Strategic Analysis of Costa Coffee Market Entry to Azerbaijan - Assignment Example

 Part II. Strategic Analysis of a Foreign Market Entry Executive Summary The purpose of this research is to make certain that the company will operate in a profitable segment. This paper analyzes critical success factors needed by Costa Coffee in its entry to Azerbaijan, particularly to find its competitive advantage, to determine if there is underserved needs of consumers, and to describe the market segment and categories. Porter’s model of industry analysis is used and a SWOT analysis has been designed to define the market. Finally a recommendation for its entry is held. Part II. Strategic Analysis of a Foreign Market Entry I. Introduction. The purpose of this report is to analyze the success critical factors required in entering a foreign market. The chosen country is Azerbaijan which is located in Southwestern Asia, bordering the Caspian Sea, between Iran and Russia, with a small European portion north of the Caucasus range. (CIA 2012). It is of utmost importance that the company finds the niche factors that will guaranty its successful entry in Azerbaijan. Initial to the process is a research that analyzes the market. Objectives to be met are : a) to discover any advantage Costa Coffee may have over its competitors; b) To find if there is an unmet needs or underserved needs of customers; and c) find the right segment. To complete the analysis, use of Michel Porters model on analysis is prescribed. II. Defining the market segment according to demographics, product/service and distribution channel to find the right segment. 1. Consumer demographics. Azerbaijan has a total population of 9,643,000 as of 2011 (CIA). It is composed of 3,436,459 females and 3,307,88l males in the bracket of ages 15-64 and a male population of 227,172 and 367,675 bracket of 65 years and above. Population is composed of Azeri 90.6%, Dagestani 2.2%, Russian 1.8%, Armenian 1.5%, other 3.9% (1999 census). Population growth rate is 1.017% with a rank of 114 in world comparison. Baku, its capital holds 1.9 million people. 2. Product/service. Tea and coffee remain to be the favorite hot drinks in Azerbaijin. Euromonitor (2012) reports tea is consumed by almost 100% of its citizens, while coffee remains to be one of the stable areas in hot drinks, Multinationals strongly positioned here are Nestle, Unilever, and Ahmad due to popularity of their brands. Brand loyalty is very strong in coffee. Their business structures are general partnership agreement with an LLC for Nestle, a trading company for Unilever, and corporation for Ahmad coffee. 3. Distribution channel. Hot tea and coffee products are sold in supermarkets and independent stores. This type of distribution channel according to Euromonitor is a growing trend of sales model because of more shelf spaces, convenience, and the free ride in advertising and promos of the store. Costa coffee uses franchising and licensing in its entry to other countries they serve, The franchising business model of Costa Coffee will be a new concept of coffee house service in Azerbaijan. In such agreement, franchisee pays a fee for the rights of using its name. A certain fee is set at the outset of the agreement , that means Costa Coffee can collect fees regardless on whether the franchisee makes any money in the agreement. The license model is used when multiple products of Costa coffee are offered (Costa Business). Choice locations of Costa Coffee shops are motorway service stations and forecourts, gasoline stations, hotels and cinemas, hospitals, universities and pubs. III. Identifying unmet needs of consumers. Euromonitor forecasts a growing trend of the sophisticated tastes of coffee. Accordingly, it forecasts a positive growth for coffee and a decline in tea consumption due to maturity and the increasing demand for sophisticated blends. The approach of a new blend and sophisticated serving is a new concept that competitors in Azerbaijan is not yet aware of or unable to serve yet. IV. Advantage of Costa Coffee Its entry into Azerbaijan is a product differentiation. It is implementing a product innovation, a new type of distribution channel, and product process. As a top class coffee, consumers will reap same enjoyment experienced by students abroad. It boasts of its long time experience in the international franchising to over 30 countries worldwide and access to capital to finance expansion. The taste or blend of its coffee fills the demands for new experience of coffee taste of Azerbaijan consumers. V. Porters Model of industry analysis, that is rivalry, threat of substitutes, buyer power, supplier power and threat of new entrants (QuickMBA). 