Suppose you are an entrepreneur who has just discovered a technology of producing arguably the best ice-cream in the world and you have only two outlets in the town.
Suddenly you receive customers who, upon enjoying your delicacies, offer to supply this ice-cream to their entire supermarkets, restaurants and other retail outlets across Eastern Africa - a possibility Sh3 billion market. When you say you don’t have capacity, they offer to provide all the necessary capital. What would be your take?
Eataly, founded by Oscar Farinetti in Alba Italy in 2004, and comprising a variety of restaurants, food and beverage counters, bakery, retail items, and a cooking school made the aforementioned offer to several entrepreneurs that had innovated eateries. But it was a trap. Some took the offer and later regretted, some looked foolish not to take the offer but are now not in Osca Farinettis net, while larger ones took the offer and it worked.
How they entrap you
Eataly’s strategy was this: they offered you market and capital support for your innovative eatery idea. Since after your expanded capacity you only had them as your sole market, they first pretended to be no longer interested in you as their supplier.
Having no other place to take your large produce, you had no option but to sell the company to them at a throw-away price. Hence, the company grew its stores in nearly every city in the USA branded after the unique aspect of the city. Examples abound: Eataly L.A is branded with Hollywood while Boston with academic epicenters such as Harvard Business School among others. It has also spread to other cities, including Nairobi: Eataly Garden Restaurant and Eataly Café in Westlands, Nairobi, are but a few examples. Its key competency is knowledge transfer.
You can have an exactly great tasty ice-cream in Dubai just as you would have it in Alba, Italy. Their chefs are great at making its eateries to be of equal standard everywhere in the world.
Their HR model is that of tourism: your work schedule is determined by tourism traffic and your schedules change in ways that may not please you. This is called Shark Strategy: for sharks to be big it must eat many other small fishes. This is exactly what Uber has done to the Uber drivers.
Two years ago, I wrote “The power of strategic business model of Uber”. The American multinational works by allowing consumers with smartphones to submit a trip request, which is then routed to Uber drivers, who use their own cars. A conversation with established taxi drivers in town clearly revealed how much Uber irked them.
The company entered the Kenyan market in 2014 and by 2016 had ruthlessly eaten into the conventional taxi market, which was already facing rising competition from professionally managed companies. Those who were early to the Uber party were celebrating.
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“If you believe that Uber gives Uber drivers undue advantage, why don’t you join?” Four years later, things seemed to have turned so much so that those who are inside Uber want to get out but cannot.
Could this scenario not be foreseen? On the contrary, to any good student of strategy, it was clear. One of the hallmarks of a good strategy practice is that whenever there is a new strategic challenge it is advisable to check if it has been seen before, either in the same market or the other.
Supply versus demand
Eataly was already doing the same thing in Europe, US and even in Asia. It was a trap into which taxi entrepreneurs walked without evaluating. This was replicated when the Nakumatt offer in “blue label” came in…but are we ready to learn?
When Uber came, the offers were so attractive: it was Sh60 per km; now it is Sh20. You worked for 24 hours, now its 12 hours per account. This means that it has become part-time. But the 12 hours is not necessarily when you have clients; rather it is counted so long as you are in the system… even when you park waiting for clients… after which you are logged off. This is because supply overweighs demand.
In Nairobi alone there are over 8,000 Uber drivers hence the rationing of drivers. Those who quit their jobs and bought cars in order to work 12 hours a day for Uber find it not feasible any more. Uber drivers revenue per day used to be Sh8, 000 per day, now it is around Sh3, 000 per day.
Your own boss?
Another trap strategy is Uber Chap Chap. They selected the best performing drivers, gave them a car which costs around Sh600,000. They are to repay this car by submitting to Uber Sh1, 500 per day for two years. Now do the math. In as much as they feel they are their own bosses, methinks they are not: for there is a fear that if they don’t submit the daily pay, the car may be taken.
This brings the one-million dollar question: Is Uber good for the Kenyan economy? In the eyes of Uber investor it is not. May be the Treasury CS needs to prove otherwise. But one characteristic of “shark” strategy is that customers are the happiest while suppliers and sometimes employees, are bleeding. The examples of Nakumatt and Eataly are just but a few.
Be a good student of strategy, and forget not that the best strategists are also good historians.
Dr Ogola is a Senior Lecturer- Strategy and Competitiveness and Academic Director - MBA Programmes