Caribou Coffee: Case Study - Essay Example

Caribou Coffee: Case Study Phase 1 Overview of the Company In the year 1990, the founders of the Caribou Coffee went to the peak of the Sable Mountain and noticed a sensational view of the endless mountains with the clear blue sky and some caribous running in the valley. This view became the true entrepreneurial vision of the company. This company believes in hard work and quality for being one of the best coffee producing companies in the world. Among all the coffee houses that are operated in the United States, Caribou coffee is considered the second largest owing to its number of owned coffee houses. In the year 2007, there are altogether 475 Caribou Coffee’s coffee houses which are located in 17 states as well as in District of Columbia and out of which 8 are franchised in US and there are 25 internationally franchised coffee houses. Caribou coffee was founded in the year 1992 in Minnesota and it’s an US based company. The company faced a net loss of $ 4.9 million in the year 2005 which increased to $ 9.1 million in the year 2006. This shows that the company is facing tremendous competition from its rivals in the industry. To understand the industry scenario of the coffee industry in US we analyse the industry with different tools to extract the essence of the industry. (Caribou Coffee, n.d; Case 28, n.d). PESTEL Analysis We perform the PESTEL analysis on the coffee industry of United States. The political factors obviously have some effect on every industry operating in the economy. The political pressure and the unstable economy of US surely had led emphasis on the sales of the industry. The political scenario influenced the inflationary rate to rise which affected the income of common man which made the industry sales dropping than its previous point and resulted in the losses incurred by the firms in the industry. The unstable economy of US also had severe effect on the coffee industry as the rise in the inflation rate with the impact of recession made many Americans loose their jobs which had direct effect on the consumer industry. The Society also felt the effect of global recession and the downfall of many consumer goods industry which also includes the coffee industry. With the loss of jobs and the decrease in income the social environment in United States became quite unpleasant which can be seen from the downfall of sales of the consumer goods, including coffee. There are technological up gradation in the Coffee industry of US which includes the modern techniques of packaging and preserving of Coffee but that did not provide the much help needed by the Coffee industry to overcome the global crisis. The technological updates generally increases the industry performance and the quantity of output produced but it does not have much effect no the sales of the products. Hence, the technological updates had not much scope in reviving the Coffee industry fro its present state. The coffee industry had major effect on the environment, as the raw material of the coffee industry is the coffee seeds which comes from trees, the industry prevents deforestation and focuses on the plantation of new coffee plants. This is a very useful and necessary step in saving the greenery of the planet. The coffee industry of US is surely abided by the legal system of US and any unlawful activity of the firms in the industry can have severe effect on the industrial output. (PEST Analysis, n.d; Gillespie, n.d) Industry Life Cycle Analysis The phases of growth of any industry can be analyzed by the Industry Life Cycle Analysis so we analyse the growth phases of the coffee industry with the help of this analysis. In the coffee industry during the initial phase of production when a company is just introduced in the market the earnings and revenues would be very low. It will take time for a firm to stabilize its place in the market and buildup the demand for its product. Once the demand is created for the product of the company in the market, there would be gradual increase in the earning and revenue of the firm. There will be huge expenses in the initial stage of production with the setting up of the plant and machineries and the initial investment in the purchase of raw materials but with the passage of time and increasing market demand the earnings and the revenues will tend to rise. There will increase in the revenues till the firm reaches the stability phase and gets matured in the industry. The market demand for the product will be more or less constant in this phase generating constant revenue to the firm in the industry. This is the industrial phases of growth in the coffee industry which is more or less equal for every firm who is trying to grab its place in the market. (Product life cycle, n.d; Industry Life Cycle, n.d) Porter’s Five force Analysis Now we analyse the coffee industry in terms of the five forces of Micheal Porter which are the bargaining power of the supplier, bargaining power of the buyer, threat of new entrants, threat of substitute products and rivalry among the existing competitors. In the coffee industry the bargaining power of the supplier is limited since; there are legal bindings in setting a price for the consumable goods. There are ceilings and floorings of prices which are set by the government which ties the hands of the suppliers in setting high product price. Similarly, as the market price is fixed according to the government regulations there is not scope for the buyers to bargain in the coffee industry. The price of coffee includes the sales taxes imposed by the Government so the buyers are forced to buy the product according to the market price without any option of bargaining. There is not much threat of new entrants right now in the United States coffee industry because of the unstable