Research has indicated that an average American or western European adult (male and female) may consume 3 or more cup of coffee a day (Grosso, Stepaniak, Micek, Topor-Mądry, Pikhart, Szafraniec, & Pająk, 2015). Coffee industry is worth billions and the industry is rapidly growing making opportunities for new businesses established in this line of industry. The annual value of coffee market is estimated to be worth $48 billion (“Specialty Coffee Association of America”, 2016). Coffee most of Americans start their day with. There are many café brands in the USA selling coffee to American coffee consumers. Some of them are Starbucks, Blue Bottle Coffee, Four Barrel Coffee, Sightglass Coffee and La Colombe Torrefation. All of these coffee houses and more are making billions in returns from coffee industry and have made millions of loyal customers over time who come into these coffee houses on almost daily basis and spend their coffee dollars with them. Coffee industry has become an important ingredient of the US economy. It has also become an important contributor to the job market where each café employees at an average between 9 and 10 persons (“Number of employees per coffee and snack shop in the U.S. 2016 | Statistic”, 2016).

With this paper, I would be proposing an idea to start a café named “Coffee and Toffee”. This café would be based on providing the customers a facility to enjoy different products on competing prices. Coffee and Toffee would offer its customers coffee, homemade toffee and limited choice of pastry treats. The purpose of the café would not be to only maximize profit. We also plan to provide our customers a place where they can feel relaxed and can set around for some time refreshing their day. We plan to train our staff with the best possible customer services training available out there. We also plan to have our staff believe in the aims and objectives of the café and offer them employment packages that would motivate them to work from their heart at the café and feel recognized. Our working environment will be exemplary which will be a joy for the employees to work at. Safety, security and cleanliness would be our top priority.

We plan to offer our customers with products that are more like homemade and are of the best quality. Our supply chain will be based on getting competitive deals from our suppliers so that we do not have to compromise on the quality or quantity of the product. This will help us win the confidence and loyalty of our customers. We also know that it would be a challenging task to attract customers to our café in the presence of already established coffee shops. We realize that a comprehensive marketing strategy would be required to attract as many potential customers as possible to make our café project a success.

Chapter one of this proposal provides an overview of the present coffee industry has been provided. An account of the existing café’s in USA has been providing with a discussion of how our idea can progress side by side these existing competing coffee shops. There is also an account of the threats posed by the substitute products. Threats of new entrants is also briefly discussed with a general overview of how to tackle this issue. Suppliers are an integral part of the coffee industry. They do enjoy a degree of power in the industry. This paper would discuss in depth how to deal with the suppliers to create a win-win situation that can helping providing quality to the customers with competitive prices. It is a fact that each business makes it profits from the consumer market. The power that the consumers enjoy in the coffee industry will be discussed in the first chapter.

Chapter two of this proposal would be based primarily on our café, Coffee and Toffee. The range of products offered at the café would be discussed here. The prices that we aim to put on these products would also be discussed with the competitive advantage they may have for our potential consumers. We would need a proper strategy for our product placement and promotion. These strategies would be discussed towards the end of the chapter two.

Chapter One

Analysis of Café Industry in the US

Preview

1. Existing Café industry USA
2. Threat of Substitute Products
3. Threat of Potential Entrants
4. Bargaining Power of Suppliers
5. Bargaining Power of Customers

Chapter One Summary

Existing Café Industry in USA

Before we start to talk about the current status of the coffee industry in the US, it is important to through some light on the history of coffee culture in the USA. USA is the largest market of coffee in the world. It wasn’t till 18^th century when coffee plants reached the new world with the international traders who used to travel around the world and hence to USA. The reason that might have contributed to the switch from tea to coffee might have been a wave of patriotism as tea was considered to be a product of the Britain and helping them financially. During the Civil war, coffee was taken in to boost energy in the soldiers due to the presence of caffeine in it. By the end of the 18^th century, coffee had become a world know competitor to tea and its consumers have since been on rise all over the world (Avey, 2016).

Coffeehouse industry exists in many forms in the USA. The traditional way of running a coffeehouse however is still in practice at the majority of coffee houses. The traditional types of coffeehouses are small coffee shops in size with. They offer prepared coffee, tea and some other hot drinks to their customers. Thought the structure of these coffeehouses still remains traditional, i.e. small in size with small tables, chairs and stools for the customers, some coffeehouses have been evolving their menus over the time. At present their menu consists of coffee, tea, hot beverages, snack items, baked items, salads, donuts, and bagels etc. Coffeehouses make up a small but an important part of the overall food and drink industry in the USA. The food and drink industry overall is a huge contributor to the US economy. $782 billion food and drink items are expected to be sold in 2016 (Statista, 2016). The coffee industry is not limited to just people involved with it in the coffee houses. Farming at large and small scales is also involved with the production of coffee. These farmers may be present within the US borders or may be from outside of the US. The coffeehouses owners may do business with these farmers directly or may be in contact with them via other suppliers.

