Specialty Coffee Industry Analysis - Case Study Example

SWOT Analysis of the Speciality Coffee Industry SWOT Analysis of the Specialty Coffee Industry Specialty coffee is the coffee thatis high grade in quality from the time of growth to when it is served to the consumer. According to industrial standards, only coffee above the 80% mark qualifies to be termed specialty coffee. This type of coffee is cultivated in only ideal conditions that favor coffee growing around the world. This coffee gives maximum consumer satisfaction with little if any alteration in the distinct and sweet taste it is known for. It requires high standards from planting to roasting, storage, and brewing (Duggan, 2012). Industry players like Starbucks, Mc Donald’s and Dunkin Donut are at the core of this business in countries like the United States of America. However, many newcomers are showing interest in the same business, and require well informed strategies to move forward. Among the many forms of analytical techniques we take a look at the SWOT analysis technique. A SWOT analysis involves looking at the company’s weaknesses, strengths, opportunities and threats. It is worth noting that the SWOT analysis is performed on external and internal basis, thus this plays a great part in determining the growth of any business. Through SWOT analysis, one is able to examine and understand the performance and future predictions of the company (Ferrell, 2012). It is through these points that a management department can restructure and reorganize a company, thus ensure it is keeping with objectives required for its future success. In this article, we shall, therefore, take an in-depth look at the four major points that make up the SWOT technique in line with the Speciality Coffee Industry. The first point is the analysis of the strength of the industry. This involves primarily taking a look at the present, positive traits that make the specialty coffee industry stand out. It includes assessing both the internal and external strong points compared to its competitors. The coffee industry is flooded by a number of players but what makes the specialty coffee industry stand out is the variety of coffee blends on offer. It ranges from exotic Caribbean blends to internationally recognizable blends. This is a strong trait especially in the coffee industry where everyone is trying to find a market niche. As a result of the variety, it ensures that specialty coffee industry attracts a wide and diverse group of consumers since their needs are taken care of (Ferrell, 2012). The next strength that the specialty coffee industry is known for is the quality of its products. Due to the fact that it is marketed as a premium product, the standards set are high. This means that the level of scrutiny from cultivation up to processing is taken seriously. There have been instances where coffee beans are rejected at the processing level if their quality is compromised and this ensures no defects affect the consumer experience that the specialty coffee is known for (Ferrell, 2012). Good turnover and profits are strengths associated with the specialty coffee industry. This is because even though specialty coffee company may be in control of a niche market, good returns are always assured. This is because unlike the other coffee industry, consumers are willing to pay more for the service. This small but dedicated number of consumers is basically brought about by the experience they get with the brand as compared to normal coffee. The good turnover is crucial as it ensures the specialty industry can invest in itself by using the profit thus translating into an even better and expanding industry (Steiman, 2013). Another important strength that should always be maintained by the company is the brand name. Companies like Starbucks and Mc Donald’s are brands that have a wide customer loyalty because of their customer service and experience. Thus the brand name is very important to maintain. Specialty coffee industry is one that has managed to differentiate itself from the other coffee industry and therefore easier to click into peoples mind. The brand name has been a key strong point because even though some members of the society may not afford the same, the brand name sways them to purchase and try when they have the means. The effect of the brand has ensured that curiosity among consumers of the other coffee pushes them towards a trial and at times complete switch over to specialty coffee (Duggan, 2012). The presence of technology has also added a plus to the specialty coffee industry. Due to the high expectation of the customers, this industry has invested heavily in technology. This has been in the form of efficient brewing machinery at both the collection and processing level. This has ensured the right temperatures are adhered to when it comes to the roasting of the beans such that no more or less is applied. The right processing conditions provided by the efficient machinery has seen to it that the distinct and unique taste and blend of the coffee is maintained for guaranteed customer satisfaction. Most specialty coffee players have a diverse and efficient transportation of their products. This plays well for them especially since most of their raw materials are purchased throughout the globe. This has seen most companies invest heavily in shipping firms and nationwide to continental