industry analysis of coffee shop example


[31], In continuance with its history of partnerships, Starbucks and Concord Music Group announced on March 12th of this year the formation of a new record label Hear Music which will distribute recordings at Starbucks locations. The U.S. specialty coffee industry is responsible for only approximately 17% of the total U.S. green coffee imports mentioned above but its $7.8 billion sales represent approximately 40% of the $18.5 billion U.S. coffee market2. Finally technology is impacting this industry in the form of increasingly sophisticated home brewing machines which are able to at least replicate, if not beat, the quality of coffee prepared at many of these stores. Line management is a significant issue for coffee houses as often the demand is concentrated in the early mornings. 5.4 Caribou Coffee Canada imports nearly 400 million pounds. Caribou Coffee- menu extract Though no chain has approached Starbucks global scale, the coffee shop industry is increasingly competitive. Constant value retail sales are expected to grow 10% over the forecast period to reach over U.S.$ 6.5 bn. Major companies include Starbucks, Dunkin Donuts, Caribou, Coffee Bean and Tea Leaf, and Diedrich (Gloria Jeans). with new organic rules[61] (Appendix, Exhibit 9) and is expected to become even more severe in the future which underlines the fact that coffee shops have to cooperate with their suppliers in order to control the quality of their products along the value chain. The North American specialty market therefore represents one of the largest and most vibrant coffee markets in the world. Recent strategic changes within McDonalds are increasing its potential for rivalry with pure coffee house retailers like Caribou and Starbucks. For opening a coffee drive-through the investment ranges approximately from $60,000 to $250,000 while a coffee shop requires $60,000 to $350,000. [48], Peets Coffee, whose headquarter is situated in Emeryville, California, was founded in 1996. (www.unlvrebelyell.com/article.php?ID=9752; www.fastcompany.com/magazine/89/dunkin-donuts.html). [46] Furthermore, Frontier and Maxjet airlines serve Caribou coffee, and the company recently inked a deal with Life Time Fitness. Driving Factors that are causing the industrys structure to change [55] 2007 Tea and Coffee Industry Forecast (http://www.teaandcoffee.net/1206/special.htm). but overall the industry is saturated, settled and stable which allows almost all of the competitors to yield very good margins (40 to 60 percent)[4], - Competition with other drinks that are not the main focus of by coffee shops: Soda, Juice, Water, Beer, Sports Drinks users class user series div Master license agreements may allow licensees to grant sublicenses to third parties within a territory. Different drinking habits of following generations: There is a sharp jump in the number of regular coffee drinkers between the 18- to 24 and the 25- to 34-year-olds (29 % vs. 60 %). - Every paper finds readers, Business Management, Corporate Governance, Diplom-Kauffrau (FH), Master of Business Administration Michaela Altmann (Author). - Companies are helping communities to make the change (train them, purchase at fair trade prices[9] and provide technical assistance)[10], Conclusion Power of Suppliers in the Coffee Industry. Sales are seasonal, with a peak during fourth quarter, driven by the winter holiday. During periods of high consumer confidence, consumers tend to spend more on discretionary items like coffee. Retail prices for coffee shop beverages vary. Therefore the coffee industry needs to address young adults and change the drinking habits as they enter the working world and establish own households.[76]. [50], Several key factors within the coffee shop industry are essential components that will likely lead to success or failure of market participants. Over the next five years, the Coffee Shop industry is forecast to at an annualized rate of. Based on the analysis above we conclude that the coffee shop industry is a very attractive market (high margins, growing demand) for the companies that are already established, such as Starbucks or Dunkin Donuts, however, smaller independent companies may not be able to compete significantly. There is considerable confusion about what the three terms Organic, Fair Trade and Shade actually mean. The profitability of individual companies depends on the ability to secure prime locations, drive store traffic, and deliver high quality products. A significant driver in the coffee shop industry is growth in the form domestic and international expansion. The result was that the former one edged out Starbucks for the first time.

