Caribou Coffee (NASDAQ: CBOU), is the second largest, company-owned, gourmet coffeehouse operator in the U.S. It was founded in 1992 and headquartered in Minneapolis, Minnesota. In December 2008, caribou coffee had 511 retail locations, including 97 franchised. It has international locations through North Korea and the Middle East. One of its main investors are Arcapita which owns 60% of the companies share.
Caribou Coffee?s main objective is to create an exceptional experience for its customers through , combining products of a high quality with friendly and warm customer services and coffee house atmosphere. Caribou menu offers 37 special drinks. the tried and true latte is caribou?s best selling drink. Caribou Coffee offers also a wide range of products that are sold to supermarkets, different merchants, offices coffees suppliers, hotels, airlines, entertainment and sports sites and other business customers. Additionally, Caribou certify third parties to use its brand on quality foods and merchandised stuff.
This paper will start with the company financial analysis, then would shift to the pestle analysis for the company and the specialty coffee industry it is operating in. Secondly doing an internal analysis using porter five forces and porters generic strategies. Thirdly, highlighting the major opportunities, threats, weakness and strength of caribou. Finally drawing a conclusion that suggests somerecommendation for the company to staustain its competitive advantage.
2.Financial Analysis: The following is a financial analysis of the company?s status in 2008 compared to 2007. Net Sales: has decreased in the retail coffee house from $256.8 million in 2007 to $253.9 million in 2008 due to the decrease in operating weeks of 1,004 coffeehouse in 2008 compared to 2007. related tenancy costs and Cost of sales : Increased from $108.4 million in 2007 to $109.6 million in 2008 in the commercial and franchise segments. Compared to the company coffee house, Commercial and Franchise segments sales are higher in related tenancy costs rate and cost of sales . this was mainly as a result of selling to present groceries and selling to new businesses customers., also due to franchise fees, royalties and product sales from 46 new franchise coffee houses openings in the same year.
Operating expenses: has decreased from $107.1 million in 2007 to $100.3 million in 2008, due to the decreasing numbers of company-functioned coffee houses operating during 2008 to 2007 and low employment operating cost PESTEL Analysis: Political: Fair Trade issues in the specialty coffee industry: “Fair Trade is a trade affiliation, based on transparency and dialogue.It aims at equity in international trade through sustainable development, offering better trading conditions and securing the rights of marginalized producers and workers” [FINE 2001 in Jeremy Weber 2007].In case of coffee trading to obtain a certificate as Fair Trade, There are several criterion each coffee farmer must satisfy.
These criteria include the implementation of sustainable, environmentally sensitive growing practices and more. In promoting to the public that its part of the fair trade partnership, Caribou is featuring it is new “fair trade-Rwanda” coffee. This has been always a part of caribou?s marketing strategy. Economic: The international coffee agreement: The first international coffee agreement (IPA) pact was created by the U.N to sustain coffee prices among member countries.
These prices were normally fluctuating due to variance in supplies and demands. In 2007 the IPA focused on supporting a steady coffee economy in developing businesses that relies mostly on coffee exporting. The policies and principles that the IPA supports includes green coffee schemes, education schemes and sustainable agricultural information and mechanical aid to farmers. There?s a huge weight of sustainable coffee economy to the world.
Due to the fact that Most developing nations rely on coffee as a major export , coffee sales constitutes above half of the annual exporting gross. Therefore, producing coffee is considered one of the most important way of contribution to socio economic developments and eliminations of poverty. In addition,Coffee has an important economic forces on importing nations. The increasing rate of coffee consumption since the 90?s, provided many job opportunities in various sectors from transportation to entrepreneurship.
Coffee is flourishing in Asia where coffee shops became a place for friends to gather for social events than for coffee itself. Unlike many Western countries, Asians prefer light sweet coffee taste for instance thirty percent of Asians who buy ready-to-drink prefer cappuccino, mocha is preferred by quarter of coffee drinkers at coffee shops while 17 percent prefer Regular coffee .by tradition, Asian people preferred tea, but the existence of coffee shops in Asia like Starbucks created a booming coffee culture. Also, the booming coffee culture in Asia has been fueled in part by young urban professionals who have studied in Europe or the United States.