trailer transportation. In cases where the raw material is in bulk e.g. in the central African region, the mode of transportation is mostly by rail. This system ensures that the consumer in New York never misses his cup of coffee and this reliability is what makes them have an edge in the coffee industry. Most of the companies however prefer outsourcing the transportation to freight companies like the DHL express (Ferrell, 2012). This is quite smart as it ensures accountability on the part of the distributor. The final point on the strength is the type of personnel the company has. It is very expensive and involving training and maintain highly skilled personnel be it the telephone operators to dispatch guys. Thus an efficient training policy for workers is a strength that has been cultivated in the specialty industry (Ferrell, 2012). It varies from the way the management is trained to make informed decisions affecting the company to the farmers responsible for the coffee plantations. With a strong and intelligent workforce, consumer satisfaction is always assured. The next step involves the analysis of the company’s weakness. Similar to the strength of the company, weakness is viewed from an internal and present point. It is the negative and retrogressive traits that are part of the company. It is an important step that points out the setbacks the specialty coffee industry face in comparison to their colleagues in other coffee companies (Duggan, 2012). Due to the fact that specialty industry is associated with the high class and well to do people in the society, its market base is not big enough. This is a weakness that other coffee industries have taken advantage of even though their quality does not match that of specialty coffee. This has been worsened by the ignorance and lack of understanding from the consumers where most of them think that the two are of the same quality even though one is more expensive that the other (Duggan, 2012). Most of their competitors have even gone a step further to introduce improved blends of their products which they market as “premium” blends resulting in potential consumers being lured to the other brands. Building on the same point of weakness, the variety of products one offers is also a weakness. This is because even though specialty coffee offers exotic and international brands, its existence as a multinational brand limits its offer on homemade variety. In comparison to smaller coffee industries which may offer specific blends for specific regions, specialty coffee industry concentrates on a bigger picture inclusive of a whole country or a region. This weakness is also brought about by the fact that it is an industry that is more into exotic and premium brands than homemade and laidback brands that can relate to the common person (Steiman, 2013). This situation is worsened by the belief of some consumers that a brand with a wide variety of products is well established and understands the needs of their consumers better. Even though they may or may not have a wide variety of products, poor distribution of the products affects them. This is true especially due to the fact that most of the market bases for specialty coffee brands are located is in big cities and towns. This leaves a wide untapped market in the rural and suburban area that may not have access to the product. This gap in the market has seen other coffee players take advantage of the same and it is a weakness that affects the general market potential of the specialty industry (Steiman, 2013). The next weakness associated with specialty coffee industry is their low level of retaining consumers relative to the other coffee players. This is a major concern especially when one knows that their very existence is dependent on customers. This is a concern especially in the entertainment industry e.g. in movie theatres and football games. Initially this was the main market for specialty coffee but with newer and cheaper brands, customers tend to change to such products. The need to have cheaper products in the market has resulted in the industry losing on the retention of its existing and even potential customers (Steiman, 2013). This weakness is not just because of cheaper coffee but the introduction of soft drinks and liquor in these sports arenas. It is now acceptable to sell beer and hotdogs among other snacks in such areas which was not the case initially. Another weakness that may be problematic is the rate of scaling (Ferrell, 2012). This is because even if one’s products are moving off the shelf fast, an attempt to scale fast and build on the success may compromise the quality of services offered. The company may not have the required trained personnel to build on the success of the company leading to recruit more people that may not have the required expertise. This is a real problem since most companies tend to be overwhelmed by too much scaling that it ends up being the cause of their downfall and this is not any different for the specialty coffee industry. Scaling at times may be a bad venture in the instance of new market bases. This is because a company might misread a region as a market only to realize they are not into specialty coffee when it is too late having invested cash in infrastructure and other logistics. Another point on the SWOT analysis technique we shall look at is the Opportunities of the