Larger companies may also sell coffee beans wholesale to commercial customers, such as grocery stores and restaurants.[2]. Chains use comparable store sales to measure growth. Sample of Coffee Industry Partnerships, In a coffee taste run by Consumer Reports magazine in February 2007 McDonalds, Starbucks and Dunkin Doughnuts coffee was tested. CEO Luther in 2003 to his 2700 franchisees: "We're changing this game, we're raising the stakes, if you don't like it, get out."[44]. Organic, Shade and Fair trade coffees- collectively known as sustainable coffees fill a market niche that is often rewarded with a premium price and can provide superior environmental, economic and social benefits to producers. Personal beliefs about biodiversity or the environment (37.6%) McDonalds competes on price, ubiquity, convenience, service and through offering quality food products. Last fall, addressing McDonalds attempts to lure customers away, Starbucks announced its plans to offer hot breakfast sandwiches in an appeal to fans of the Egg McMuffin and establish them also in the breakfast and afternoon snack segment.[33]. The industry is extremely labor-intensive: average annual revenue per worker is $40,000. [18] Coke and Caribou Join Forces to Sell Line of Coffee Drinks, Atlanta Bus. 5.2 McDonalds [56] These days, global corporations routinely tie up 20 percent or more of their assets in alliances. 1. Abbildung in dieser Leseprobe nicht enthalten, - 20,000 stores with annual revenue of ~ $11 billion 7. When coffee consumption increases, coffee shops experience revenue growth. The top green coffee producing countries are Brazil, Colombia, and Vietnam. [41] Homepage Dunkin Donuts (https://www.dunkindonuts.com). [28] Article: Its not about the Doughnuts; http://www.fastcompany.com/magazine/89/dunkin-donuts.html; December 2004, [29] In February 2007 Howard Schultz (Starbucks chairman) wrote a memo to top company managers of the company that soon became public. - The industry is optimistic about the future of sustainable coffee. 4. 1.3 Overview of Industry Profitability Factors, 2. Competitive positions & possible strategic moves of key companies [60] Especially the years of great surplus (60%) of coffee beans- 2002 / 2003- further drove down prices as farmers competed for the remaining market share. 3.5 Power of Customers, 4. First, McDonalds improved the quality of its coffee and launched a premium roast version on March 6th 2006. High margins: International coffee prices decreased dramatically over the last decade (in 1999 coffee traded at $1 U.S. per pound vs. less than 50 cents in 2001)[67] while actual selling prices of coffee did not go down which led to increased profits in the industry. [46] Caribou Coffee taking on king of the hill; ( http://www.icsc.org/srch/sct/current/sct9905/34.htm); [47] Grinding Out Success Next to Starbucks; (http://money.cnn.com/magazines/business2/business2_archive/2006/10/01/8387114/index.htm); December 2006, [50] http://www.forbes.com/business/2007/02/26/starbucks-dunkin-donuts-biz-cx_tvr_0227starbucks.html. - Shopping behavior is very likely to be influenced by budget constraints, weather conditions or health concerns in the general public Dunkin Donuts retail outlets are operated in a franchise format either through operating agreement, license agreement or joint venture. The company tries to reach a rate of one shop to every 15,000 - 20,000 people in their target markets. [56] Therefore it is important to pursue a full range of alliance opportunities: partnerships for innovation and cost reduction but also geographic expansion and co-marketing deals. Many customers focus on the special atmosphere each store has and which is characterized by the location, music, interior design, seating or whether internet access is provided. As indicated, Starbucks brand is likely to weaken in the future due to its high growth and efficiency focused strategy which eliminated the romance of coffee brewing. Industrys dominant economic traits overview, 3. 8. - Potential franchisees have to make sure that they choose the right franchiser which means analyzing the viability of the opportunity, the level of training and support offered to the franchisee, the track record and financial stability of the franchisor, the success rate of the franchisees, etc. - Dairy products, whose retail prices vary a lot, used for specialty drinks For large companies, inventory amounts to between 40 and 80 days sales. 