Many Asians choose instant coffee at home. Most of the fresh coffee is consumed by the old generations while The young generations typically uses instant- coffees for the benefit of making the person stay alerted. In areas of the Africa, Middle East, and South America , coffee is like cigarette, where people drinks it while socializing or doing other things,, rather than a form of entertainment .
-Technology: Technology has improved massively over the years and it has dramatically affected caribou coffee. By introducing on line shopping and ways of brewing coffee beans through their caribou website. Also technology played a great role in the atmosphere of caribou?s coffee house through providing customers with digital media and free access to wi-fi.all this lead to a great experience for customers and a sustaining competitive advantage.
The widespread of the coffee industry has led to the destruction of rainforests to make space for cultivating coffee, this in turn impact the migrations and feedings pattern of local wildlife such as songbirds, as well as food sources for non-farmers. Rainforest Alliance aims to cover all aspects of sustainable agriculture: environment, rights and welfare of workers and the interests of local communities. It does not prohibit use of agrochemicals but requires integrated pest management.
It also requires the maintenance of Shade cover and/or the restoration of native forest reserves. Regarding its relation with the suppliers, Caribou coffee has a partnership with rainforest alliance which is part of Caribou?s responsible coffee beans sourcing. Coffee is going Organic: Organic is a term defined by law in many countries like the US and the European Union (EU).It contains regulations that controls the standards of producing, accrediting, overseeing of certification and labeling of organic foods and drinks,ex. use of nonorganic fertilizers, pesticides and biological pest control methods is limited in the production of organic food and drinks. There is variation in the level and growth of demand forcertified coffee by country and by certification scheme.
Legal: Caribou Coffee?s improved lighting design is lined up with its obligation to social responsibility and environmental sustainability. Caribou Coffee adopted energy efficiency by using compacted fluorescent lamps in its lighting design arrangements for corporate-owned locations. The program is expected to save each coffeehouse up to 70% in lighting costs. 4. Porter’s five forces: Threats of new entrants:
The coffeehouse industry is characterized by intense competition not only from the industry leader, but also from the threat of new entrants attracted by huge growth. Entry barriers related to experiences in the industry are low. In specialty coffee the learning curve is typically limited to business methods, as opposed to product design. Even much of the businesses methods information can be imitated from other retail industries. Selecting experienced franchisees in their regions would essentially outsource expertise to reduce the demands on the central company.
Bargaining power of customers: The buyer power is very high because there are many choices and the switching costs for going from one coffee house to another are so low. Creating a good quality beverage is based upon the materials used .The out-of-home consumption of coffee gained an increasing popularity sustaining the role of the culture and the emergence of global chains like Starbucks.
-Bargaining power of suppliers: Bargaining power of suppliers are becoming high due to the fact that many consumers are now facing a growing complexity of ethical and environmental claims in coffee and there is concern about confusion and lowering of standards. It is also possible that certification may become another requirement for suppliers? market access and a barrier for small producers. In this case, certification may be an advantage for large coffee estate producers and irrelevant for the majority of small coffee farmers.
-Rivalry: It is apparent that in the coffee industry there is enormous rivalry among competitors, which is why Caribou must maintain its differentiation to maintain their customer?s loyalty. The main axes of differentiation are location, quality, products, atmosphere, and taste. One way to compete with the brand names currently in existence is to create brand loyalty. This can be done by ensuring quality.
Substitutes: The market for substitutes is split between in-store and out-of-store points-of-sale. It is likely that by selling beans in-store for at-home coffee-making, the entrant may better encompass the consumers? coffee experience and so build a better name overall. Teas also enhance the reputation, and are relatively simple to incorporate into the store atmosphere and design.Low-end coffee sellers like Dunkin Donuts are weaker substitutes, and proper differentiation in quality and atmosphere is necessary to avoid too much overlap with them. Other non-coffee substitutes, such as colas, energy drinks, or other specialty beverages are not easily compatible with the specialty-coffee model.
5.Caribou coffee generic strategy: Caribou follows a differentiation strategy in its retail and commercial segment. They differentiate coffee by origin, connecting a sense of taste to a sense of place like their Africa and costa rica coffee products. Also Through its strategy of attracting young customers, caribou sells coffee as a cold beverage(ready-to-drink category) in partnership with coca cola company. It also offers packages of whole caribou coffee beans for home brewers in partnership of Keurig.
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