Niche In The Coffee Shop Market example essay topic

Contents 1 Market Overview - Value / Sales/Volume / Growth in recent years 2 Market Forecasts 3 Macro - environment analysis of the market Social Political Technological 4 Geographical Spread of Market / Pattern of Demand 5 Analysis of Main Competitors Starbucks Costa Coffee Caffe Nero 6 Barriers to entry 7 Price sensitivity 8 Customer Profile 9 Supply 10 Conclusion 1 Market Overview - Value / Sales/Volume / Growth in recent years The coffee industry has grown rapidly since the 1990's; before Starbucks emerged, people were used to drinking low quality coffee from tins. Starbucks introduced fresh coffee made from top quality beans that have excellent taste and drinks such as the caff e latte and cappuccino, which have helped to fuel the development of the coffee market into a multi million pound industry. The size of UK branded coffee chains have quadrupled from 1999 to 2004, with a current market turnover of over lb 1 billion. 2 Market Forecasts The coffee market is forecast for continued growth and expansion, without threat of saturation in the near future. In 2004 the coffee market was estimated at having around 2,299 outlet units and it 2006 it is predicted that the number of units will have increased to an estimated 2,965, with the growth of the branded coffee sector predicted to increase by 11% between 2004 and 2006. Indeed, branded chain outlets have accounted for most of the coffee market growth according to forecasts by industry analysts Allegra Strategies.

Allegra claims that although there are more independents than branded coffee chains, in 2005 and 2006 it is expected that more branded than independent chains will be opening. Indeed, some independents. such as Bewley's in London, have had to close down. 3 Macro - environment analysis of the market Social The coffee market must adapt to a change in consumer attitudes or else it may be threatened by health and lifestyle issues. In 2003 the hot drinks market declined by an estimated 2.3%. Consumers, especially young people, are becoming more health conscious which makes coffee a less attractive choice; the increasing number of alternatives available such as health and energy drinks are becoming competitors in the coffee industry. Research carried out by Mintel shows that there is an increased diversification of tea, with a trend towards premium and herbal teas.

The coffee industry are responded to this change in attitude by provision of de-caf drinks, options such as soy milk, and alternative drinks such as freshly squeezed fruit juices, chai lattes and herbal teas. People are now working harder than ever before but have more leisure time; they now use coffee shops to socialist. Allegra research claims that dwelling time in coffee shops has increased; 44.9% of consumers stay for longer than 30 minutes, compared with 38.5% in 2003. Political High standards relating particularly to coffee producing methods are becoming more important in the industry and may gain political prominence. There is increasing pressure for businesses to trade ethically, that is, socially, environmentally, and economically responsible. This is reflected in the coffee industry by an increased demand and rising market value for sustainable coffees such as certified coffee and fair trade coffee, which guarantees a fair price to producers.

The fair trade market which is now worth lb 100 million, is growing with developments such as Tesco's launch of their own Fair trade range. Fair trade is also a means by which the coffee shop industry can differentiate their products and gain a socially responsible reputation; Starbucks customers now have the option to buy fair trade coffee. Oxfam have claimed there is a 'niche' in the coffee shop market and have responded by launching their own brand of Fair trade coffee 'Progresso' which is sold on already established premises such as bookstores. Technological Consumers are less inclined to buy coffees and teas in supermarkets due to the wide variety of coffees that are available in coffee shops today.

Hi-tech equipment and premium ingredients are now easily accessible and are used to make a variety of hot and cold beverages that are sold in coffee shops; from cappuccinos to the ice blended coffees. As a result consumers are becoming more knowledgeable about the ranges of specialised fresh coffees and premium teas that are available, and their tastes are changing to accommodate this awareness. Allegra claims that latte's have now replaced cappuccinos as the most regularly consumed beverage in the coffee shop industry in the UK. 4 Geographical Spread of Market / Pattern of Demand The market has progressed from concentration in the major cities; particularly London, to penetration of the smaller towns. Allegra claims that this is due to branding.

