Monday, March 10, 2008

Chicken curry noodle

When I go the the hawker centre to eat, I never fail to notice that when a 'hot' stall is there, there are similar stalls selling the same thing near it. One particular stall is selling this chicken curry noodle.

There are 2 stalls selling this item, each of them claiming they are the original one. Both have the food shows 'mark of approval' upon them, signifying that perhaps under a certain programme shown on TV, the host had rated their stall among the better food stalls. One of them even have photographs of famous celebrities pasted on the wall.

This is how a healthy capitalistic system will work. Good money will chase good business. Let's say that Stall A which is selling chicken curry noodle is have a roaring business. Initially their customers will queue up and want to buy their food. Their returns will be very high since they are the only ones selling this particular item that everyone seems to want to eat at the same time. Their customers growth rate will also increase over time. And food is subjected to fashionable whims in Singapore (think bubble tea, donut, chicken floss bread). People won't mind queuing longer and paying a bit more to get it since Stall A is about the only store to sell it.

Here's where things get interesting. Competitors seeing that Stall A selling chicken curry noodle is doing such a good business, want to jump into the business too to cash in on the current craze. Stores starting copying this original store, all the way down to the most minute detail (I'm talking about where the cook stands, how the chicken are arranged, the font of the store, name of the store etc). Customers who didn't follow the chicken curry noodle story and wanted to try it out will get confused. All the stores sound similar, sell almost the same thing (until you eat them - but some people can't tell the difference either) and what's more...their price can be cheaper too. Now, why would anyone who wants to eat this want to queue a longer line at the original stall A? It's even hard to tell who is the original stall at this point in time.

Stall A start losing business to its competitors. Why?

1. Zero or narrow economic moat. To me, all the chicken curry noodle looks the same. If I come up with a duck curry noodle, I'm sure others will copy my innovation and I'll lose the edge over others in due time. Fickle customers have no brand loyalty in this business.

2. If all looks the same, customers will choose the one with the best perceived value. Perhaps Stall A presentation of the food is better, perhaps stall B has a shorter queue, perhaps stall C give more meat. I'm sure all the prices will be the same in equilibrium, since competition will force them to cut price if a particular stall sells at a dearer price.

3. There is no value added besides the food. There is little/no service involved, since this is a hawker setting. The taste of the food and the price is what counts. In a full fledged restaurant with waiting staff, perhaps other factors like ambience, decoration, accesibility etc counts. But not here. If you lose out in taste, the price better be cheap. If the taste is good, the price can be higher, but not much higher since there are so many substitute products within the same vicinity. Customers can always choose to eat others. I can eat laksa too if there are too many queuing for curry chicken noodle, or if the price is too steep.

So what can stall A do to maintain a certain moat to prevent competitors from eroding its profit? I came up with a few crazy ideas :)

1. Be such a good cost cutter that stall A can sell the chicken curry noodle at super cheap prices; prices that other competitors are unable to match. Source out the cheapest raw materials supplier, buy in bulk, open multiple stalls to have economies of scale. Try to cut cost so that the price charged can be cheaper. Though profit margin is reduced, revenue can still be high due to high volume turnover.

Feasibility: Next to impossible in a hawker stall setting.

2. Come up with innovative customer retaining schemes e.g. a card with 10 blanks for customers to fill up when they order a bowl of noodles, upon filling to 5 and 10, they can get an extra bowl free of charge. How about making the taste so addictive that customers are unable to find another substitute even among competitors? Secret recipes for their curry gravy perhaps? Special techniques to make the chicken more tender and juicier?

Feasibility: Highly likely, esp the part about making it so delicious that customers 'have' to come back for more to satisfy their craving.

3. Advertise aggressively to create perceived value in their products. A good example is Tian Tian steamboat. Having seen the advertisement countless times every few minutes in tv mobile in the past, the steamboat eatery had acquired the brand consciousness. But advertising must be consistent and repetitive, and can represent a certain cost to a single stall owner selling chicken curry noodle.

Feasibility: Possible but unlikely for Stall A.

4. Hire hot babes to serve. Ever been to hooters? Well, I've never but I've heard about it and seen them in action. Beer promoters work on this principle too. Pretty daughters might work too (yes, I've seen it before).

Feasibility: Interestingly possible. But have to see if this added cost will bring about any real improvements in business. It certainly won't affect me.

I'm sure there are more. I'll love to hear more from people who have something creative to contribute :)

Morale of the story: Next time you buy into a business, think about the competitive advantage that the business have over others. Discover the economic moat of the business, if there are any. This will uncover the long term survivability of the business.