1. Rivalry is intense because Costa Coffee will compete with the same customers and resources. The slow switching cost intensifies rivalry because consumers can freely switch from one product to another. At present there are three major players in the coffee industry of the market. 2. Threat of substitutes is moderate because demand is affected by availability of substitutes. The availability of products in supermarkets, and the price of substitutes are threats. 3. Buyer power is powerful because it buys a significant portion of the output production of coffee beans supplier. Buyer here is represented by Azerbaijan. 4. Suppliers’ power is high because it is integrated due to its alliance for environment friendly coffee grown beans. An integrated supplier alliance has the ability to dictate prices to Costa Coffee that may affect price sustainability. 5. Threat of new entrants is easy because of the common knowledge to technology of coffee production; easy access to distribution channels and government irregularities. Regulatory is also a barrier, The Heritage Foundation’s 2012 Index of Economic Freedom places its business freedom at 68.6%, Labor Freedom – 81.6%, and Monetary Freedom – 74.5%. According to the information, the business start-up process takes twice the world’s average of 15 procedures in 200 days. Price controls are set in energy products, and inflation has come down to 6%, down from 20% in 2008.(The Heritage Foundation. In partnership with Wall Street Journal. 2012). 6. SWOT analysis. Strength of doing business in Azerbaijan is its growing economy, 100% drinkers in the population, a large number of working population that could be a target marke.t,. Weaknesses are trade barriers traced to public and private corruption of officials, high bank lending rate and high taxes; Opportunity is the growing trend for sophisticated tastes of coffee; and threat is the highly positioned multinationals in the market. Added to that is brand loyalty the have already achieved. V.. Findings and discussions 1. It has a large market considering that almost 100% of the population is hot drinkers of either tea or coffee. People are brand conscious, so it will take a lot of effort in promoting a new brand of drink in the market. 2. Porters model show rivalry as intense, threats of substitute as moderate; buyer power is powerful, supplier is high and threats to new entrants easy. 3. SWOT Analysis . Strength of doing business in Azerbaijan is its growing economy, 100% drinkers in the population, a large number of working population that could be a target market. Weaknesses are trade barriers traced to regulatory policies of the government. Opportunity is the growing trend for sophisticated tastes of coffee; and threat is the highly positioned multinationals in the market. Added to that is brand loyalty they have already achieved. VI. Conclusions and recommendations . Based on the research conducted, Costa has a competitive advantage if it so decides to enter Azerbaijan. The concept of a coffee plaza is something new to Azerbaijan who would be looking for a friendly atmosphere to unwind after work, and a sophisticated blend of coffee. Since their taste for coffee is experimenting this will be one way of establishing brand loyalty. Costa Coffee ‘ s business model has already created a niche worldwide, and it has the expertise to duplicate it in Azerbaijan. The unmet needs of consumers will be served by the new blend of Costa coffee and a new way of serving coffee. Costa Coffee will see this as a business opportunity to meet demands of coffee drinkers. The market segment is the large number of working population and the great population who drinks coffee and tea regularly. Recommendation is to establish partnerships by franchising and to continue with its model of individual, corporate franchising or licensing. Azerbaijan encourages foreign investments and has liberalized business procedures. References CIA World Fact Book. (Updtd. November 20, 2012) People and society [online] Available at https://www.cia.gov/library/publications/the-world-factbook/geos/aj.html[05 December 2012 ----- Economy. [online] Available at https://www.cia.gov/library/publications/the-world- factbook/geos/aj.html[05 December 2012] Costa business. Partner with us. [online] Available athttp://www.costa-business.co.uk/costa-coffee-shops/corporate-franchising/partner-with-us/[12 December 2012] Euromonitor International.2012. Hot drinks in Azerbaijan. [online] Available at http://www.euromonitor.com/hot-drinks-in-azerbaijan/report[05 December 2012] Quick MBA. Porter’s Five Forces. A model for industry analysis.[on line] Available at http://www.quickmba.com/strategy/porter.shtml [12 December 2012 The Heritage Foundation [2012] In partnership with Wall Street Journal. 2012 Index of Economic Freedom). [Online] Available at http://www.heritage.org/index/country/Azerbaijan[5 December 2012] Read More