Cilantro - High Quality and Upscale Niche Coffeehouse - Research Paper Example

EXECUTIVE SUMMARY Coffeehouse has become a popular feature of the American culture over a few years. It has become an everyday drink of the Americans who in the beginning would not pay 50 cents for a cup of coffee but today will gladly $3 or above for it. The specialty coffee house business is growing steadily and will continue to do so in the future. As the American people’s taste for coffee has matured and broadened, they are asking for something more from the existing coffeehouses. Therefore, a niche exists for high-volume, high quality and upscale coffeehouse which is filled by ‘Cilantro’ a new specialty coffeehouse. The mission of the company is to become the number one choice of coffeehouse for the upper class providing higher experience quality than any of the competitors. The short-term goal of the company is to quickly achieve profitability and sustain a positive rate of return so that it can achieve its long-term goal and mission. The long-term goal of the company is to lay down its mark on the society by welfare contribution and expanding the business to other regions. For this purpose the keys to success would be: A market that can expose the company to trendsetters and influencers Superior quality with great tasting product Aggressive and ongoing marketing activities The company will utilize the opportunity combined with its success factors to market the product in the city of Los Angeles, home of the trendsetters. The marketing strategy will be based on the company’s high class target market which will be reflected in the product positioning, pricing and promotional strategies described in this marketing plan. PRODUCT/SERVICE DESCRIPTION & SITUATION ANALYSIS Current Market Situation The concept of specialty coffee business is fast growing and is readily accepted and appreciated by the population. Coffee chains continue to grow even though the country is facing economic downturns causing poor sales in many categories. Such a market for coffee shows that there is much opportunity for any new entrants in this field. Service/Products The services will be offered under the name of ‘Cilantro’, a premium Mediterranean coffee shop with superior coffee products along with other drinks for non-coffee people such as fresh juices and finest tea. Along with the drinks, a selection of pastries, gourmet chocolates and gift items will also be offered. The core product of the company is coffee. The coffee offered will be of different assorted variety such as espresso, cappuccino, Caffe Latte, Caffe Mocha, Mediterranean coffee, herbal coffee, Café Milano, Banana nut java coffee, and different flavored espresso drinks made by Monin and Ghirardelli. Different flavors of tea exotic to the natives of the Los Angeles will be offered such as English breakfast, Peppermint, Herbal, Lemon, Darjeeling, and others. Freshly squeezed juices of the seasoned fruits will be offered along with a selection of gourmet pastries such as brownies, bagels, fresh scones, fancy cookies, and muffins. Competitive Advantage The menu of Cilantro sets it apart from other specialty coffee houses which gives it a competitive advantage over others. The popularity of flavored drinks is an advantage to the company as the people are more aware about the tastes this coffee shop will offer. Although this is a premium coffee shop, the prices have been set to reflect the foods costs for every item which is similar to the prices offered by the competitors. Need of Target Market People have developed a sophisticated coffee taste and now know the difference between high and low qualities of coffees. Rodeo drive in Los Angeles is one of the most exclusive streets of retail fashion business. People who come here look for exclusivity for the money they offer. They belong to the high social class who take pride in what they eat and wear. Starbucks and Jamba Juice situated on this street do not cater such needs as both the coffee shops are aimed at people in general and do not provide any new and exclusive taste. This niche will be fulfilled by Cilantro offering the best coffee that people have tasted so far. SWOT analysis Strengths Strong product line with reasonable prices Differentiated product and atmosphere Weakness Not an established brand name Dependent on the competitive advantage: retail of specialty coffee Opportunities Specialty coffee market is growing Few competitors Threats Strong competitors with a strong brand loyalty such as Starbucks Competitors can start to offer similar products TARGET MARKET Target Market Affluent Shoppers The shoppers on Rodeo Drive range from Hollywood stars to fashion setters to other top class people. Each shopper spends about an average of $10,000 per day on items such as $6,000 handbag at Gucci, Bijan’s $15,000 suits and more. The aim of Cilantro is to take advantage of such a spending opportunity as well as the opportunity to become the most famous café on the street and in the country. Local Business The businesses on the street need to eat and drink and Cilantro is the best place for it. Therefore they are the primary targets as they can spread the good word to their guests and shoppers about the café. The local business includes the world’s top designers stores and boutiques which have a lot of growth potential and can work in favor of the café. Tourists There are almost 26 million annual tourists in LA who visit Rodeo Drive for the best retail shopping experience or as a tourist attraction. The café can become one of the amazing attractions given its Mediterranean culture and cuisine. The tourism industry in LA is of $14 billion which shows positive sign of growth and profitability. Market Characteristics and Growth According to the market research survey conducted by National Coffee Drinking Trends 2006, it was shown that 82% of American adults drink coffee, which is a rise from 80% in 2005. According to