The external environment analysis of Café Coffee
Introduction
The main focus of the assignment is to discuss Starbucks as a coffee industry in comparison to its strong competitors. Starbucks is a coffee industry chain that was established in 1971 in the USA. Starbucks at recent times has achieved annual revenue of $27.7B and is valued at $108.36B dollars.
The top competitors of Starbucks include Caffe Nero, Costa Coffee, Dunkin Donuts, McDonald’s, Café Coffee Day, KFC etc. Starbucks has stores where it provides food for on spot eating or takes away for home. Starbucks was able to restore its partners in this competitive era. Thus it is one of the significant reason for its growth factor. Starbucks has been providing more than 30 brands of premium coffee which are mostly handmade. It has also been able to diversify its products from the sole sale of coffee to different types of beverages, foods. Apart from that, it includes baked pastries, sandwiches, fruits, salads etc. Starbucks could understand the tremendous pressure of competition, so they have been substituting products for all types of customers to enjoy and in order to increase its customer base. Starbucks has replaced dairy milk with substitutes such as almond milk, soymilk, coconut milk, and so on so that the customers who are lactose intolerance or those who do not like milk could enjoy the flavours equally.
The total number of stores that Starbucks has is around 21,100, which is more than Dunkin Donald 11,000 and less than McDonald’s 36,000. The annual sale of McDonald’s is the highest if we compare these three it is striking $27,44B, whereas Starbucks is $16.408 and Dunkin Donald’s $748.71M. Even McDonalds possess the highest number of employees which is approx. 420,000 in other hands, Starbucks has 191,000 employees and Dunkin Donald’s 1,134.
Its competitors are also no way less- Caffe Nero is one of the leading coffee houses in Europe. The main vision of the brand is to create traditional Italian coffee shops all over the country. It provides top-quality coffee along with friendly neighbourhood to its customers.
Costa Coffee is also a multinational coffee industry established by the Costa Brothers. At present, it has more than 3,800 stores in 32 big markets in the United Kingdom and the second most successful coffee company across the world. It reached an impressive revenue of $1.7B with its 18,400 employees in 2018.
The total number of Coffee Shops owned by the world’s largest fast-food chains, thus the great success as mentioned above by McDonald’s made it the greatest success chain in the world where about 15% of the revenue is generated by McDonald’s alone regularly as per a study in 2003.
Dunkin Donuts is among the first five global coffee chains in the world, though most popular in the US. It has expanded is business in a worldwide firm with over 10,000 restaurants, and 47% of the total revenues in the US alone.
In the assignment, a detailed analysis of the competitive advantage of Starbucks and its well-known competitors are made. Starbucks has seen tremendous growth in its last couple of years.
The external environment analysis of Café Coffee
Pestle analysis of Café Coffee
The political factors that are affecting the Coffee industry
The business of coffee is dependent on international trades. The biggest coffee producers of the world are mostly located in South America, Asia, and Africa. Moreover, coffee is the most common drink in the countries of Europe and America. The relationship between countries those who manufacture the coffee and those who consumers have a very strong relationship as they are directly dependent on each other. They also demand the final price tag of the coffee, which ultimately impacts sales.
Economic factors that are affecting the coffee industry
As the economics of the world has been growing for the last couple of years, there are common benefits of the coffee industries that are consumers are likely to have growing incomes, which indicated that the consumers would have more money to spend every year. This can also highly influence the consumer goods firms as well alongside affecting the food and drink industries. When consumers are getting richer, they are more likely to consume coffee or other luxury beverages.
Sociocultural that is affecting the coffee industry
Health Consciousness- in the 21st century, there is a drastic change about the people’s concern about their health could visibly be noticed. Thus making healthy choices is now at hottest trends. Thus this is influencing the customers to spend more time in exercising and keeping themselves fit, eating healthy food and avoid bad habits. Though numerous studies have shown that coffee is not healthy for the body as it contains a lot of caffeine. So as a part of a healthy lifestyle, many of the consumers have been giving up on coffee for better mood, sleep and wellbeing.
Fair trade-another visible socio-cultural trend is fair trade. Fairtrade is generally an international movement that has been done in the motive to give fair compensation to the farmers behind the produce, instead of the middle man who has been reaping huge product. The fair trade movement mainly targeted the coffee industries, especially. As many of the consumers have shown higher demands for the coffee products, the farmers could earn more, and the middle man would earn comparatively less, thus improving the standards of living of the hardworking farmers.
