There is a great deal of risk of entry by potential competitors due to the low start up costs. McDonalds is able to add specialty coffee to their existing services to tap into the speciality coffee market.(1) There is potential of $125,000 per year in revenue to be made by each store if they are able to successfully enter the specialty coffee market. McDonalds also has the infrastructure to enter the speciality coffee market without building new outlets. McDonalds is also able to use their drive thru to lure customers away from Starbucks.
Procter and Gamble is also a potential threat to Starbucks as the have the infrastructure to distribute pre-packaged coffee to retailers. Procter and Gamble will be entering the market teaming up with Dunkin Donuts to distribute pre-packaged coffee to retailers. These products will be available at local grocery retailers, Target and Costco. (2)
Intensity of rivalry among established firms
There is intense competition in the coffee market amongst established coffee shops that are fighting to get customers. There are local coffee shops offering specials to lure potential customers in. Restaurants are opening earlier and closing later to accommodate customers on the go. With the 85% North American customers taking their coffee to go, convenience is a major factor. Coffee shops are investing more money in research and development to create new flavours to maintain and attract new customers.
Threat of Substitutes
Water is a substitute which is healthy for you and it is free. The option to buy bottled water is also inexpensive compared to coffee. With the focus on healthier living, water is the ultimate choice. It is very easy to get a hold of water bottles due to the number of vending machines in public places.
Colas and sodas are...