Opening a Chain of Coffee Shops - Assignment Example

Opening a chain of coffee shops Introduction: Product/service analysis The entrepreneurship program that is being chosen for the assignment is “Opening a chain of coffee shops”. But before implanting the project we must have an assessment about the products that would be offered, the area in which the coffee outlets would be located and also an analysis of the customers should be done. It has to be noted that main competitors of this new chain of coffee shops will be StarBucks and McCafe. For this reason the product and service mix that this chain of shops will offer to its customers should match the products and services offered by the close competitors. Products / Services Estimated the percentage of the turnover (000 pounds) The percentage of expected profit 1. Whole Bean Coffee 2. Instant Coffee 3. Tea 4. Energy Drinks 5. Cold Coffee 6. Fruit Shakes 7. Milk Shakes 8. Sandwiches 9. Hot dogs 10. Burgers 1200 pounds 2500 pounds 1000 pounds 750 pounds 1500 pounds 750 pounds 850 pounds 250 pounds 175 pounds 175 pounds 13.11 27.32 10.93 8.20 16.39 8.20 9.30 2.73 1.91 1.91 Customer type analysis Coffee shop chain is such kind of a business where people of all demographics can come and visit. The customer base for coffee shops in United Kingdom is huge. Though the competition is high the market is still present in the region. The product range covered for this particular coffee chain shop is exclusive and it aims at capturing all the customer segments. The traditional whole bean coffees are being offered aiming at customers who want to pass some time or may be people, belonging to a particular demographic classification, who loves traditional coffee. Some categories in the offering are seasonal in nature. For example, cold coffee and milk shakes are targeted at customers during the summer. While the tea and the whole bean coffees are mostly introduced for the customers during the winter. It has to be noticed that in the product portfolio Instant Coffee captures a prominent position. This is because, there are will be many customers, during the morning and the evening time, who will just come to have some coffee and then they will leave. Their aim is not to pass the time but it is the part of their daily routine of tea or coffee. These customers are constant source of income and also profitable. Also strategically the coffee shop must introduce some snacks, which complement the drinks, which are being offered. These products are mainly introduced so that the coffee shop can capture the market of the fast food restaurants also. Quality drinks with availability of snacks would be a crucial success factor for the coffee chain. The next important aspect is the study about the different segments of customers that the coffee chain will be targeting. This analysis is also very crucial, as the shop owner must know the kind of customers they would be targeting and accordingly they should introduce the products and services. Also, they should create a suitable ambiance in the shops. Type The percentage of turnover expected from each category (%) Expected amount that would spend per year by each category (000 pounds) 1. Office Goers 2. Couples 3. College goers 4. Families 5. Other casual travelers 55 15 10 15 5 50000 10000 8000 20000 3000 These figures give a clear estimation about the main focus of the coffee chain. The most profitable customers are the office goers, and that is the reason why they are being targeted. The office goers mainly prefer single or sometimes double instant coffee and they spend less time in the shop. Their regularity with the lesser time frame helps the company extract more profit out from them. If the service and product quality are up to the mark these “office goers” can form a huge loyal customer base. That is the reason why they are most profitable source of income. The next customer segment, which the shop can target, is the “families”. Though the families visit the shops at irregular intervals and spend a lot of time, side-by-side they usually order for a handful of coffee cups. This makes them more profitable as customers. Generally they do not only have a single or a double tea or coffee but along with that they intake snacks and other drinks also. For that reason they are lucrative customer base for the company to exploit and target. Apart from the food and product quality, the customers of this segment also consider the ambiance of the shop. Thus to maintain a good customer base of this segment the shop must invest some amount for maintaining a proper environment both inside and outside the shop. The couples and the college goers also often come in groups and like the “family” segment, their consumption levels are also very high. Their average spending nearly matches the spending of the “family” segment. Also similar to the “family” segments the customers of this segment give importance to the ambiance factor to a large extent. Area analysis After analyzing the product varieties and the target customer base, another crucial aspect that should be studied is the strategic location of the chain of shops. The shop must have some strategic plans for establishing its outlets in some specific areas, where the return will be more. Area Expected turnover (000 pounds) Percentage of total turnover Other factors 1. Airports & railway 2. Office Complex 3. Residential complex 4. Schools & Colleges 5. Public parks 6. Near restaurants 50000 20000 8000 7000 3000 5000 53.76 21.50 8.6 7.53 3.23 5.38 Enormous customer base with high frequency of customer arrivals. The nature of the customer available in the target zone. (office complex, residential complex etc) The areas near airport and railway stations are most prosperous because of the frequency of customers every day. There is a certain amount of guarantee about the number of customers that will be visiting the shop. Though the competition in such areas is very high, opportunity is always there to grab an assured segment of the available market. The next lucrative spot is always the office complexes. This is also because of the fact that population in such areas is very high and the frequency of visits increases. The coffee chain shop also can open few outlets near public parks, schools and colleges and also residential areas to attract those customers who give the ambiance and the environment much importance. Business analysis Major competitors After having a feasibility study of the target customers, the product and service range and the strategic locations where the shop may operate, we must now concentrate on the other factors, which may affect the business. One of these factors is definitely competition, which the shop will face from the existing players in the market. The following table analyzes the competition that the firm may face while establishing its operation. Company Name Goods / service Areas 1. Starbucks 2. McCafe 3. Other Small Coffee shops Product range is high and exclusive. (“Our Coffees”. 