5.1 Starbucks [51] Particularly for specialty coffee shops it is important not to sell only the beverage but the whole experience. Diversity of functions of coffee shops: Coffee shops have a great potential because they are different things to different people: place to buy a variety of coffee flavors, place to converse with friends, read a book or take a break from work. Specialty coffee sales continue to expand by 5% to 10% per year according to conservative estimates4. In addition, operators will likely continue to stimulate consumer interest by expanding their menu options to any changes in consumer preferences. When asked how important each of the following 7 factors is in making sustainable coffee valuable to their business, the quality issue was confirmed as primary by 91.9% of the respondents who believe it is a v ery important factor. McDonalds (which history began in 1954) is the leading global foodservice retailer with more than 30,000 local restaurants serving nearly 50 million people in more than 119 countries each day. However, Fair-Trade labelled coffee still only represents 1.2% of the West European market (Roel Vaessen- European Coffee Federation, Netherlands), [63] Resources: Mergent coffee industry and Mc Kinsey Quarterly report about the coffee industry, [64] Its not about Doughnuts; (http://www.fastcompany.com/magazine/89/dunkin-donuts.html), December 2004, [65] Mc Kinsey Quarterly and US Coffee report, [66] Industry Forecast; (www.zapdata.com), [67] Global Trade; (http://www.videa.ca/global/money/case1.html), [69] Nestl told its shareholders in 2001: "Trading profits increased, and margins improved thanks to favourable commodity prices.". For example, Starbucks has been able to achieve customer service efficiency by introducing automatic espresso machines. Its ability to develop strong new trends and influence global consumption is well documented. Caribou Coffee was founded in 1993 and its headquarters is located in Minneapolis (Minnesota). Companies should participate mainly for ethical reasons in campaigns such as Fair Trade (Appendix, Exhibit 9). - Competitors can also be found in other industries (convenience stores, gas stations, quick service, fast food restaurants, gourmet food shops, donut shops, filter ~ / specialty coffee machines for home use) e.g. Therefore coffee shops can address a variety of issues when promoting their outlets. [45] Another strategic approach has been to develop partnerships with other retailers, such as Eatzi's, or building stores next to Bruegger's Bagels, Blockbuster Video and Border's Books. Caribous CEO described the partnership as synergistic due to the fact that We're both challenger brands.[21]. National chain and even local coffee shops boast menus including coffees, teas, hot chocolate, pastries, bottled water, and even sandwiches. As mentioned, the firm focuses on high-traffic, high-visibility locations. In addition to that companies in the coffee shop industry have to make sure that they can meet the increasing future demand. Franchise and license agreements typically include an upfront fee, payments or royalties based on percentage of sales, and renewal options. With the exception of Hawaii and Puerto Rico, the United States climate cannot support coffee trees. Some Starbucks employees are forming unions to negotiate better wages, hours, and benefits. However, that is an important, but not the most critical, issue because high margins in the coffee business will allow the company to buy key sites. [70] Success over a cup of coffee; (http://ezinearticles.com/?Success-Over-a-Cup-of-Coffee&id=369198); [71] Eccellente Gourmet Coffee; (www.franchiseadvantage.com/franchises/eccellente_coffee.ihtml), [72] A Review of Dunkin Donuts; (http://franchises.about.com/od/franchisedirectory/fr/Dunkin_Donuts.htm), [73] How to start a successful coffee shop; (http://www.espressobusiness.com/), [74] Restaurant Industry Facts, http://www.restaurant.org/research/ind_glance.cfm, [75] Coffee US Report; http://www.teaandcoffee.net/1206/special.htm, [76] Grounds for a New Strategy in the coffee industry; (www.findarticles.com/p/articles/mi_m4021/is_2001_June_1/ai_76579399); June 2001. Further risks of the industry:[77] Shortage in supply, or an increase in the price of coffee beans could adversely affect net sales; Risk of fluctuations in the cost, availability and quality of non-coffee raw ingredients; Risk of adverse public or medical opinions about the health effects of consuming certain products (caffeine, sugar etc.) Foremost is the high cost of entry. [60] In addition to that companies are supposed to pay attention to the growing demand for specialty coffee, which means they have to ensure that the right product innovations are added to the revised product portfolio at the right time. The company sells about 500 million cups of coffee a year for $1.65 each. [13] Dunkin' Donuts Escalates Java Wars, MarketPlace, marketplace.publicradio.org/shows/2006/09/05/PM200609058.html. canonicalization important Hardly any reported reduced sales. Customers cant observe anymore how the coffee is handmade in front of them. - 120 distributors, and For example, Starbucks customers, who pay a premium for coffee, seem to miss the elaborate process of brewing and drink creation. - Strong brand recognition of major players, especially Starbucks 3.0%. It is the only segment of the coffee industry that has shown consistent and notable growth3 and is the largest specialty coffee market in the world. [72] Furthermore some chains demand individuals with a certain background, e.g. While many consumers still favor Starbucks coffee, its rather the in-store experience than the product portfolio that makes the company stand out. The U.S. is the worlds largest importer of green coffee beans and the largest consumer of coffee. Stay awake for it." [31] Starbucks Financial Statement 2004. 