Case Study on "Caribou Coffee"

Case Study 5 pages (1381 words) Sources: 0

[EXCERPT] . . . .

Business Management -- Caribou Coffee Incorporated

How is the industry structured?

Specialty coffee is an $11 billion a year industry in which the retail sales market is highly fragmented. Specialized coffee consists mainly of coffee produced with the Arabica coffee bean, as opposed to the generic Robusta coffee bean. The specialty coffee market represents more than half ($11 billion annually) of the total coffee industry (approximately $19 billion annually). Generally, the market share is dominated by Starbucks with numerous sources of competition for specific market segments.

The specialty coffee industry itself comprises two specific market segments: (1) fresh coffee sales (whole bean and ground coffee beans), and (2), prepared coffee beverage sales. The primary consumer purchase point of fresh coffee beans is the supermarket whereas the principal consumer purchase point of prepared coffee beverages is (increasingly) specialty coffee houses where customers typically purchase coffee beverages on a regular (i.e. workday mornings) by-the-cup (BTC) basis. Those venues are designed to permit both takeout and a customer-oriented in-store coffee consumption and social experience.

In principle, the concept of specialty coffees is just one example of a much larger consumer product marketing and sales trend. More particularly, consumable food products are "recast" as a more "authentic" product for more "discriminating" consumers, presumably also with the ability to afford the best quality products instead of the mass-produced versions of common quality. Similar techniques have been used to promote alcoholic beverages (especially those incapable of actually being distinguished by the palate, such as un-flavored vodka), beer, organic foods, and (famously) mustard.

2. What is competition like? Overall, is this a highly competitive industry or not?

At the time of the writing of this case study, the specialty coffee market was expanding very strongly and demonstrating the likelihood of continuing that growth trend until 2015. For example, with respect to the number of the specialty coffee prepared BTC beverage market, there were only 500 such establishment in the United States in 1991; by 206, that number had increased almost 50-fold, to 24,000 speciality coffee houses. In 2007, the projected growth rate was 5,000 new specialty coffee houses per year for the next eight years. Significantly more than half the entire U.S. adult population (54%) consumes coffee regularly and typical annual increases have been as much as 1,000,000 new coffee drinkers from one year to the next (ex. 1999 to 2000).

The market was highly competitive and spread across various component segments. More than one-third (36%) of all coffee drinkers (meaning almost 20% of the entire U.S. adult population) regularly purchase speciality coffee products for home consumption. The competitors for specialty market share must compete for each component of the market share because 61% of purchasers acquired these products in supermarkets or grocery stores; 14% purchased them in specialty coffee stores including those that specialize in the BTC "experience"; another 4% ordered specialty coffee from mail order clubs and catalogues; and 2% purchased them from gourmet or specialty food stores. The implication is that specialty coffee manufacturers must be prepared to compete along all those channels simultaneously.

While the data in the case study predate this factor, in all likelihood, the specialty coffee market (and other "specialty" or "high-end" and "gourmet") food product industry have become much more competitive in the three years since the publication of the case study. That is a direct function of the fact that in times of economic rises and uncertainty, the first casualties from the manufacturing perspective is typically the extravagances such as gourmet products and by-the-serving consumption formats in general.

3. What forces are driving change in the industry?

On the consumer side, the desire for minor personal indulgences and "rewards" always increase in times of economic strength and decrease in times of economic uncertainty or weakness. That dynamic means that increasing numbers of people will begin looking for the easiest ways to tighten their budgetary expenditures in economic climates such as that which developed in the U.S. In between 2007 and 2010. In many cases, consumer demand for unnecessary luxuries such as specialty coffee often drop precipitously as consumers begin adopting cost-saving measures such as preparing their own meals… READ MORE

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