Coffee Industry Analysis Synopsis of Thesis

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The net result has been growth in the industry averaging 2.9% over the period of analysis (U.S. Department of Commerce).

Segmentation Analysis

First from product segmentation perspective, the coffee industry is dominated by roasted bean products (75%) followed by ground and specialty coffees and tea (11% each). Specialty teas are a market niche at 3%. Figure 1, Product Segmentation of the Coffee Industry, graphically shows the share of market attributable to each product type.

Figure 1: Product Segmentation of the Coffee Industry

Source: (U.S. Department of Commerce)

Product/Services

Share

Roasted bean coffee

Ground and specialty coffees

Tea

Other tea

In terms of distribution channels, grocery wholesalers (73.2%) dominate the distribution channel strategies of nearly every manufacturer to an extent. This is attributable to the fact that mass merchandisers including Safeway, Tesco, Wal-Mart and other chains with significant influence on manufacturers' ability to competitive price their products. In addition the reliance on coffee futures trading also is significantly changing the pricing structures of products and therefore modifying their margin structures for distribution (Mohan, 1000-1002).

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Figure 2: Distribution Channel Segmentation of the Coffee Industry (U.S. Department of Commerce) graphically illustrates the market-making role of grocery wholesalers.

Figure 2: Distribution Channel Segmentation of the Coffee Industry

Source: (U.S. Department of Commerce)

Market Segment

Share

Grocery wholesalers

Export

Supermarkets, grocery and convenience stores

Food service

Direct sales

Summary

The coffee industry is unique in that it is contracting yet staying profitable and productive, generating greater levels of production and profits in a stable to no-growth industry. This has been accomplished primarily through the use of process efficiency strategies including BPM and BPR, in addition to creating more consolidated supply chains. Despite the manufacturers gaining a greater degree of control over their profitability, mass merchandisers are re-defining coffee pricing structures. The adoption of fair trade coffee has been ironically a strong contributor to the industry's profitability despite the higher prices it requires be passed on......

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