Technological Factors that are affecting the coffee industry
One of the recent trends in many foods and beverage industry is Genetic Engineering. Genetic Engineering helps in modifying the produce at a general level to improve the quality of yield shelf-life and yield. Mostly the engineered coffees are finding increased used within the coffee industries. Genetic engineering has helped the coffee industries to grow, as it allows the producers to generate larger amounts of profits.
Coffee machines- the coffee specific appliances have also brought about a drastic change in the coffee industry. The inventions of coffee grinders, espresso makers and drip machines have made it easy for the companies to serve large qualities of quality and tasty coffee profitably. This has also encouraged many consumers to brew coffee at home on their own.
Environmental factors that affect the coffee industry
The world has been facing numerous health-related issues because of environmental calamities. Though some of the issues are not related to food or drink industries, but some are. Sometimes unsustainable farming can result in deforestation. Moreover, there are other concerns to farming methods like using too many pesticides and fertilizers or even wastage of water. At recent time’s world has been leaning more towards sustainable farming.
Legal factors that are affecting the Coffee industry
As the products are designed for consumption, most falls under the food and regulation standards of the country (ÖZTOPÇU, 2017). So the food and drink industries are to abide by varies to the law concerning how it should be stored, brewed or transported as in the case of coffee. Moreover, as coffee contains a huge quantity of coffee, so it has to maintain a particular standard of caffeine contained.
Porter’s Five Force Analysis of the Coffee industry
Competitive Rivalry
Despite the coffee industry have been growing at a 5% growth interest, the coffee industry still faces strong rivalry due to the presence of multiple competitive competitors. Starbucks has been leading the coffee industry with revenue of approx. 22.38B USD followed by Tim Horton with revenue collection of 3 B USD every year. Other coffee industries such as Dunkin Donuts, Costa Coffee, Panera Bread, Peet’s Coffee and Caribou etc. follow. Hence it can be said that the coffee industries that are competing with each other have massive financial strength even in the international markets.
Bargaining power of Buyers
The power of bargaining of the buyers in these coffee industries is usually high because of the presence of a large number of coffee providers with no radical differences as such. Customers those who show loyalty towards the brand are not strong, and the switching probability of the customers is high or low or with no switching cost. As the buyers have many options to choose from, starting from local to international, all these keep the buyers power high and thus high bargaining power of the companies.
Bargaining power of suppliers
The bargaining power of the suppliers is eventually low as the companies here are strong, and they have a large number of suppliers to choose their raw materials from. Some companies choose their coffee beans as the main ingredient of coffee. As the companies have the option to choose from different suppliers, it keeps the companies strong and in a dominant position.
The threat of new entry
In the coffee industry, the threat of new entries are the highest as the hurdles for new market entry is low. As the hurdles of the coffee industries are not usually complex, they can be easily eliminated; hence the entry to the new market is easy. Moreover, there is no requirement of huge capital investment as most of the coffee cafeterias start with a minimal budget at a smaller level with takeaway options. Which concludes that capital is not the hurdle for entering into a new market and The skill requirement does not need to be highly technical or trainable, making it further easy to enter the market.
Threats of substitutes
As there is the availability of a number of substitutes; hence the threats of substitutes are high. Moreover, the number of substitutes of the coffee industry has been increasing day by day, which can be a concern. Tea is one of the major substitutes of coffee.
Industry life cycle model of the Coffee industry
The product life cycle of coffee includes many stages such as introduction stage, growth stage, maturity stage and decline stage.
Introduction Stage- this stage comprises of product’s life cycle initiation with an excellent high price, high advertising cost and selective distribution in limited markets. In many industries, the introduction stage happens in the year before the widespread of coffee chains.
Growth stage- the rapid increase is characterized by the increasing growth of the product or the brand. Prices are supposed to stay at higher levels if the demand for the product is also high or else the cost can be dropped to get more attention from the customers.
Product maturity stage- the maturity of the product life cycle features high awareness of the brand; low price o remain competitive, wide distribution of product and continuous product modification for distinctiveness.
Decline stage- Modern Coffee makers are enabling consumers to make single cups of coffee in a few minutes in their home and snatching of customers from other companies by means of lower prices can be a decline phase.