More coffee companies are focusing their marketing efforts on creating a brand name; McDonalds have created their own coffee brand 'Aroma'. Around 30% of the market is branded and this has steadily increased at a compound rate of 15.7% from 2000. Consumers in 2004 recognised an extra 5.1% of the major brands compared with 2003.5 Analysis of Main Competitors Starbucks success has boosted coffee's reputation, attracting competitors seeking to meet the new consumer demands for freshly grounded coffee. Starbucks is the UK market leader with 430 outlets, followed by Costa Coffee, owned by Whitbread (with an estimated 330 outlets) and Caffe Nero (an estimated 200 outlets). Starbucks Strengths Its success in establishing itself as an reputable organisation gives it a competitive advantage Investments were made to create an atmosphere, such as relaxing premises and laptop and internet connections. Its success allows it to spend more on marketing and consumer research to retain its lead.

Takes measures to trade ethically and offers fair trade coffee Weakness High prices Opportunities Appeal to an increasingly wide audience implies continued growth and development of their retail stores Threats Fast growing competition who may offer cheaper products. Maintaining intimacy and communication with their customers and a sense of atmosphere and culture despite continued growth. Costa Coffee Strengths Italian influenced culture founded on Italian expert knowledge of roasting coffee beans to make quality handmade drinks. Well established in the market and strong customer loyalty as Costa re-identified themselves as a brand with design group 'Mother " Weaknesses Costa coffee has had trouble establishing itself as a distinctive brand. Although Italian in origin, research showed many of its customers perceived it as South American in 2000, and it is making efforts to re- assert its Italian heritage Opportunities Expanding rapidly with 50 new outlets opening every year in the UK Costa Nero Strengths Variety of products available - serves pasta, hot and soups in addition to hot drinks gives appeal to lunchersOpportunities Expansion; Caffe Nero is opening stores in shopping outlets and bookstores 6 Barriers to Entry Competition is a major barrier to entry, with the big players enjoying most of the market share; Starbucks (31%), Costa Coffee (20%), and Caffe Nero (9%). Recently Coffee Republic was forced to sell their sites to Caffe Nero due to falling sales and have moved to a more lunch orientated rather than coffee based approach.

However it is argued that the coffee market is in full expansion to meet the market demand for high quality and differentiated gourmet products, and therefore there is room for competitors. Competition is fierce; analyst Mintel notes the renewed challenge from in-store restaurants and cafe's such as Marks & Spencer's cafe Revive, and even from pubs such as Wether spoons. 7 Price Sensitivity Prices of coffee are relatively inelastic, with consumers becoming more aware of the quality of their coffee, where it is derived from, and the atmosphere in the branded coffee shops. As a result UK consumers will regard a high priced quality branded product as good value; more than two-thirds (70%) of UK coffee drinkers will pay more for a good cup of coffee.

This was evident when Coffee Nation increased sales by moving from a cheap instant coffee to an express coffee with improved packaging. 8 Customer Profile Research from Allegra and Nestle show that: - People in the UK drink more than 2,652 tonnes of coffee out of home each year. - On average, people consume between one and two drinks away from home each day. - Most regular users of coffee shops visit at lunch time and tend to prefer light meals. - 81% of Allegra's research sample visit coffee shops at least once a week, with 19.4% of those visiting on a daily basis. - Take away coffee consumption is increasing; almost 40% more consumers are buying take away coffee in 2004 than they did in 2003- Among UK out-of-home coffee drinkers, 45% are keen to try new types of coffee.

9 Supply Raw materials such as coffee beans are readily available, the price of coffee beans is low and steadily falling, and coffee producer power is weak. Economic power concentrated into the hands of a small number of translational firms at the buying end of the value chain. Oversupply of coffee has lead to an increase in new market entrants, due to the many opportunities in high volume distribution channels. 10 Conclusion The coffee industry is evolving as a brand dominated market in which players are becoming more than just a 'coffee shop', differentiating their products on lines of high quality, variety of products available, with a new focus on marketing and the consumers 'experience' of coffee. In order to make the most of the opportunities in the coffee industry firms must adapt to changing consumer desires or else they will be forced out by the major players.

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