The coffee shop industry is highly competitive with many new entrants. Starbucks dominates the market through aggressive marketing and brand retention. New coffee shop brands find it difficult to compete or take second position in market share. Competition also comes from other establishments selling similar products like tea and pastries. While there is a predicted high rate of new specialty coffee shop openings, new entrants face moderate threats including high startup costs, market saturation perceptions, and challenges matching the quality, service and brand recognition of established franchises.
The coffee shop industry is highly competitive with many new entrants. Starbucks dominates the market through aggressive marketing and brand retention. New coffee shop brands find it difficult to compete or take second position in market share. Competition also comes from other establishments selling similar products like tea and pastries. While there is a predicted high rate of new specialty coffee shop openings, new entrants face moderate threats including high startup costs, market saturation perceptions, and challenges matching the quality, service and brand recognition of established franchises.
The coffee shop industry is highly competitive with many new entrants. Starbucks dominates the market through aggressive marketing and brand retention. New coffee shop brands find it difficult to compete or take second position in market share. Competition also comes from other establishments selling similar products like tea and pastries. While there is a predicted high rate of new specialty coffee shop openings, new entrants face moderate threats including high startup costs, market saturation perceptions, and challenges matching the quality, service and brand recognition of established franchises.
The coffee shop industry is highly competitive with many new entrants. Starbucks dominates the market through aggressive marketing and brand retention. New coffee shop brands find it difficult to compete or take second position in market share. Competition also comes from other establishments selling similar products like tea and pastries. While there is a predicted high rate of new specialty coffee shop openings, new entrants face moderate threats including high startup costs, market saturation perceptions, and challenges matching the quality, service and brand recognition of established franchises.
Competition in the coffee shop business is very intense.
There is an ever growing number of new
specialty coffee shop or new franchises of popular coffee shop brands that are being built. These offer varied product lines and a wide range of price points available for customers. Starbucks, which probably has the first mover advantage, dominates the coffee shop market as it has an aggressive marketing strategy and brand retention. This alone makes it difficult for other coffee shop brands to compete and stay on the second position in terms of market share and customers proportion.
Additionally, since competition lies in the coffee product or other product lines sold in similar specialty coffee houses such as tea, chocolate drinks, smoothies, sandwiches, and pastries, then all places that sell these products should be considered as a competitor. Even if they are not a specialty coffee houses, they are able to sell products with high quality and seasonally updated variety of options. They also are almost able to differentiate their products in a certain method that embraces their brand identity.
There is a high threat of new entrants to the specialty coffee market as per the prediction and statistics of specialty coffee association of America which predicts 5000 new specialty coffee houses to enter the market until 2015.
But in terms of the ability to match the existing products quality by major industry players, it would take the new entrants a long time to create similar skills and knowledge in product manufacturing and development, to customer service.
Furthermore, The best locations are already been taken by these players which leaves only the low attractive locations especially in metropolitan areas, and makes the cost of replicating such real estates is very high.
Additionally, the major excising companies have already developed their efficient supply chain by years of experience and with access to raw materials in lowest costs, which leaves the new entrants in much costly access to these materials.
The customer loyalty for coffee houses existed long time ago in the market would be a great struggle for new entrants to create their own customer database.
It is notices that the Specialty coffee market is hard to define and may allow disturbance to occur from a low end player or new channels of supply.
For instance, a competitive convergence might be created if major players such as Starbucks and Caribou decided to compete together with rivals and set market rules where all other players will experience a rough and intimidating environment. (Kim and Mauborgne, 1999)
- moderate threat for new entrants
- high cost of start-up - perception of market saturation - branded franchises have advantage of brand recall, have established skills and knowledge in product manufacturing and development, and also has established customer service processes - attractive locations have already been taken - long experience of branded coffee shops have developed efficient work flow procedures enabling them to do things at lower cost and they have access to low cost raw materials - branded coffee shops have already their loyal customers unlike new entrants that would have to struggle to gain recognition and acceptance from potential customers.
substitutes like ready-to-drink beverages, instant beverage powders and purees, and food and other beverages are readily available from various outlets, such as fast food and restaurants, supermarkets and grocery stores, and small convenience stores. In addition, the low switching costs further strengthen the threat of substitutes, as it is easy for consumers to buy substitutes
The bargaining power of buyers is a very significant force affecting the coffee shop business. Based on the low switching costs, customers can easily shift to other brands or beverage products. In addition, the high substitute availability means that customers can stay away from coffee shops if they want to, because there are many substitutes like instant beverages from other venues or even the availability of coffee makers enabling customers to brew their coffee at home.
Customers also have many options in choosing a location as a workspace or for socialization. Their choices are driven by the atmosphere and convenience of the location, or just the ambiance. If a coffee shop is able to create the customer’s preferences in terms of location and facilities provided, it will be able to circumvent the threat of customer power.
These strong factors overshadow the fact that individual purchases are small compared to the company’s total revenues. The small size of individual purchases equate to the weak influence of individual buyers on the business. Despite such weakness, the other two external factors strengthen the bargaining power of customers. Thus, this component of the Five Forces analysis shows that the bargaining power of customers is a top-priority strategic issue. Starbucks Corporation’s marketing mix or 4Ps provide support for brand strengthening to partially address the bargaining power of consumers.
The moderate size of individual suppliers can imposes a moderate force on the coffee shop. However, the high variety of suppliers weakens their bargaining power. This is because suppliers have various strategies and competencies that they use to compete against each other, with the aim of gaining more revenues by supplying more materials, such as coffee beans, to coffee shops. The bargaining power of suppliers is further weakened because of the relatively stable overall supply. There are many suppliers of coffee in the Philippines, especially in Mindanao. This factor should limit the influence of individual suppliers.