economic scenario. The existing firms are either running in loss or just managing marginal profit which is not a very attractive scenario for new firm to enter the industry. In the future there can be threats of new entrants if the coffee industry incurs huge profit but not at present. In case of threat of substitute products, tea is the best substitute of coffee but the coffee industry had already created a market for itself and the consumers are divided in the market quite literally for buying tea or coffee. So, there is not much threat in terms of substitute products unless any new type of beverage is innovated. There is immense competition and rivalry among the existing companies in the coffee industry in US. They compete against themselves in terms of marketing and distribution of their products. This is five force analysis of the coffee industry in US, which depicts the overall picture of the industry. (Case 28, n.d) Market Segmentation Market segmentation is used to identify the parts of the market which are different from each other. Market segmentation allows the industry to analyse the different needs of the customers. There are four parts of market segmentation, the geographic segmentation, the demographic segmentation, the psychographic segmentation and the behavioralistic segmentation. The geographic segmentation of the coffee industry of US shows the huge size of the industry which deals with the 300 million US populations with the cold climatic conditions just suitable for the marketing of coffee. The demographic segmentation of the industry shows the consumption needs of coffee in US which had around on an average 4 members in a family. The psychographic segmentation which shows the customer needs according to their usual activities and interests depicts a favourable picture in terms of coffee consumption in US. The people are quite used to coffee consumption in US and prefer whole bean coffee and hence the market demand for such coffee is quite high. The behavioralistic segmentation shows the usage and user status, the brand loyalty, etc for buying a product. The market demand for coffee is quite high in US which shows the usage of the product in the American household is quite high and the user status is regular in terms coffee consumption. Most of the people in US depend on the brand name in terms of buying quality product. (Business Resource Software, n.d; Market Segmentation, n.d) SWOT Analysis in terms of Opportunity and Threat The SWOT analysis of the US coffee industry is done in terms of the opportunities and threats prevailing in the market. From the above analysis we came to know the overall aspects of the coffee industry in US, based on these aspects we first analyse the opportunities in the coffee industry. There is good prospect and opportunity for the growth of the industry as it has a good market in US and the demand is high. With the increasing global demand of coffee, there is huge scope in terms of global expansion. The growing demand for coffee with the opening of coffee houses in the third world countries provided option for the coffee manufacturing firms in US to grab the market in the developing countries which are quite densely populated. The main threat that the industry is facing at present in US is the global recessionary pressure which is affecting the income of the US citizens and causing downfall in the net income of the coffee industry. The recessionary pressure resulted in the fall of the prices of the stocks in the industry which is another threat for the small firms in the industry to survive in this scenario. (SWOT Analysis, n.d) Phase 2 In this phase we perform an internal analysis of the Coffee Industry in US in terms of the performance of one of the leading firms, Caribou Coffee Company. The generic strategies of the caribou company which are implemented for the betterment of the company are mainly based on the objective of cost leadership of the firm and differentiation in their products. They had implemented strategies on providing better customer services, the selection and training of persons associated with the coffee houses, strengthening of the site selection process, development of new products by merging in partnerships with other firms. These strategies help the company to focus on the weakness it had earlier possessed and rectify them for their future growth. The company wants to deliver excellent customer service and for that they had strengthened the process of selection of the employees who work in their respective coffee houses. They had focused on the development of new products to compete with the market forces and to differentiate their products from their close rivals. For that they did some mergers and acquisitions and developed new products. (Porter, 1980; Evaluation of Potential Generic Strategies, n.d) The market segmentation of the firm allowed us to get a close look at the customer needs of the products of Caribou coffee. The company focuses on providing unique experience to their customers and deliver products of high quality which can be easily associated with the customer needs. The high quality of coffee is made from the Arabic beans and is served in the coffee houses owned by Caribou. The company makes effort in analyzing the proper needs of their customers who are of different age groups and serve accordingly. With the demand of their product in the market, Caribou Coffee opened around 475 coffee houses; this number is based on the data of April, 2007. The company had the support of 17 states where all these coffee houses are located with the high rate of customer satisfaction. The Caribou Coffee had a strong reputation in the market for its excellent quality and the company ensures in keeping the user status regular for its customers in the coffee houses. The core