What Is the History of Caffe Nero - Case Study Example

Business Bit Where caffe Nero located and what is are its special products? Caffe Nero Group Ltd is a UK-based coffee house (Caffe Nero, . The Group has an international presence with more than 600 stores in the United Kingdom, the Middle East, Turkey, Cyprus and Poland; the Group serves coffee as their main hospitality product along with a range of food menu options for their customers; for example, the Group offers and serves a different types of coffee including Italian ground coffee and beans (Caffe Nero, 2014). What is the history of Caffe Nero? In 1997, Gerry Ford laid the foundations of Caffe Nero with an aim of providing and serving premium quality coffee and food items with the continental-style café to the United Kingdom customers (Caffe Nero, 2014). At the beginning, Ford opened up five stores in London and by the end of 2000, a total of 31 cafes were established; subsequently, the chain of stores expanded to 24 cities and town by establishing 80 coffee shops by the end of 2001; in the same year, the store entered in the London Stock Exchange (LSE) (Caffe Nero, 2014). What is the prime objective of Caffe Nero? The mission statement-Premium Italian Coffee, Good Food, Great Service- clearly shows the long term strategic objective of the coffee house (Caffe Nero, 2014). In this mission statement, both brand and service quality have been indicated and highlighted as well. In other words, retaining the brand perception is being obtained through providing quality products and services. What is the overall financial performance of Caffe Nero? Overall, Caffe Nero is financially performing better especially in the United Kingdom. However, as far as the performance and growth in other countries are concerned, the company has failed to effectively deal with the challenges, such as competitive prices, competitive strategies and strategic performance of offshore branches (main theme). Word count: 311 The main objective report is to critically assess the strategic performance for ascertaining whether the company is worth investing in future. For attaining this objective, financial information analysis in which both financial and non-financial information have been critically evaluated for determining the internal financial health and performance; and to evaluate the external performance, market share, threats from competitors, current business strategies along with comparison with the competitors have been included in the paper. After this comparison, recommendations have been proposed for the future investment in the company. The figure clearly demonstrates the financial performance of Caffe Nero over the period of last 8 years. In 2006, the company posted £90.7 Million annual revenue and in 2007, 2008, 2009, 2010, 2011, 2012, 2013, £106.5, £129.6, £145.0, £159.7, £174.4, £199.1, and £227.9 was respectively reported in these years, reflecting the stable and consistent revenue growth throughout this period. In this regard, it is important to mention that the company has collectively mentioned the revenue that it collects from the international operations and from its home country (i.e. the UK) has been displayed by the figure 01. As a result, it can be easily seen that revenue-reflecting bars mainly exhibit the UK based revenue growth. More specifically, in the first two years (2006 and 2007 The figure 02 displays uninterrupted growth in the number of stores during this period. The figure highlights that the strategic performance and strategic policies are generating the expected level of performance during this period. For example, in 2006, the company owned only 262 stores and that reached the level of 589 stores in 2013, recording an increase of 327 stores in a period of 8 years. And in terms of percentage, the company has recorded more 125 percent growth during the reported and highlighted period, highlighting that the company has put in place every financial and operational resource to ensure local and international expansion of stores. However, the figure clearly signifies that this expansion is more local than global as the bars are mostly reflecting dark black colour than the green one. In other words, the company is more reliant on the local expansion than on the international expansion especially in the first three years where no international presence has been reflected. However, subsequent to that, the company has become able to include the international growth contribution in its international strategic expansion strategy. Caffe Nero recorded an increase of 11 percent profit growth in 2013 (Quinn, 2013). Earnings Before Interests, Taxes, Depreciation and Amortisation (EBITDA) has also been stable and growing as well. For any new firm especially operating in the hospitality industry, it is highly needful to remain at least stable with the appropriate benchmarks showing unhindered growth in the almost all financial indicators, including revenue and EBITDA as they are the main factors reflecting consistency in the strategic and financial performance and policies. For example, in 2006, the company posted £15.6 million EBITDA and that touched the mark of £34.9 million by the end of 2013, demonstrating the growth of more than 100 percent over the period of eight years. Caffe Nero is the third largest UK coffee house (Cave, 2014). And the magnitude of this strength can be gauged by the fact that the company plans to generate 1700 jobs in the next five years in the United Kingdom (Cave, 2014a). And this expansion will be served by the latest financial deal worth £275 million (Burn-Callander, 2014). Moreover, Caffe Nero has stable revenue over the past eight years. This is the major strength as it represents that the senior management is fully cognisant of the expected and potential demand for food and coffee in the local and international markets as well. Over-reliance on the UK market remains the biggest weakness of the company. All graphs on the preceding pages clearly depict that Caffe Nero has majority outlets within the United Kingdom and a few stores have been established outside the United Kingdom. This policy has strategic ramifications for the company. First, the UK coffee industry is saturating as the existing competitors and new entrants