2009) Taste and quality wise has surpassed Starbucks on few occasions. (Hoyland, 2009) The product variety may not be huge but in some shops offers excellent product quality. (Hoyland, 2009) High brand value and long range of product variety. (“Our Coffees”. 2009) High brand value of McDonalds along with the quality improvement has made the brand stronger. (Hoyland, 2009) Their reach and network is unique and in some areas of the country the local shops occupy larger market share than the branded ones. (Hoyland, 2009) Thus we can see that the chain of shops can face competition from both the branded and the un-branded local coffee shops across the globe. For that reason the shop should focus on establishing its brand and also increasing its network. To achieve the first target, it will definitely take some time as their market is already shared with some established players. But the shop can concentrate on delivering quality products while increasing its network. Since the company (coffee shop chain) has segmented its customers it would be better if the firm concentrates on providing product and service at the perceived level for each customer segment. That means, the outlets, where only “office goers” or “travelers” visit the company does not have to spend much on the ambience and the environment part. But for the outlets where families visit often the ambiance creation should be given much importance. Strengths and weaknesses of the business Now we may illustrate a comparative study on the strengths and weaknesses of the proposed coffee shop. That means it’s (coffee shop chain’s) strength and weaknesses should be evaluated compared to the existing players. Strengths Weaknesses 1. Large Varity of products 2. Segmented customer focus. 3. Establishing itself in strategic locations 4. Differential marketing strategy 1. Lack of Brand recognition 2. Network building will require some time 3. Quality of products yet to be tested in the market and the range is not exclusive when compared to Starbucks. (“Our Coffees”. 2009) After observing the first table it is clear that the company wants to enter the market with a large variety of products at their disposal. This is always helpful as it enables the coffee shop to cater to a large section of customer at a time. Secondly the approach of the company would be to segment its customer base and on the basis of that they will deliver their products. This is the major strategic level advantage that the company would possess. The company has unique and distinct plans for each of the customer segments. For the “office goers” the coffee chain will install its outlets in the strategic locations nearby some office complex and in those outlets the service quality would be different. As already mentioned above, the company will not focus on providing high ambiance to these outlets. The company will rather focus on the service accuracy and speed. But for attracting the “family” or “couple” segment the shop will install its outlets in strategic locations like residential complexes, nearby public parks, colleges etc. The main weakness of the company is its lack of brand recognition and promotion. Compared to the other established players the company will need some time to promote its brand. Also the company needs little time to create a network of its own. For the initial two years the company must focus on enhancing quality in product and services and also should focus on increasing market coverage. Reasons for customers’ choice In the next section we will discuss some parameters regarding the products and services that will be offered by the company. 1. Quality: The coffee shop apart from offering a wide variety of products also must ensure better quality, because at the initial stage, to create a loyal customer base, quality of product should be at par with the industry standards. The initial stage of establishment is very sensitive as slight fluctuation in quality may bring about a bad brand image for the company. 2. Design: As mentioned earlier the company would adapt a differential marketing strategy as far as it deals with designing of the services. The floor space of the retails outlets should be planned carefully. 3. Service: The type of service will also differ according to customer segments and product offering. 4. Delivery: The focus is much on its style of delivery and aims at satisfying the perceived value of each customer segment differently. 5. Flexibility: The coffee shop aims to be flexible with their product and service offering, and these parameters will change according to consumer preferences and area of operation. 6. Selling Method: Initially the company will focus on opening outlets in strategic locations to attract a customer’s attention. Along with this, for brand promotion, the company will use some display banners. At a later stage when the brand is established the company will use other mediums of communication. 