this report, an average person drinks about 3 cups of coffee daily spending $165 annually making retail coffee business a success. Few decades ago, nobody knew what espresso or espresso blends are and now they account for more than half of the specialty coffee consumption. As the coffee drinkers became more aware of other gourmet flavors, the market for specialty coffee is increasing accounting for 53% adults drinking it. This rate continues to grow in size every year. Given the selected target market combined with the coffee market growth and characteristics, Cilantro can become a leading premium specialty café in Los Angeles and United States in due time. Market Segmentation Variables The market segmentation is based on the following variables: Geographic segmentation As this is a premium coffee retail business, location has been chosen based the highest amount of money invested by buyers in retail shopping. Since Rodeo Drive is considered to be the most expensive shopping street in US, the location is perfect to launch and market the product/service. Psychographic segmentation Cilantro is a café that defines attitudes and high values which are similar to the status quo and lifestyle of the people who are part of the Rodeo Drive. The café fulfills the gap between the lifestyle people aspire to live and the lifestyle they actually live in. The interests and activities of such people are to be associated to something that defines them and gives a meaning to their lifestyle. Such is the psychographic of the shoppers, sellers and tourists visiting Rodeo Drive. Behavioralistic segmentation Since coffee is the most common drink of every American, the rate of usage and people’s readiness to buy coffee regularly will boost the coffee market. Given such a behavior, specialty coffee has the potential to reach out to customers who are willing to try something new. COMPETITORS & SUBSTITUTES Competitors The competition is mostly dominated by Starbucks and Jamba Juice in the vicinity. Starbucks Starbucks is the leading coffee retailer in US with having the majority of the market share. Its revenues are growing are at 20% per annum based on the strategy to blanket an area completely. The company targets all the demographics due to the wide range of drinks, pastries and other items it offers. The strength of Starbucks is based on the strategy to provide drink or a snack for every age group there is. As a strong global brand, and a huge base of customers, Starbucks offers high quality products that other competitors are not able to offer. The marketing strategy of Starbucks is to offer high quality products with prices similar to that of the competitors and promoting its products through different mediums such as internet, radio, newspapers and television. With such a strong position in the market, Starbucks does have certain weaknesses such as overextending its premium coffee market, increased competition from Dunkin Donuts and McDonald’s which are catching up in sales of coffee due to low prices as compared to the high pricing strategy of Starbucks. In addition the company is also diversifying its non-coffee menu to cover more target markets of different age groups. Jamba Juice Jamba Juice is also a direct competitor of Cilantro as the product line of company consists of selling fresh juices and Jamba Juice can cut in its profits and market share. Jamba Juice offers all the varieties and types of juices and smoothies positioned as a more health conscious and nutritious drink unlike coffee. Almost like Starbucks, Jamba Juice all offers a deli selection which is high in nutritional value. The strength of the company lies in the factor that it is the leader in the smoothie market producing high quality products that is increasing its customer loyalty. The weakness of the company stems from its stand-alone position in the market as it is easy for other competitors to enter. Jamba Juice targets all demographics like Starbucks but is priced economically so the affluent market might not want to be associated with it. Product Differentiation from Competitors Given the positioning of Starbucks to offer affluent consumers premium gourmet drink in a relaxing atmosphere and Jamba Juice offering consumers economic fruit smoothies a potential gap exists in the market. The café will position itself with products that not just premium gourmet coffee and fruit drinks but has a distinct advantage to it. The café will have a traditional coffee product line but will focus on the specialty coffees and espressos with a taste of Mediterranean. The juices offered are freshly made with the seasoned fruits so it will contain all the natural nutrients that a consumer needs to get refreshed. In addition to this, the café will offer an assorted variety of tea which is not yet offered by its customers. The customers will also be able to differentiate the atmosphere from that of the Starbucks and Jamba Juice which will surely attract ‘Cilantro’s target market. Substitutes Given the product line offered by Cilantro no such substitutes exist as coffee, tea and juices are itself substitutes of each other. Reaction of Competition upon Entry It is expected that during the introductory period the competitors might not react aggressively as they would hope that their customer loyalty would diminish but would still try to prevent the café from being successful by starting to expand their product lines or lower prices. PRICING Pricing Strategy Since the café is to be located in one of the most expensive shopping areas in US, the company will follow a premium pricing strategy. The café is offering high quality coffee and fruit products to a high class target market. Such a strategy has been chosen keeping in mind the market place, competition, quality of product offered and the manufacturing costs. As the target market’s behaviors and psychographics revolve around the perception that high price is an indication of good quality and