To be able to succeed in the coffeehouse industry in the US is not an easy task. There are many other already established giants in the market who pose a greater threat to the new coffeehouse businesses. Establishing a coffeehouse would mean trying to attract coffee drinkers from the already existing coffeehouses. Starbuck, for example is a leader in the coffee market in the world with a decade history of expansion in the world. Starbucks has more than 22 thousand stores worldwide, most of which are in the US.

In the USA, people drink coffee to feel relaxed. U.S consumers drink 3.35 cups of coffee per day at an average. Each month around 35 million US citizens pay at least a visit to a coffee house according to Nielsen Scarborough and at the week ending October 1, 2016 only Starbucks had a sale of $92,364,530 (“beverages”, 2016). These figures are not threating to us, who are proposing an idea to open a coffeehouse. These figures are actually encouraging as it gives us an idea of how much coffee is in demand. It has been reported that regional coffeehouses are growing compared to big players in the business due to the exponential demand of coffee (Forbes Welcome, 2016). PJ’s coffee is an example of such a regional brand. We plan to rely on these figures to target different segments of the market to promote our coffeehouse and products. The internet has abundance of data that can help us in planning effectively for our project. Though we need to be careful in making an analysis of the coffee market in the US and rely on credible sources of information. The internet is full of credible and fake information. Business decisions should not be blindly based on internet information in my opinion. I have utilized multiple resources to make calculated decisions.

Threat of Substitute Products

Before a decision is made to launch any business, it is important to make an analysis of the substitute products that are already available in the market and may hinder the success of the product that one is planning to launch. For the proposed project of opening a coffeehouse I did the substitute analysis and over here I am presenting my results and suggestions.

First I analyzed the reason for the existence of any substitute to coffee. It comes out that the main reason that a consumer may be influenced to make a switch from coffee is due to the presence of caffeine in coffee. Caffeine is not considered by some people and that is why they would want to stop drinking coffee. In my opinion, and in the light of the discussion that I made earlier sections with statistical facts, I think that the switching consumers are not in such a quantity that they would threat the whole industry of coffeehouses at the moment. That is why I would not consider it a major threat.

Another substitute to coffee could be green tea. Green tea is a healthy product but I do not think that it has the potential to threat the existence of coffee at all. I mean I have never heard of any restaurant or coffeehouse specializing in green tea. There are also many other variants of green tea like lemon grass that are present in the market but they do not pose a serious threat to our proposed business.

Black Tea is a serious contender to the coffee of business al around the world. From my research I was able to conclude that tea is indeed a product liked by many, but it has more caffeine than coffee and when a comparison is made between the two, coffee is rapidly been adopted by consumers (“Apparently tea contains more caffeine than coffee | guardian.co.uk”, 2016). Thought tea might pose a serious threat to coffee business in Europe where it has

I plan to offer not only coffee at Coffee and Toffee café as is obvious from the name. Coffee and Toffee would also have homemade toffees and a limited range of pastries during the initial stages. With time the product range might increase and what we consider as substitute products now, could become a part of our menu. But it is too early to suggest now.

Threat of Potential Entrants

Threats of potential entrants is normally faced by already existing businesses as they may have the fear of new businesses joining the game and posing to take over some of their market share. In the case of Coffee and Toffee, I also think that there would be more people thinking to open their coffeehouses at the same time when Coffee and Toffee will be launched. Therefore I think that this possibility should be kept in the mind. Any startup can has an equal opportunity of failing compared to be successful. I think that competing with other startups would require vigilance and creativity on the Coffee and Toffee management part. Entrepreneurs must be motivated to face failures, manage and lead to be successful with their startups (Burns, 2010). An owner is not just an owner but also a leader in many ways. Owners have to keep track of the financial resources, manage the human resources and other resources and motivate themselves and others to effectively confront all challenges that are faced during the initial stages of new businesses. To counter the threat of new entrants just like me, I would look at the market where I am going to decide to open the coffeehouse and observe if any new café is going to be inaugurated. I would closely watch their marketing strategies and business model and compare it to mine. I would then look for loopholes in my strategy and make necessary improvements. Improvement is a continuous process and a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis can prove to be vital at any stage of the business.

Bargaining Power of Suppliers

Coffee business is highly influence by the role of the suppliers. In fact in every business, suppliers play a vital role. The price that is agreed with them for the raw material or other products reflects in the end price offered to the customers. Supplier selection and evaluation is considered to be among main decisions that influence the product life cycle (Aamer & Sawhney, 2004).