company. These are the externally existing factors that help an organization/ company attain its objective (Duggan, 2012). Basically, these are factors that give the company a lifeline in the future and are worth building on. They include restructuring of other companies in terms of their organizational management which may give your company an edge in competitiveness. For our case, it may include a coffee company pulling out of the region allowing the company into new markets. This also includes investing into suburban areas and putting shops where there was none. The other practical opportunity is employing workers from ones competitor since they may prove handy as they come with different knowledge. Such workers are always welcomed and if used well can turn things around for a company (Duggan, 2012). Better processing techniques, cost saving structures and better marketing strategies are some of the things a specialty coffee company can learn from such personnel and use the said information to improve its efficiency and restructure itself. Other external factors that may play an important role in the opportunities of the company include changes in the business world. Friendlier and accommodating interest rates by financial institutions may encourage one to borrow money and invest more in the company. This is important as it allows one to import more exotic and international coffee brands (Steiman, 2013). This opens and increases ones consumer base translating into more revenue. Such accommodating financial factors also ensure that one can finance promotional and advertisement expenses. With reduced interest rate comes friendlier borrowing conditions thus more capital is available for pumping into the Personal relations department that end up encouraging more customers. With this new era of technology, the number of opportunities at the disposal of companies is immense. This varies from technology in the internet services to the manufacturing sector. The specialty coffee industry should invest in the media to drive consumer awareness and sales (Steiman, 2013). This may be through use of social media to cup on the young people who are a potential customer block. Technology like the QR barcodes can be printed onto coffee mugs and disposables where consumers may be encouraged to scan the same using the smartphone to obtain offers. This ensures that the consumer experience is fun and interactive especially to the youth. Another point related to technology is the use of efficient raw materials and products thus saving on company expenditure. With the new technology, use of recyclable packages may save a lot on company revenue. The use of energy efficient brewing coffee machines can also save on power consumption resulting in increased net profit of the company as a whole. The other opportunity for the specialty coffee industry is growth in the economy of a country or a region as a whole. This is because with better economic times comes consumers who are willing to spend more on products. This is especially important considering specialty coffee is of higher cost when compared to the rest. Such instances may be as a result of good exchange rates, proper government financial policies or generally good financial times. This new opportunity should be targeted in promotions and advertisement to bring them onboard as new customers. The other opportunity that can prove handy is the change in taste of coffee consumer in general. When people start moving from regular coffee to specialty coffee, the specialty industry becomes lucrative and well-paying to the investors. This should however not be left for the consumer to decide when to change their taste, sample tasting booths should be set up in malls and other social areas to encourage the same. This is because it is only by tasting that a consumer can be convinced that specialty coffee is better that normal coffee. Others might term this as being the players influencing the consumers, but if it works it worth the effort (Ferrell, 2012). The last opportunity that is practical is by better marketing strategies. This may include selling specialty coffee products in a bundled offer. This is by encouraging the buying of more than one product at a go than buying a single unit. Such arrangements can be made where the price of a bundled product is cheaper that the collective sum of the products if they were purchased as single units. This also gives the consumers a chance try a variety of the products which they may not have bought if they were being sold as single units. Lastly we shall take a look at the threats to a company. This involves the external traits that reduce the efficiency and profitability of a company in one way or another. Threats may range from mild ones to very dangerous threats that may threaten the very existence of the company (Ferrell, 2012). Among the threats against the company in the coffee industry is the emergence of new players in the coffee industry. In cases where the new players have a lot of capital, there have been instances of them buying out small specialty coffee franchise all together (Duggan, 2012). The other threat is where the specialty coffee company becomes interested in investing into normal coffee as part of a way to improve consumer acquisition. This is very dangerous since it diverts the company’s strategic and production structures to include the