prestige, the café will use this to its advantage. The rationale for setting prices at a premium is to set the café well above the other cafes in the area and to provide such a service to the customer that is not an everyday experience. The pricing strategy followed by Starbucks is premium pricing while Jamba Juice follows a penetration pricing strategy. If Starbucks and Jamba Juice can earn profits following their strategies, Cilantro can also profit. But this is not the reason for choosing the premium pricing strategy. The atmosphere to be provided by the café along with the specialty and Mediterranean coffee drinks, tea and juices, the premium pricing should be able to cover the fixed and the variable costs of the café. For instance the most important raw materials for the company would be coffee beans, tea leaves, fruits and dairy. All these are major expenses as they are mostly traded above the commodity prices carrying a price premium. Special Offers and Discounts The café will offer periodic offers and discounts equally to all target markets depending upon the flow of business. Special offers and discounts will be given in the off-peak seasons such as winters and on different holiday occasions as the streets are crowded with people and such offers can help in attracting customers. Pricing Structure The coffees and espressos will be priced from $2.00 to $4.00 and will be served in two sizes: regular and large. The tea will be served in one size priced ranging from $2.00 to $3.00. All the freshly squeezed juices will be served in two sizes: regular and large ranging from $3.00 to $4.00. All the pastry items will be sold from $2.00 to $3.00 while the gift items will start from $4.00 depending on the size and number of items. Pricing structuring for selected items is given below: Name Regular Large Espresso $2.50 $3.50 Cappuccino $2.15 $3.00 Espresso Macchiato $2.25 $3.15 Mediterranean Coffee $3.00 $4.00 Banana Nut Java $2.85 $3.85 Café Milano $2.75 $3.50 Peppermint Latte $2.65 $3.15 50/50 Latte $2.25 $3.00 Holiday Spice Latte $2.50 $3.10 Herbal Tea $2.10 Lemon Tea $2.10 Herb Apricot $2.65 Formosa Oolong $2.85 Darjeeling $2.50 Earl Grey with Lavender $3.00 CHANNELS OF DISTRIBUTION Physical Facility The location of the café is considered the best in the market that is located in the heart of the famous and expensive shopping street with dining and entertainment as part of the package. The environment provided by the café will be superior to other competitors with an upscale ‘Cote d’Azur’ appearance. Stained glass decorations, glasswork, inside furnishings and outdoor dining will all feature the style of Mediterranean Riviera. Direct Channel of Distribution Supplier to Café: Coffee beans and cocoa beans will be provided by the certified and best Cocoa Practice suppliers. Tea herbs will be provided by certified brewers and makers of tea leaves. The fruits will be delivered by the organic farms while the deli will be prepared by our own chef at different times of the day to give the customers warm and freshly baked pastries. Other ingredients will be acquired through local markets but will be inspected for quality at every stage. Café to Customers: Like every coffee shop or juice shop, the services will be provided in house. As the atmosphere presented by the café is the main element in its services, no home delivery system is put into service. The customers can just walk-in and seat themselves to the place of their choice: inside or outside or on the bar for a quiet drink. Reservations can also be placed through reservation lines or through a website. The website will be also developed to provide the information about the café and its products so that customers can have an idea as to what they can expect from the service. The café will build its own database of customers based on the phone numbers which will allow the café to provide latest updates and promotions to the loyal customers. In addition to this, the customers can also buy bottled tea and coffee as well as packaged beans and leaves for their own brewing from the café but this feature will be added after the café has a built a strong market base. Indirect Channel of Distribution In the coming years, owing to the success of the retail café, the company brand will also be established through third parties by selling packaged and bottled tea and coffee. The third parties will include specialty retail operators or stores, restaurants, and hotels in the area. Sales Force Selection The sales force will consist of a manager, three to four baristas, bookkeeper, and a website developer and supervisor. The manager and bookkeeper will be the owners of the café who will hire baristas with high expertise and experience in the brewing business. The selection of the baristas will be highly aggressive. Training & Management Although, the personnel hired will be experienced, certain training is still required on the rules and regulations and how the café would be run. As the products are chosen by the owners themselves, they will provide the baristas with the needed training to produce the product as desired. Compensation The compensation plan for the management and personnel will be very attractive and highly rewarding. PROMOTION Promotion Strategy The company will be using push strategy through which promotion activities will be undertaken to create consumer demand for the products of the café. With the help of this strategy, the company can directly sell to the consumer through advertisements and other promotional tools. By selling directly the company can better position its café in the minds of the consumers as the ‘Lexus’ of coffeehouses which offers high quality products and a superior service and environment. Competitor’s Promotional Activities Most coffee houses undertake little or no marketing or promotional activities. For example, Starbucks spends less than 1% of its gross income on advertising which is usually for the introduction