Business Management -- Caribou Coffee Case Study

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On the manufacturer side, the challenge presented by the weakened economic climate would be best managed by focusing even more on the main business strategies that have already proven successful within the specialty coffee market. Both Caribou and Starbucks emphasize customer service and the "customer experience" approach to promoting their specialty coffee houses. It seems that increased competition attributable to decreasing customers would be best addressed by ensuring that the customer experience is sufficiently attractive and fulfilling to justify the unnecessary expense of continuing to purchase specialty coffee on a BTC basis in coffee houses.

To capture or maintain the maximum market share in the supermarket or grocery store sales of specialty coffee bean product sales, it would be advisable that manufacturers increase the range of their products to permit consumers to "scale down" their spending without necessarily suspending their purchase of specialty or gourmet products altogether.

4. Who are the key rivals in this industry? What moves are they likely to make next? Why?

Starbucks is by far the strongest competitor in the specialty coffee industry. However, there is significant competition along the various component product lines from convenient stores, restaurants, coffee shops, street vendors, and even fast-food businesses such as Duncan Doughnuts, Krispy Kreme, and McDonalds. It is anticipated that the most likely moves on the part of competitors will be to increase their focus on the successful customer-service-oriented and "consumer experience" business model that accounted for the explosive growth of the specialty coffee shop phenomenon in the last two decades. Increased competition decreases the room for error and it would behoove all competitors to follow the Caribou approach to performance-based pay incentives and the primacy of the highest quality of customer service in coffee houses.

In anticipation of the shift from coffee house BTC sales to bulk specialty coffee bean product sales, it would be advisable to add additional choices to permit purchasers of product at every price level to cut costs by downgrading to a less expensive specialty coffee alternative. The more specialty coffee sales shift to bulk sales in supermarkets and grocery stores, the more important it is to maintain increased options in that regard.

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5. Is this industry attractive? Explain in detail.

Prior to the current economic recession, the specialty coffee market was very attractive. From the period 2001 to 2006 alone, the entire specialty coffee market experienced a growth rate of 48%. Moreover, more than two-thirds (69%) of that market represented consumer sales of the products with the highest cost and the highest profit margin: BTC sales in specialty coffee houses. The combination of a strong (and increasing) national coffee consumption habit, high wages, economic optimism, high real estate prices, and consumer spending in virtually all market segments in both regular and specialty products and luxury services with the optimistic projection of continued growth of the specialty coffee industry until at least 2015 made this industry very strong.

At that time, the segment of the market with the greatest profit potential was the specialty coffee house. Since the complete economic upheaval in the U.S., that has changed dramatically. While it may be possible to retain a significant percentage of specialty coffee consumers, it is likely that since 2007, market share in that segment has decreased sharply and that market share in the coffee bean product sales had risen substantially in relation to BTC sales, even within the same respective manufacturers.

With consumers likely shifting their purchasing interests from the "experience" consumption model of the specialty coffee house to the bulk bean product purchase instead, competitors in this market should have anticipated that shift immediately and adjusted their production levels, range of product lines, and marketing promotions to reflect the greater potential of that market segment. Since the bulk coffee bean product profit margin is significantly less than the BTC sales profit margin, there is less room for error or miscalculation in the attempt to capture or retain the largest possible portion of consumers. Therefore, strictly on the basis of the data available in the 2007 case study, the specialty coffee market was very strong. However, on the basis….....

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