7. Personal influence: The company will provide a mix of products and services which will aim at creating loyal customer base among every segment of the customers. Areas of growth: Market trends and restrictions This section of the report covers the areas that the company will explore in a later stage after establishing its brand in the market they will be operating. The particular market area Area of operation The expected changes in 1. International market 2. Entering into restaurant business. After establishing their brand in the UK market, the company can try and establish its brand in some emerging markets of Asia. As already the company provides snacks, it might become a full-fledged fast food restaurant chain once the brand value is established. Maintaining a centralized system in UK and opening outlets with focused marketing strategy will help in increasing profits. The product variety and the customer base will increase. Though the two prospects look lucrative, but there are certain levels of restrictions that the company would face while implementing any one of the above mentioned plans. If the company wants to go international there many factors like the market demand, existing local completion, government rules and regulations that the coffee shop has to consider. Secondly if the company wants to enter the restaurant business, a new level of competitor analysis has to be done, as this market is also highly competitive. With this move there is another threat of diluting the brand image of the coffee shop as many loyal customers may fail to associate themselves with the change in the business operation of the company. Prediction of growth rates for next three years This section will give an overview of the financial forecasts for three years of operation. This section will give an overview of the financial forecasts for three years of operation. The forecast is being made in three different categories, i.e. the forecast with the existing market, a new market that company may venture into, and also for the new product or services that the company might offer. Existing markets (000 pounds) New markets (000 pounds) New products / services (000 pounds) Year 1 Lowest turnover The highest turnover Profits 50000 93000 7000 25000 70000 4500 35000 75000 5500 Year 2 Lowest turnover The highest turnover Profits 75000 115000 10000 50000 110000 7000 65000 125000 11000 Year 3 Lowest turnover The highest turnover Profits 100000 150000 17000 75000 155000 18500 75000 175000 20000 From the forecasted figures we can quite easily make out that, though initially the two modes of expansion is giving lesser amount of profit than the existing market profit, eventually during the course of the three years the two expansion opportunities are generating good return for the coffee shop chain. The explanation for this is very simple. When the company is expanding its operation by entering into new business or by targeting different markets, the initial cost of implementation would be high and this high cost element pulls down the margin of profit for the first year. However during the third year of prediction we can see both the expansion opportunities are yielding better results than the forecasted figures of the present market. By that time the initial “cost” element is being recovered and the company has increased its operational efficiency level, which results in the better profit margin. Recommendations: Strategies at the business level In this section we will analyze the business level strategies adopted the coffee shop. The following list shows the different parameters on the basis of which we will analyze the strategy. a. Range of products: As already mentioned earlier from its onset the company focuses on introducing a wide range of product to capture a large chunk of the consumers. b. Geographical Environment: The company will initiate its operations in the United Kingdoms and from there it will consider its expansion plans. The environment in which the shop will operate covers a variety of distinguishable customer categories. c. Quality Standards: As the competition in the market is quite intense the company should focus on delivering standard quality especially when they are targeting a huge segment of customers. The firm should also consider the fact that consumers they are targeting are highly sensitive to quality of product as well as service. Quality of the ambience and the service delivery also should be maintained in order to increase customer base. d. Methods of productions: As the firm will produce some standardized products the basic method of production should imitate that of the established competitors. But the focus will be on developing better quality product. e. Distribution: The coffee shop consists of only retail outlets and for that matter the extent of their distribution is determined by the coverage of their network. The company should gradually increase its network coverage to capture greater market share. f. Marketing Strategy: At the initial level the firm will focus on using hoardings and banners at the local level to attract customers from the surrounding. But once the brand is established the coffee shop will explore other mediums to reach to the customers. g. Publicity: The main element on the basis of which the company will promote its products and services is the product quality, the differential service quality and delivery according to specific customer segments. h. Pricing Policy: Keeping the tight competition in the market in mind the coffee shop should price its products sensibly. It should be remembered that the major section of the customers are very price sensitive. Yet the pricing should reflect the quality of product and service being offered by the shop. Expansion of existing markets In order to expand the existing markets the company should increase the depth of its products. That means they should include more exclusive products in their product portfolio. They should also focus in expanding its network and covering almost all the target areas in the country. Their primary focus should be on increasing their market share in UK. Once they successfully do that, then they should think of venturing into a new market. The company can also come up with coupon vouchers, which will encourage more customers to attend on regular basis. To have a complete grasp over the existing customer base the coffee shop may start membership programs, which will help the firm to create a better relationship with the loyal customers. Apart from these the coffee shop can also organize different programs according to the taste and preferences of the local consumers. This will help them to promote their brand to a great extent. Thus certain concentrated steps on behalf of the company will ensure their constant growth and sustainability in the market. References 1. Hoyland C. 2009. “McDonald’s McCafe beats Starbucks in taste test”. Qsrweb.com. website:< http://www.qsrweb.com/article.php?id=13868> (accessed on 24th September 24, 2009) 2. “Our Coffees”. 2009. Starbucks.com. website :< http://www.starbucks.com/coffee/> (accessed on 24th September 24, 2009) Read More