of a new product. This is because Starbucks believes that the uniqueness of its products in the marketplace will help them in sustaining and growing their customer base. On the other hand, Jamba Juice promotes itself as providing a way of life by offering nutritious smoothies and assortment of supplements to boost one’s day. The company undertakes many advertising campaigns to promote itself such as ‘buy one get one’ free campaign. The element of differentiation for Cilantro will be the excessive and aggressive use of marketing and advertising activities to create awareness in the market, create a strong brand image, and build customer traffic. Promotional Activities The company plans to spend $25,000 of advertising and promotion since the beginning. The promotional activities will all be aimed at positioning the café as one of the elite and best coffeehouses in the vicinity as well as in the city. The activities undertaken for this purpose are: Direct marketing – flyers and coupons Direct marketing is useful because the company is using push strategy. As the main target market is basically located on the Rodeo Drive, handing out fliers and special discount coupons to passer-bys and stores can be a great way to reach a broader customer base. Direct Selling - Sampling To provide an insight on the quality of product offered by the café samples of drinks will be given out to entice the consumers. Word-of Mouth As people mostly come to shop, the shopkeepers and sales person can spread the good word about the café to their customers. This can help in tapping into their customer base to create the café’s own customers. Local print media such as Los Angeles Times Newspaper and LA Times Magazine Almost 97% people in the city read the LA Times Newspaper. Therefore this is the best way to reach the target market as well as potential customers. The paper is read by over 1 million people which include people with household income of $100K+. As the target area is Los Angeles, this is best option of reaching the whole audience. The LA Times Magazine is comparable to Style, Vogue and other fashion magazines and can be assumed that will reach the café’s target market very well. Company Website The company will promote itself through its website and will also market monthly newsletter, information about coffee, tea and juices, coffee recipes, special events and much more. Roll-Out Plan The company will initially launch itself using local print media and flyers as indicated below: The LA Times Newspaper, Features and Special section, half page everyday for two weeks. Cost: $ 3,500 per week. Total cost $7,000 The LA Times Magazine, one third of a page vertical positioning for two weeks. Cost: $8,200 per week. Total cost $16,400 2000 flyers size 11” x 17” cost: $600 Promotional Activities and Target Market Since the company is using concentrated target marketing focusing on affluent people, stores, and tourists the promotional activities fit perfectly. This is because the main target customers are already roaming on the streets of Rodeo Drive, the only objective is to establish the café as a coffeehouse that standouts amongst the others as the retail outlets established on the street standout from the others. By opening the café on Rodeo Drive, the location itself adds favorable publicity for the image of the café. Promotional activities such as direct marketing, direct selling, print media will further complement this position in the minds of the customer. PROMOTION BUDGET In the first year of operations, Cilantro café plans to spend $81,000 annual on advertising and promotion after the first roll-out plan. Since the company is just entering the business, the company feels that the exposure will come mainly from publicity in the print media such as newspapers and magazines. From then on direct marketing tools such as flyers and coupons will be used to further the publicity. The company also believes that the word-of-mouth advertising will play a vital role in promoting the café. LA Times Newspaper advertising will be after every month for a week starting after the initial roll-out plan. The approximate cost for 11 weeks of newspaper advertising will be $3,500 per week. The advertising in the LA Times Magazine will be done once every other month which will cost about $8,200 for a week which is about 5 months. The flyers along with the coupons will be printed by a renowned printing company in Los Angeles which will cost about $1000 for 4000 flyers. A tabular promotion budget is shown below: Media Total Cost Newspaper advertisement $38,500 Magazine advertisement $41,000 Flyers and Coupons $1,000 Total Cost $80,500 The above promotion budget is just for one year. Such amount is necessary to attract the customers and build loyalty which can serve in the coming years. References Davies, J. (2007). Who needs Rodeo Drive? San Diego Union Tribune. Retrieved from http://legacy.signonsandiego.com/uniontrib/20070919/news_1n19fashion.html Kotler, P., & Armstrong, G. (2004). Principles of Marketing (10th ed.). New Jersey: Prentice Hall. Lazich, R. (2004). Market Share Reporter an Annual Complication of Reported Market Share Data on Companies, Product, and services 2004. Serwer, A. (2004, January 26). Hot Starbucks To Go Its a new American institution. Fortune Magazine. CNNMoney. Retrieved from http://money.cnn.com/magazines/fortune/fortune_archive/2004/01/26/358850/index.htm Zavis, A. (2009). Even Rodeo Drive feels the pain of economic downturn. The Seattle Times. Retrieved from http://seattletimes.nwsource.com/html/nationworld/2008764845_richcities20.html Los Angeles Retail Report (2007). Cushman and Wakefield. Retrieved from http://www.cushwake.com/cwmbs1q08/pdf/retail_losangeles_4q07.pdf Retail Rates (2010). Los Angeles Times: Media Group. Retrieved from http://webapp1.latimes.com/mediakit/rates/09AS1699%20Retail_sm.pdf Rodeo Drive (2008). Rodeodrive.com. Retrieved from http://www.rodeodrive.com/ Read More