7.1. - Industry is already benefiting, in terms of increasing sales and higher prices, from the product differentiation, improved quality and price premiums of sustainable coffees. - Shade coffee is grown in shaded forest settings and is good for biodiversity and birds. Similarly, about 2/3 were in favor of a simpler way of communicating sustainability in the marketplace, in effect a super seal incorporating criteria from Organic, Shade, and Fair Trade coffees. - High dependency of coffee shop chains on frequency of customer purchases While Starbucks selectively locates stores in shopping malls, it tries to focus on places that provide convenient access for pedestrians and drivers. [11] First Research Industry Profile: Coffee Industry. For example, rather than relying on baristas to create its new line of espresso-based drinks, Dunkin Donuts hired an expert to design an idiot proof $8,000 machine which makes cappuccinos in less than a minute and at a lower price than competitors. As already highlighted in the Driving Factors product and service innovation are necessary in order to stay competitive in the market and attract new / keep existing customers successfully. Such expansion is considered the number one growth driver for the company which plans to grow from 12,000 stores to 30,000 stores in 10 years. Caribou competes by offering a slightly different roast of coffee and a warmer, more relaxing in-store environment compared to the Starbucks shops with a rather sleek, urban atmosphere. Many farmers were forced to lower prices so that their sales could not cover the cost of production, beginning a cycle of poverty and debt. [81] Franchising Pros and Cons; (http://ezinearticles.com/?Franchising-Pros-and-Cons&id=41909). Most coffee shops serve high-quality, premium coffee known as specialty coffee. Equally critical to the structure of the coffee industry has been the role of service innovation. Factors in favor of an unattractive industry Companies may use contracts to buy green coffee and dairy products.

[15] Starbucks: Delivering Customer Service at 8. Caribou Coffeehouses range from 200 to 3,000 square feet, with an average store 1,200 to 1,600.

Customers will now have a higher level of confidence in knowing the product is organic. If this trend continues, demand for them could conservatively be expected to grow by 5 percent annuallyan additional 2.5 million bags by 2007. Retailers have to change their labels and identify their certifier. Also in Feb 2007 marketing powerhouse Brand Keys latest Customer loyalty survey looked at Dunkin Donuts and Starbucks. [23] Blanca Torres, Peet's Future is Percolating, Contra Costa Times, March 8, 2007. Very limited power of suppliers as they depend on producers help and sell a commodity. Additionally this industry is increasingly impacted by consumers perception of what a brand stands for. 6. The retail price for an espresso-based drink can exceed $4. - Competition with other products, people are spending their money on: Ice Cream, Cigarettes, Sweets 1. They not only can make drink suggestions or recommendations, but their skill can be the difference between an everyday latte and an amazing specialty coffee experience.[59]. A typical chain coffee shop may have one manager and 10 to 15 workers; independents have six to seven. Food products include pastries, bakery items, desserts, sandwiches, and candy. Importantly, product innovation for Starbucks includes not only factors regarding customer acceptance but also the extent to which the product would fit into a stores ergonomic flow.. - It only takes five minutes 7. Therefore the other big market participants, who now offer a similar experience at a lower price, will be able to increase their market share and lure away Starbucks customers. [37] That is also the reason why, on March 1st 2007, McDonalds has announced that it will serve specialty coffee beverages like vanilla lattes and caramel cappuccinos at outlets across the U.S. - In turn he/she has to pay for the support by giving a certain percentage of the revenue back to the franchiser (contribute to the advertising budget etc.) Customers are asking for it (51.9%) For this reason, industry marketing efforts are closely tied the image/lifestyle projected by the chain. Typical locations include downtown or suburban retail centers, shopping malls, office buildings, and university campuses. 6.2 Technology [36] Furthermore McDonalds is looking into day-parts penetration as a growth strategy. [53] Resource: National Coffee Association of USA, [54] http://www.forbes.com/business/2007/02/26/starbucks-dunkin-donuts-biz-cx_tvr_0227starbucks.html.