Expresso Espresso Case Study

Strategy at Expresso Espresso Name: Institution: Date: Table of Contents  TOC \o "1-3" \h \z \u  HYPERLINK \l "_Toc352873022"
Introduction  PAGEREF _Toc352873022 \h
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Michael Porter’s Five Force Model  PAGEREF _Toc352873023 \h
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Industry rivalry  PAGEREF _Toc352873024 \h
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Threat of new entrants  PAGEREF _Toc352873025 \h
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Threat of substitute products  PAGEREF _Toc352873026 \h
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Supplier bargaining power  PAGEREF _Toc352873027 \h
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Bargaining power of buyers  PAGEREF _Toc352873028 \h
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SWOT ANALYSIS  PAGEREF _Toc352873029 \h
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Strength  PAGEREF _Toc352873030 \h
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Weaknesses  PAGEREF _Toc352873031 \h
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Opportunities  PAGEREF _Toc352873032 \h
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Threats  PAGEREF _Toc352873033 \h
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Marketing mix  PAGEREF _Toc352873034 \h
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Recommendations  PAGEREF _Toc352873035 \h
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Conclusion  PAGEREF _Toc352873036 \h
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References  PAGEREF _Toc352873037 \h
14  Strategy at Expresso Espresso Introduction Business strategy relates to the choices and decisions undertaken to ensure that an organization achieves success and profitability (Kourdi, 2009). Todd Sylvester opened the Expresso Espresso specialty coffee shop in 2006, with the main market target being the students and professors of University of Southern Alabama. Even though, the business operated at a loss for the first twelve months, Sylvester desired to move to the Mid town area of the town where customers would be more and the income would be higher. Rather than simply copy other establishments including Starbucks, Sylvester envisioned the business as being unique through offering a relaxing environment. However, to achieve this Todd required implementation of an appropriate strategy that would achieve the long term goals and marketing strategy focus on the target market (Kurtz, 2011). As a man who read on religion and theology, Sylvester believed that ethics was vital in the business world. Todd further focused on human relations based on his experiences that some businesses were mainly geared towards making profits without highlighting on human experiences. Furthermore, he offered lower prices than similar establishments, but did not recoup the losses of lower prices from tips. Lowering the price of the coffee brands became one of the strategies used to beat competition, though he sourced high grade ingredients that made the coffee more expensive than other brands, the prices were set on the basis that other establishments used higher process to recoup money on discounts (Bacon, 2007). To further implement his strategy fully, Sylvester had cordial relations with employees, to the extent that they were loyal and agreed to work for lower wages in comparison to similar establishments which offered more money. This strategy was vital in the initial stages, but he realized that to stay competitive in the long term then competitive wages were also necessary to reduce staff turnover. Furthermore, with new coffee places being built in the area the entrepreneur needed to create a loyal customer base. The overall strategy of the business was also tied to the marketing of coffee shop as the appropriate marketing plan would increase sales over time which then determines the sustainability of the business. His management style is effective as it allows the growth of employees as they are tasked with doing jobs without constant supervision, but he also monitors the activities of the enterprise and hence has direct control over the business. Michael Porter’s Five Force Model Michael Porter’s five force tool relates to the way in which an industry grows and remains competitive especially with regards to profitability and investment. The coffee industry and especially under the specialty section is competitive with the industry approaching maturity (Crowe, 2010). This model further supposes that corporate strategies adopted ought to focus on the opportunities and threats in that particular industry. Using the five generic forces businesses align these forces in a way that improves their market position in the industry (Porter, 2008). Industry rivalry There are numerous competitors in the specialty coffee industry with some having a sizeable market share including Starbucks. Starbucks had numerous stores across the country, and provided other beverages and food items besides specialty coffee. Cafes and kiosks have had the highest growth in recent years and the number off establishments dealing with specialty coffee has grown tremendously from 250 in 1979 to approximately 15, 000 outlets in the year 2000. In the specialty coffee beverage industry the espresso beverages had the highest sales in 2004, while deep brewed coffee was the next selling beverages in terms of sales. There was increase competition in the industry following the opening of new coffee shops in the suburban areas (Bacon, 2007). The use of the second mover strategy is appropriate in thus industry as new players observe the innovations and actions of players (Kurtz , 2011) Starbucks is widely recognized in the industry and is credited with popularizing specialty coffee. Even though, the company sets higher prices it offers intense competition for expresso espresso because of brand recognition and numerous locations in Alabama and across the nation. Other than espresso based beverages Starbucks offered other food items, with a view to add more items. With a variety of food items, coffee and n a large work force, Starbucks is by far the trend setter in the coffee industry. Furthermore, the huge profits and availability of cash flow enable the establishment to open outlets in the right locations (Bacon, 2007), and customer reward programs enable the company to retain customers (Crowe, 2010). Another competitor in the industry is Diedrich Coffee Inc with headquarters in Irvine California (Bacon, 2007), which offered roasted coffee across numerous distributors, mail order, restaurants and their own retail stores. In the year 2005, the company had a profit of $ 52.5 million which was a 3 % growth from the year 2004. This company also had a sizeable market share in the US and other countries, with expansion plans to new countries being underway. The use of retail stores and franchising facilitated effective operation of the value chain. The business began expansion in 1992 after acquisition of various coffee shops in San Diego, Houston and Denver and now has three recognizable brands Diedrich Coffee, Coffee People and Gloria Jean’s (Bacon, 2007). Threat of new entrants The threat of new entrants is another potential barrier to the successful growth of expresso espresso, specialty coffee could either be Robusta or Arabica beans which can be sourced in bulk by new large outlets (Kummer, 2003). Even though, the barriers to entry may limit the number of specialty outlets there are still new establishments coming up in Alabama, which may erode future profitability of the business. In addition, the big players have gradually increased the market share, while there is entry of other establishments which offer various beverages and food items. In particular, McDonald’s entry into the specialty coffee market presents threats to the establishment because of low prices and distribution channels of the stores (Hartford, 2013). In addition, the entry of larger firms into the coffee industry presents challenges as they can utilize economies of scale to their advantage, while using their existing outlets to offer other services other than specialty coffee. However, there are risk factors in the entry of new participants because of cost disadvantages. Expresso espresso operated at a loss for around thee months due to cost disadvantages as these establishments may not enjoy the economies of scale. The industry seems to be approaching the maturity stage, and presence to high quality coffee and distribution systems is difficult. Many of the specialty coffee outlets are already occupied by established businesses, while some businesses have their own machinery that produces specialty coffee. Nonetheless, the shift in trend towards suburban location in many specialty coffee outlets poses the biggest threat as these retailers focus on convenience for customers. Thus, buyers have the chance to visit these outlets that are nearer their home while and mingle easily with friends and neighbors. Threat of substitute products According to Porter (2008) substitute products are the alternatives that come from other industries. In the specialty coffee industry, substitutes pose ...