CASE ANALYSIS: A FRIENDLY TAKEOVER

Pedro and Maria were classmates and friends in High School and College. Now in their thirties, they have established their own respective businesses.

Maria owns two companies: a cake and bakeshop, and a small restaurant/bar business. Both businesses, situated near Picnic Grove in Tagaytay, have been profitable and a success in the last five years.

Pedro on the other hand, owns five laundry shops and three water refilling stations. In addition, he also owns a small gasoline station. Similar to Marias ventures, the businesses of Pedro are profitable. The laundry shops and water refilling stations are located in condominium buildings, while his gasoline station is situated along the busy street of Cabuyao, Laguna. Both Pedro and Maria are looking to expand their businesses and they are in constant search for a location strategically fit to their respective companies.

During their batch reunion, Pedro and Maria discussed business opportunities and were surprised to find out that their next business prospective location is actually the same place! The friends decided to do an ocular inspection the following week.

THE LOCATION

The place is located along Tagaytay Road, about 2 kilometers from Taal Vista. The area is about 2,500 square meters (corner lot) and the main road is the gateway to major Batangas towns. The other road leads to two, large, newly developed and completed subdivisions. Population is growing and a new condominium unit is being constructed. There is an existing two-story structure which occupies about 400 square meters, while the remaining space are open.

SITE LOCATION

FIGURE 2.1

UTILIZATION

The old building, located at one side of the area, can still be utilized for restaurant business (with renovations), with the open space good enough for at least 20 passenger cars to park on. The location can also be converted into a gasoline station with a service area and a convenience store.

The area has attracted people who would like to eat (breakfast to dinner) as a stopover before either going to nearby Batangas towns or go back to Manila. These people prefer to eat in the area because of the overcrowded Taal Vista area. A few restaurants and bars are present in the area, but these hangouts are always filled up with customers. One major gas station (situated beside the prospective site) is present with average sales, while two condominiums are already operational.

RACE TO ACQUIRE THE PROPERTY

Both Pedro and Maria liked the option of purchasing the property. Money is not a problem. To Pedro, putting up a gas station which will compete with the only existing gas station will allow him to capture a big portion of the gas market. In addition, he plans to put up his laundry and water refilling station to compete with the existing ones found in the condominium buildings. In addition, the growing number of residents in the newly completed subdivisions will need his laundry and water refilling stations.

To Maria, she had entertained the idea of putting up a resto-bar because she felt that the area is designed for food market. Besides, she knew that by adding her bakeshop, it would attract more customers. The bar will operate from 8:00 am to 12 midnight. This move will make her achieve her expansion strategies.

INITIAL RESULT

While both parties competed for the ownership of the site, it was later settled when Maria decided to withdraw from the race and allowed Pedro to buy the property. Maria was able to buy the smaller vacant lot (1,000 square meters) which is situated just across the property now owned by Pedro. Both properties now have access to the main highway and the entrance to the new subdivisions.

THE AFTERMATH

Immediately after the purchase of the property, Pedro installed his gas station, together with his laundry shop and water refilling station. In the first two years of operation, Pedro found out that his gas operations appeared to be a losing proposition. The competitor survived the presence of Pedros business, but sales went down. Some of the competitors sales were eaten up by Pedros gas station but both cannot survive at the same time.

A major problem for the gas station was supervision. The location was very far from the businesses of Pedro that he had very limited time overseeing its operations. Logistics and operational coordination were also a concern.

The water refilling station and the laundry shop appeared to be enjoying increased sales as the population had grown and the residents of the subdivision have patronized the services.

Meanwhile, Marias new business (in front of Pedros property) was a success. The resto-bar earned twice as high as expectations in profits. The bakeshop has created a new customer base and has been frequented by walk-ins and retail outlets located as far as Manila. Its presence in the two new subdivisions influenced the cake and bread preferences of the residents nearby.

However, the space for the businesses appeared to be too small. The customers of the resto-bar are creating traffic especially during lunch and dinner. The bakeshops parking space seems to small, limiting convenience in buying the products.

Two years after the start of operations, Pedro has realized that he had made miscalculations on establishing the gas station. Profit expectations were not achieved. The venture appears to be a losing proposition. The two gas stations (Pedros gas station and the competitor) cannot simply co-exist at the same time in the same place.

The laundry and water refilling station, however, appeared to have moderate success as customers have been increasing in the last 12 months. But the space utilization appears to be too low. The profits generated by the laundry and water station could not support the existence of the gas station (combined profitability).

THE BUSINESSES TODAY

After two years Pedro had realized that he cannot sustain his losses from the new gas station. Despite increasing profits, his water refilling station and laundry services were simply not enough to cover for the loses. He knew that he had lost his gas station battle against the competitor.

Admitting his miscalculation, he sold the property to his friend, Maria, who was searching for a bigger area for her expansion of business. Pedro had requested that his water refilling station and laundry services be retained on a friendly lease basis, and Maria agreed.

Upon the consummation of sale, Maria transferred her business to the newly acquired property (formerly owned by Pedro), and moved the laundry and refilling station to the 1,000 square meter property. Maria also opened the unused space in the 1,000 square meter property for lease (rent) to would-be tenants (not necessarily in the food business).

Questions for Discussion

1. Pedros miscalculation may have been brought about by different factors in environmental scanning. Elaborate on possible reasons.
2. If Pedro had the financial capability to sustain losses in the gas station for the next three years, would you advise him to continue his business?
3. What are the advantages and disadvantages for Pedro in continuing his businesses (gas station, water refilling, laundry services)?
4. If you can summarize the major reason why Marias business fared better than that of Pedros business, what would it be?
5. If you were given the chance to put up a business in that 2,500 square meter property, what would it be? Why?

VACANT LOT TO NEW SUBDIVISIONS HI-WAY SITE GAS COMPETITOR