same. Some specialty companies have these urge since to them that plan gives them a chance to tap into the wider coffee market (Steiman, 2013). This mostly results in a company being termed as another coffee company and the brand name may be destroyed all together. Another very dangerous threat is the over reliance on one supplier for one’s coffee. If the distributor is one, any climatic or political problem in his/ her source may render you out of business (Duggan, 2012). During the analysis of threats, this is one that should be given the urgency and come up with a solution. It requires both informed and smart solution since it may not only be an issue of supply alone but pricing as well. With a wide number of suppliers, the company has a bargaining power in terms of pricing and quality of the coffee itself. It also ensures that there is availability of the variety to not only you but to the customers as well (Steiman, 2013). Apart from issues to do with suppliers, the other thing is the threat of personnel poaching. This is a real problem especially in cases where your competitor is a big player with a lot of resources. Ones employees may be loyal but when it comes to higher pay and better employee remuneration, the employee may jump ship. This is risky as the competitor has access to information about the specialty company that they may use against it (Duggan, 2012). Worst case scenario is in the event that the employee involved was in senior management because it means that the critical information he/ she had access to can be used to your competitors advantage (Steiman, 2013). Hard financial times can also be a threat to the specialty coffee industry. This is because it may result is higher lending and borrowing rates by financial institutions. This means that a company is unable to invest more into itself especially if it relies on borrowing. The problem does not end there since business premises may be hiked in rental prices especially those in the strategic location. Hard financial times may even cause the consumer to cut down on expenditure especially in the consumption of specialty coffee beverage resulting in reduced revenue (Ferrell, 2012). This strain in cash flow may cause the company’s growth to stagnate or result in some employees being laid off or eventual closure of the company. The other threat in the coffee industry is the intense campaign on healthy food consumption. In the recent years, organizations have become aggressive in the campaign against the consumption of unhealthy products. Some claim that consumption of coffee is unhealthy to one’s health. This has been worsened by the introduction of technology where by just a tap on the phone, one can monitor the amount of calories and sugar they consume. People have become cautious about what they consumer, and this does not play well especially for the coffee industry in general which has a very wide market base. From the information we obtain from the SWOT analysis, we can use it in setting up realistic and attainable goals which may include capitalizing in the opportunities available for the specialty coffee industry (Ferrell, 2012). The opportunities and strengths can be merged together and work on them while minimizing on the weaknesses that may be present at the time. For example, use of the great management structures in coming up with measures to enable the coffee company appeal and attract more health cautious individuals. This may be done by investing in research to see how to come up with a coffee variety that has the minimum number of calories and sugar levels. This means that the threats are converted to opportunities for new market targets. The good management structures can also be used in coming up with solutions that it has the ability to. This is practical in issues to do with poor customer service. The overall customer experience can be improved with such small interventions by the management seeing to it that the production and distribution structures are improved (Steiman, 2013). The results of SWOT analysis can also be used to ensure the company has minimum if any threats. This can be done by putting up measures to reduce chances of employee poaching by competitor companies. This involves good remunerations and working conditions for employees. SWOT analysis results can also be used to scout out new and additional coffee suppliers to ensure that at no instance does the company get affected if one supplier decides to pull out. If the threat is new companies coming up, the company should draw out such threats and a way to turn it into its strength (Ferrell, 2012). This can be through brand establishment and aggressive sales and marketing approach. Therefore, we can conclude that SWOT as an analysis technique is not only a necessity but a requirement to industries especially in the specialty coffee industry. This is because even though it is a multi-billion dollar industry where such franchise as Starbuck have dominated it, the only way to succeed is to do an analytical survey that SWOT analysis provides. References Duggan, T. et. Al.(2012). The Blue Bottle Craft Of Coffee: Growing, Roasting and Drinking, with Recipes. Ten Speed Press. Ferrell, C. Hartline, M.(2012). Marketing Strategy. Cengage Learning Press. Steiman, S. et. Al.(2013). Coffee: A comprehensive Guide to the Bean, the Beverage and the Industry. Lanham publisher Read More