SWOT Analysis / TOWS Matrix for Arcos Dorados (United States)
Based on various researches at Oak Spring University , Arcos Dorados is operating in a macro-environment that has been destablized by – increasing transportation and logistics costs, technology disruption, supply chains are disrupted by pandemic , banking and financial system is disrupted by Bitcoin and other crypto currencies, digital marketing is dominated by two big players Facebook and Google, there is backlash against globalization, cloud computing is disrupting traditional business models,
geopolitical disruptions, increasing commodity prices, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that Arcos Dorados can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Arcos Dorados, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Arcos Dorados operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Arcos Dorados can be done for the following purposes –
1. Strategic planning of Arcos Dorados
2. Improving business portfolio management of Arcos Dorados
3. Assessing feasibility of the new initiative in United States
4. Making a Restaurants sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of Arcos Dorados
Strengths of Arcos Dorados | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Arcos Dorados are -
Training and development
– Arcos Dorados has one of the best training and development program in Services industry. The effectiveness of the training programs can be measured in – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Superior customer experience
– The customer experience strategy of Arcos Dorados in Restaurants industry is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Digital Transformation in Restaurants industry
- digital transformation varies from industry to industry. For Arcos Dorados digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Arcos Dorados has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Learning organization
- Arcos Dorados is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Arcos Dorados is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at Arcos Dorados emphasize – knowledge, initiative, and innovation.
Strong track record of project management in the Restaurants industry
– Arcos Dorados is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Organizational Resilience of Arcos Dorados
– The covid-19 pandemic has put organizational resilience at the centre of everthing Arcos Dorados does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Ability to lead change in Restaurants
– Arcos Dorados is one of the leading players in the Restaurants industry in United States. Over the years it has not only transformed the business landscape in the Restaurants industry in United States but also across the existing markets. The ability to lead change has enabled Arcos Dorados in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Effective Research and Development (R&D)
– Arcos Dorados has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – Arcos Dorados staying ahead in the Restaurants industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Analytics focus
– Arcos Dorados is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the Restaurants industry. The technology infrastructure of United States is also helping it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Cross disciplinary teams
– Horizontal connected teams at the Arcos Dorados are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Sustainable margins compare to other players in Restaurants industry
– Arcos Dorados has clearly differentiated products in the market place. This has enabled Arcos Dorados to fetch slight price premium compare to the competitors in the Restaurants industry. The sustainable margins have also helped Arcos Dorados to invest into research and development (R&D) and innovation.
Ability to recruit top talent
– Arcos Dorados is one of the leading players in the Restaurants industry in United States. It is in a position to attract the best talent available in United States. The firm has a robust talent identification program that helps in identifying the brightest.
Weaknesses of Arcos Dorados | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Arcos Dorados are -
Capital Spending Reduction
– Even during the low interest decade, Arcos Dorados has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the Restaurants industry using digital technology.
Compensation and incentives
– The revenue per employee of Arcos Dorados is just above the Restaurants industry average. It needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Skills based hiring in Restaurants industry
– The stress on hiring functional specialists at Arcos Dorados has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Lack of clear differentiation of Arcos Dorados products
– To increase the profitability and margins on the products, Arcos Dorados needs to provide more differentiated products than what it is currently offering in the marketplace.
Ability to respond to the competition
– As the decision making is very deliberative at Arcos Dorados, in the dynamic environment of Restaurants industry it has struggled to respond to the nimble upstart competition. Arcos Dorados has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
High dependence on Arcos Dorados ‘s star products
– The top 2 products and services of Arcos Dorados still accounts for major business revenue. This dependence on star products in Restaurants industry has resulted into insufficient focus on developing new products, even though Arcos Dorados has relatively successful track record of launching new products.
High cash cycle compare to competitors
Arcos Dorados has a high cash cycle compare to other players in the Restaurants industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Need for greater diversity
– Arcos Dorados has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
High operating costs
– Compare to the competitors, Arcos Dorados has high operating costs in the Restaurants industry. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Arcos Dorados lucrative customers.
Interest costs
– Compare to the competition, Arcos Dorados has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Employees’ less understanding of Arcos Dorados strategy
– From the outside it seems that the employees of Arcos Dorados don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Arcos Dorados Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of Arcos Dorados are -
Learning at scale
– Online learning technologies has now opened space for Arcos Dorados to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Arcos Dorados in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Restaurants industry, and it will provide faster access to the consumers.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Arcos Dorados can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Use of Bitcoin and other crypto currencies for transactions in Restaurants industry
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Arcos Dorados in the Restaurants industry. Now Arcos Dorados can target international markets with far fewer capital restrictions requirements than the existing system.
Loyalty marketing
– Arcos Dorados has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Arcos Dorados can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Low interest rates
– Even though inflation is raising its head in most developed economies, Arcos Dorados can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Arcos Dorados can use these opportunities to build new business models that can help the communities that Arcos Dorados operates in. Secondly it can use opportunities from government spending in Restaurants sector.
Creating value in data economy
– The success of analytics program of Arcos Dorados has opened avenues for new revenue streams for the organization in Restaurants industry. This can help Arcos Dorados to build a more holistic ecosystem for Arcos Dorados products in the Restaurants industry by providing – data insight services, data privacy related products, data based consulting services, etc.
Leveraging digital technologies
– Arcos Dorados can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Arcos Dorados to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Arcos Dorados is facing challenges because of the dominance of functional experts in the organization. Arcos Dorados can utilize new technology in the field of Restaurants industry to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Changes in consumer behavior post Covid-19
– consumer behavior has changed in the Restaurants industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Arcos Dorados can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Arcos Dorados can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Threats Arcos Dorados External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of Arcos Dorados are -
High dependence on third party suppliers
– Arcos Dorados high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Stagnating economy with rate increase
– Arcos Dorados can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the Restaurants industry.
Increasing wage structure of Arcos Dorados
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Arcos Dorados.
Shortening product life cycle
– it is one of the major threat that Arcos Dorados is facing in Restaurants sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Regulatory challenges
– Arcos Dorados needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Restaurants industry regulations.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Arcos Dorados will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry to Restaurants industry are lowering. It can presents Arcos Dorados with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the Restaurants sector.
Environmental challenges
– Arcos Dorados needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Arcos Dorados can take advantage of this fund but it will also bring new competitors in the Restaurants industry.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Arcos Dorados in the Restaurants sector and impact the bottomline of the organization.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Arcos Dorados can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate Arcos Dorados prominent markets.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Arcos Dorados in Restaurants industry. The Restaurants industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Arcos Dorados.
Weighted SWOT Analysis of Arcos Dorados Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at Arcos Dorados needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of Arcos Dorados is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of Arcos Dorados is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Arcos Dorados to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Arcos Dorados needs to make to build a sustainable competitive advantage.