Coffee beans are supplied by many suppliers to the big companies related to provision of ready coffee. Some companies like Starbucks are in direct contact with the farmers around the world and help them with farming in return for getting competitive rates for the coffee beans (Responsibly Grown and Fair Trade Coffee, 2016). This is obviously not possible in our case as this is only affordable for big companies like Starbucks to reach out directly to farmers and bypassing the intermediate suppliers. But the fact that big companies who deal directly with farmers might open some opportunities for small coffee related businesses like the propose café to negotiate more effectively with the suppliers as they might be convinced to form an alliance against the big companies that are already bypassing them and eating up their share of the supply chain involved in the movement of coffee beans from one location to another. It seems obvious that suppliers would tend to move more close to do business with larger buyers than smaller but research has indicated that suppliers may be faced with a dilemma when they worry to lose a larger set of small businesses compared to a smaller set of larger businesses (Inderst & Wey, 2007).

I would suggest an adaptation of a collaborative strategy to deal with the suppliers. The collaborative strategy has proved to be effective as a certain level of trust is built among the suppliers and the buyers (Burnes & New, 1997). This strategy is not like a win-win strategy that I earlier suggested I may adopt. In a win-win strategy both parties may want to reach an understanding where both feel that they have not given up their position. On the other hand, in a collaborative strategy, one party may want to give up some of its advantages to help out the other party. The level of trust ensures that the benefiting party would return the favor in future when possible. In the case of supply material like coffee beans, and other products like sweats for the toffees and baking items for the pastries, an understanding can be reached with a suppliers to give us competitive prices and help us in this time and a contract or understand can be made that when the business expands, they would be the exclusive suppliers for a certain time or whatever the circumstances call for. Getting a good price is directly affecting the price of the end product which would be a great factor in providing a competitive advantage.

References

Aamer, A. M., & Sawhney, R. (2004, January). Review of suppliers selection from a production perspective. In IIE Annual Conference. Proceedings (p. 1). Institute of Industrial Engineers-Publisher.

Apparently tea contains more caffeine than coffee. Why is it that coffee is typically so much more stimulating than tea? | Notes and Queries | guardian.co.uk. (2016). Theguardian.com. Retrieved 15 November 2016, from https://www.theguardian.com/notesandqueries/query/0,5753,-25502,00.html

Avey, T. (2016). History of Coffee | The History Kitchen | PBS Food. PBS Food. Retrieved 15 November 2016, from http://www.pbs.org/food/the-history-kitchen/history-coffee/

beverages. (2016). Nielsen.com. Retrieved 15 November 2016, from http://www.nielsen.com/us/en/top10s/beverages.html

Burnes, B., & New, S. (1997). Collaboration in customer-supplier relationships: strategy, operations and the function of rhetoric. Journal of Supply Chain Management, 33(4), 10.

Burns, P. (2010). Entrepreneurship and Small Business: Start-up. Growth and Maturity. Palgrave Macmillan.

Grosso, G., Stepaniak, U., Micek, A., Topor-Mądry, R., Pikhart, H., Szafraniec, K., & Pająk, A. (2015). Association of daily coffee and tea consumption and metabolic syndrome: results from the Polish arm of the HAPIEE study. European journal of nutrition, 54(7), 1129- 1137.

Inderst, R., & Wey, C. (2007). Buyer power and supplier incentives. European Economic Review, 51(3), 647-667.

Number of employees per coffee and snack shop in the U.S. 2016 | Statistic. (2016). Statista. Retrieved 15 November 2016, from https://www.statista.com/statistics/196698/employees-per-establishment-in-us-coffee-and-snack-shops-since-2002/

Responsibly Grown and Fair Trade Coffee. (2016). Starbucks Coffee Company. Retrieved 15 November 2016, from https://www.starbucks.com/responsibility/sourcing/coffee

Specialty Coffee Association of America. (2016). Scaa.org. Retrieved 15 November 2016, from http://www.scaa.org/?page=resources&d=facts-and-figures

Statista, C. (2016). Topic: Coffeehouse industry. www.statista.com. Retrieved 15 November 2016, from https://www.statista.com/topics/1670/coffeehouse-chain-market/

Forbes Welcome. (2016). Forbes.com. Retrieved 12 September 2016, from http://www.forbes.com/sites/adrianalopez/2013/10/21/how-regional-coffee-chains-are-competing-with-national-heavy-hitters-like-starbucks/

Sample of Proposal for a Cafe

Proposal for a Cafe

Introduction

Chapter One

Analysis of Café Industry in the US

References

Related Posts