are putting new and additional investment in the industry by opening up new stores in the country. Subsequently, this would increase competition and put pressure on the existing market players in the industry. For quality, customers never tolerate compromise under any condition. As a result, the company would be in intense pressure to ensure profit margin along with maintaining quality standards. Global expansion is the most important strategic option for the company and this is workable and possible as well for various reasons. First, the company has been successful for developing a positive and strong coffee brand name and reputation and many customers have strong loyalty with its brands and this can be authenticated by the stable and growing revenue over the period of last eight years. For example, China and India are two rapidly growing international markets as the middle class is increasing, enabling consumers to buy more and more products. As Caffe Nero has already established its brand name, it would face little competition in the countries. Competitors are growing their presence and giving more tough time to the existing players in the coffee industry. The total UK coffee shops are around 16,501 reflecting an annual turnover over £6.2 billion and expected sales growth of 6.4 per cent last year (The Food and Drink Innovation Network, 2014). More specifically, 1670, 790 and 560 outlets are owned by Costa Coffee, Starbucks Coffee and Caffe Nero respectively as they collectively control 54 per cent total UK coffee market (The Food and Drink Innovation Network, 2014). The expected future market trends are highly encouraging and promising as well. For example, The Food and Drink Innovation Network (2014) quotes Allegra forecasts predicting that the total UK coffee shop market is expected to touch the point of 20,500 coffee shops with the expected level of £8.7 billion by the end of 2018. Additionally, competitors are working hard to introduce and implement modern ways for serving coffee to customers. For example, Costa Coffee has planned to introduce a new coffee vending machine for the self-serve Costa Express Units (Til, 2013). Similarly, Starbucks is expected to introduce and install similar vending machines across Europe (Til, 2013). These are the main threats for Caffe Nero in the UK coffee industry Based on above mentioned trends, it can be deduced that the competitors are putting their best effort for launching new methods and new strategies for expansion and for attracting more customers. In this regard, it is important to mention that both Costa Coffee and Starbucks are the main competitors for Caffe Nero and they also own leading market share in the United Kingdom. However, the findings and recommendations of Mintel are highly relevant and important for assessing the type and nature of trends in the coffee industry. For example, Mintel (2011) signify that the UK coffee industry players do not segmentise their market share by age as the recent trend demonstrates that coffee shops are failing to interact with older customers. In other words, Mintel report is insisting that the coffee industry leaders have not given a particular attention and focus to older customers. As a result, it can be deduced that this gap offers opportunity to those who want to increase revenue and profit. Moreover, it is expected that growth trend is expected to rise in future as well as financial and operational statistics of coffee industry are highly encouraging in the UK (Hospitality and Catering News, 2013). Strategically, it is highly recommended that the company should expand its global presence by opening up more outlets in the developing markets. For example, both India and China are two emerging economies with strong potential and purchasing power of consumers. Keeping these facts in mind, Caffe Nero must concentrate on the international expansion beyond the boundary of Europe. And for this, it is highly essential that the company should invest more capital, human resource in these new markets. Additionally, the company may consider joint venture by allowing a local operator to open business operations by using Caffe Nero brand name besides paying brand royalty payment to the parent company. More specifically, the brand has already developed its strong and positive perception in the UK and across Europe. References Burn-Callander, R. (2014). Caffe Nero completes £275m refinancing deal. The Telegraph. Available: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/10556267/Caffe-Nero-completes-275m-refinancing-deal.html Accessed: 24 February, 2015 Caffe Nero (2014). Financial Performance. Available: http://www.caffenero.co.uk/story/performance.aspx Accessed: 24 February, 2015 Cave, A. (2014). Caffe Nero founder Gerry Ford has chutzpah-you need it if want to take a European Coffee Chain to America. The Telegraph. Available: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/10746554/Caffe-Nero-founder-Gerry-Ford-has-chutzpah-you-need-it-if-want-to-take-a-European-coffee-chain-to-America.html Accessed: 24 February, 2015 Cave, A. (2014a). Caffe Nero to create 1700 jobs in the UK. The Telegraph. Available: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/10746812/Caffe-Nero-to-create-1700-jobs-in-the-UK.html Accessed: 24 February 2015 Hospitality and Catering News, (2013). UK coffee: market grows and to grow strongly. Available: http://www.hospitalityandcateringnews.com/2013/01/uk-coffee-market-grows-and-to-grow-strongly/ Accessed: 25 February, 2015 Mintel, (2011). Coffee Shop-UK. Available: http://store.mintel.com/coffee-shops-uk-february-2011?cookie_test=true Accessed: 24 February, 2015 Quinn, J. (2013). Caffe Nero profits rise as chain expands. The Telegraph. Available: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/10375266/Caffe-Nero-profits-rise-as-chain-expands.html Accessed: 25 February, 2015 The Food and Drink Innovation Network, (2014). UK Coffee Shop Market Demonstrates Strong Sales Growth. Available: http://www.fdin.org.uk/2014/01/uk-coffee-shop-market-demonstrates-strong-sales-growth/ Accessed: 25 February, 2015 Til, N.V. (2013). Competition Brewing Among U.K. Coffee Chains. Available: https://blogs.technomic.com/competition-brewing-among-u-k-coffee-chains/ Accessed: 25 February, 2015 Read More