As a result, profit in this competitive market becomes zero in the long run. “Zero profit” signifies not that entrants are performing poorly, but rather the industry is highly competitive. People don’t understand why some F&B companies are highly profitable and some are not? Why are some 5-star hotels always crowded? Why can’t low prices attract consumers? The answer to those questions is that it depends on the market in which the F&B companies exist. In a highly competitive market, long-term profitability is very challenging. If a company possesses monopoly power due to a unique food product, and if the monopoly power is considerable, the company will be profitable. If a company exists in an oligopoly market, such as the 5-star restaurant that requires vast investment (high barrier to entry), few companies will share most of the profit. Given the three scenarios listed above, can we conclude that companies can be profitable only if they have monopoly or oligopoly power? The answer is negative. Even if F&B companies possess market advantages, the substitution effect of food products will counteract that advantage. Since the market is extremely competitive, F&B companies are forced to learn new management knowledge. For example, how to cut costs, how to establish differentiation advantages, how to maintain customer relationships. The purpose of those efforts is to enhance competitive advantage. Of these management knowledge, establish cost and differentiation advantages are the most important. In my point of view, the first class F&B companies should learn is Managerial Accounting, especially the concepts of cost-volume-profit analysis, activity-based costing system, and activity-based management. The study of these fields will lead into the most important issue – cost efficiency. Cost efficiency coupled with modern management skills could be the basis for a series of company-wide reforms that would eventually create a new competitive strategy. I sincerely hope this study will be the first step for F&B businesses to learn modern systematic management knowledge.
Subjects
Perfect competition market
Oligopoly market
Monopoly market
Cost-volume-profit analysis
Activity-based costing system
Activity-based management
Substitution effect
Cost advantage
Differentiation advantage
customer relations management
Type
thesis
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