competencies of the Caribou Coffee Company lie in its acquiring knowledge based resources. The company in terms of developing new products to survive the market competition had merged with Coca Cola North America (CCNA) for the launch of its new product ready-to-drink iced coffee. Then it had also merged with the General Mills and launched a line of snacks bar of Caribou Coffee. It had also launched Caribou Coffee ice creams with its merge with Kemp. These mergers with the well reputed names in the market helped Caribou Coffee to strengthen its distribution system which also helped the company to make a global mark. The mergers also helped the company in successful and proper implementation of its generic strategies which the company had initiated for the betterment of its performance. The generic strategies which involved the development of new products and developing strategic partnerships got covered up with the above mentioned mergers. These are basically the core competencies that Caribou Coffee Company had shown. (Core Competencies, n.d; Strategy- core competencies, n.d) The value chain analysis of Caribou Coffee Company shows the progress of the Company in terms of its operations and sales. The company excelled in adding value to its support activities by merging with Keurig which helped Caribou Coffee in packaging of its product of gourmet coffee so that it can taste similar in the households and the offices as it tastes in the Caribou coffee houses. The merger of Caribou Coffee with the Coca Cola North America helped the company to serve ice cold coffee to the customers in the coffee houses and to compete with the leading company in the coffee industry, Starbuck which had also merged with Pepsi for making similar ice cold coffee. This also helped Caribou in using the distribution system of Coca Cola North America which is quite strong. (The value chain, n.d; Quick MBA.com,n.d) The Caribou Coffee Company is in itself a large corporation and thus it is responsible for all the products and services that are produced by the company comprising the total portfolio. The company had an effective growth owing to its diversification of the business; it had expanded its business in various parts of the country and also in some other countries. The company had focused in opening of new coffee houses in all parts of the country. The company merged with other well known companies to establish and expand the business all over the world. The Caribou Coffee had shown formidable growth in opening of number of stores which had grown from 152 in the year 2000 to 514 in the year 2007. The expansion of the company was due to the market demand of their high quality product and excellent customer services which enabled them to grab the second place in the rankings among the leading coffee manufacturing firms in the United States. (The Boston’s Matrix, n.d; Ansoff matrix, n.d) From the internal analysis of the Caribou Coffee Company, we managed to extract the key factors which are responsible in leading the company to success in the industry. These factors can also be seen as the strengths for the company if they are well implemented. The Excellent customer services and the positive customer reviews are the major strength of Caribou Coffee Company and hence, it is concentrating on the betterment of services in its coffee houses by taking essential care in the field of selection of employees in the coffee houses. The new mergers also provided the necessary support strength to the company in the technological up gradation of the packaging of their products. The distribution system also got the scope to expand in the light of the merger with Coca Cola North America. The merger also made them launch a new product of ice coffee so that they can compete with their arch rival, Starbuck who had already launched a similar product with their tie-up with Pepsi. This step of Caribou Coffee also shows its strength in terms of new product developments. So, these are the key success factors where the company should focus to make new efforts to reach the top position in the industry but the concern is that, other leading companies in the coffee industry of United States are also making similar efforts to grab the top position in the industry. (Product Market Expansion Matrix, August 2008) Phase 3 With the overall analysis of the Caribou Coffee Company with respect to the coffee industry of United States, we clearly see the competitive atmosphere in the industry. The competitive atmosphere is the result of the vast opportunities that are lying open in the business of coffee production around the world. To combat the competitive forces and to survive in the industry, the Caribou Coffee Company should focus on strengthening the customer services in the coffee houses for better sales prospect. It should develop unique strategies in training of the employees to make them more efficient in handling of different customers in the coffee houses. They should also focus on selecting proper locations for opening new coffee houses. The new coffee houses should be opened in places where they can attract more crowds into the shop for better sales prospect. The company had already initiated in developing new products with the mergers happened with the other brands of the country but still there are lots of scopes in the field of innovating new products which the company should focus on. The near foreseeable future of the Caribou Coffee seems to be quite bright with the initiation of few generic strategies. The successful implementation of these strategies would provide the necessary back up to the company and would give the required push to reach the top position of the rankings of the American coffee industry beating the present leader Starbuck. 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