Competitive Forces Within The Industry ( Porter 's Model )

There are different types of competition in the market for coffee. There are usually a multitude of coffee shops of different types and ownerships to supply for the highly concentrated demand. The most

30 3.2.6. Five Forces Analysis ......................................................................................................................... 31 Diagram 3: Five Competitive Forces in the Coffee Industry .................................................................. 32 3.2.6.1. Threat of New Entrants .................................................................................................................. 32

The “Coffee Wars – The Big Three: Starbucks, McDonald’s and Dunkin’ Donuts” article focuses on the company analysis of the Starbucks brand and how its main competitors, McDonald’s and Dunkin Donuts, has affected their brand and driven competition higher. Even though there are many companies trying to enter the specialty coffee market, these three companies own the majority of the market share. With Starbucks’ top quality and above average prices they hold a different market than the fast coffee/food market of Dunkin’ Donuts and Starbucks; yet the competitive moves Dunkin’ Donuts has made over the years in order to compete with Starbucks and surpass McDonald’s has driven competition up between all three companies. The competition has stiffened ever more in the past ten years due to the changing economy. This led to “the big three” to come up with different techniques to gain competitive advantage over the other. Although the competition between these companies is to gain most of the market share, consumers are still loyal to a certain brand; this makes it difficult to gain each other’s clientele. McDonald’s continues to appeal to customers who want value and speed, Dunkin’ Donuts focuses on the middle-class, while Starbucks a customer who desires a higher quality product along with being recognized for using the brand.

Since Starbucks entered the coffee retail business, the company has made many trade-off business decisions. The first major trade-off was made when Howard Schultz wanted to acquire present day Starbucks from three entrepreneurs Baldwin, Siegel and Bowker. Therefore, Schultz prior to the acquisition made the trade-off to open his own coffee bar in 1986 instead of staying at Starbucks as the manager of retail sales and marketing. A bold feat, Schultz was able to replicate success and was offered to buy Starbucks for $4 million. At the time of the acquisition, many investors, including the former Starbucks owners, would not expect that the American consumer would pay a premium for coffee products. Schultz, after calculating the opportunity cost, was convinced that Starbucks would become a large coffee chain not only in the United States but internationally too. Reflecting this approach, Schultz’s trade-off worked. Starbucks, according to our book has revenue exceeding $13 billion and nearly 200,000 employees. The company has also expanded to 40 countries with 17,000 stores (Hill et al., 2015).

At a restricted level, little cafés can contend with any semblance of Starbucks and Dunkin Brands on the grounds that there are no exchanging costs for the shoppers. Indeed, even believed it 's a focused industry, the possibility of new entrants to be successful in the industry is moderate.

Now, there are five competitive forces which shape every business and industry. These competitive forces are the threat of power of suppliers, new entrants, competitive rivalry, power of buyers, and availability of substitute which all will help the café sustain a competitive advantage (Baltzan, & Phillips, 2009). The power of the supplier is low for the café due to the fact that there are many suppliers that the café can buy from. So, if the café is not satisfied with one supplier we can always switch to another supplier with no problems or issues as long they meet the café’s standards and expectations.

The industry’s saturation is moderately high with a monopolistic competition structure. For new entrants, the initial investment is not significant as they can lease stores, equipment etc. at a moderate level of investment. At a localized level, small coffee shops can compete with the likes of Starbucks and Dunkin Brands because there are no switching costs for the consumers. Even though it’s a competitive industry, the possibility of new entrants to be successful in the industry is moderate. But this relatively easy entry into the market is usually countered by large incumbent brands identities like Starbucks who have achieved economies of scale by lowering cost, improved efficiency with a huge market share. There is a moderately high barrier for the new entrants as they differentiate themselves from Starbuck’s product quality, its prime real estate locations, and its store ecosystem ‘experience’. The incumbent firms like Starbucks have a larger scale and scope, yielding them a learning curve advantage and favourable access to raw material with the relationship they build with their suppliers. The expected retaliation from well-established companies for brand equity, resources, prime real estate locations and price competition are moderately high, which creates a moderate barrier to

No matter where we go, there seems to be a coffee shop around the corner or a shop/diner that provides the option of coffee or tea to their customers. Lets take starbucks as an example, they have many options as from tea to warm coffee drinks or even a nice cold coffee frappuccino. Coffee and tea is a demanded product in the market industry. From coffee or tea product in the market store or businesses buying the product to make coffee for customers, people are willing to buy the beverage to drink mainly to keep them awake. Some people need it as a daily thing.

Locally, Starbucks operates in a monopolistic competition market. As stated in The Micro Economy Today this market structure is define as,” A market in which many firms produce similar goods or services but each maintains some independent control of its own price.” (page 238, Schiller). Indeed, coffee lovers have a variety of options as to where they get their caffeine fix. Due to a large amount of substitute for coffee and beverages Starbucks cannot price their goods higher than others. If they raise their prices too high, consumers will simply turn to other suppliers and Starbucks will suffer a loss in profits. In addition to having an abundance of substitutes another characteristic of having a monopolistic competition is low barriers to entry. The cost to enter the coffee market is relatively low and people who desire to enter the market cannot be kept out. New entrants threaten

McDonald’s, in addition to several other fast food vendors like Burger King, Dunkin’ Donuts, Panera Bread and independent coffee houses remain Starbuck’s toughest competition (Adamy). McDonald’s began introducing its espresso beverage products in 2001, and offers its product at a price between two and three dollars to compete with Starbucks between three and four dollars a cup coffee (Adamy). Similarly, Dunkin’ Donuts has recently implemented a plan to expand nationally (Adamy). On average, Dunkin’ Donuts coffee products cost approximately 20 percent less than Starbucks’ (Ball and Leung). In response, Starbucks has announced recent

Starbucks’ lead in the specialty coffee industry exemplifies the result of deftly executing a well-planned business strategy. Moreover, Starbucks is well positioned for what is expected to be a continuing rise in the popularity of specialty coffee products. The question before Starbucks’ leadership, however, is what avenues will lead to Starbucks’ goal of remaining true to its core, the highest quality coffee products while providing a “total coffee experience” for its customers?

The threat of new entrants refers to the threat posed by new competitors within an industry. If it is easy for new firms to enter the industry barriers to entry are low and the threat of new entrants is high. A profitable industry attracts more competitors. Economies of scale, learning curve effects and other macro factors impact the nature of an industry 's

In conclusion, the Broadway Café faces a strong buying power and rivalry among competitors due to the large volume of shops offering the same products and services. The threat of new substitute products and alternatives is also high for the same reasons for buyer power. The Café also faces the threat of new entrants due to the lack of insignificant entry barriers. One upside is the relatively weak supplier power. The coffee industry is huge as stated above and vendors are more than ample. With this information we can conceive our business focus. The Broadway Café is best suit for a focused differentiation strategy. We plan to achieve

In general the coffeehouse industry in the United States was experiencing an increase in coffee consumption per capita due to the “Starbucks effect”. At this time Starbucks was operating approximately 20,000 stores in the United States and was living a fast expansion strategy worldwide.

Many coffee companies are currently in the market, making competition fierce. Although Starbucks has a strong reputation in North America, direct and indirect competitors still pose a threat. To establish market niche, competitors use location,