Today we stand witness to a new coffee era, one made up of Caffé Lattes, Espresso Macchiatos, Cappuccinos and Frappuccinos. Specialty Coffee is here to stay and no one will be more eager to tell you that than Howard Schultz, CEO of Starbucks, the world’s largest specialty coffee bar. In 1993, Starbucks continued its aggressive expansion and moved into the East Coast market by establishing a presence in Washington, D.C. This expansion has continued and today Starbucks operates more then 15,800 stores internationally and employs roughly 140,000 employees. It grosses 11.7 billion in annual revenue and is opening 5 new stores every day. (Starbucks Corporation, 2011) Starbucks competes with players both within the specialty market and against those outside the specialty coffee market. Some examples of competitors within the specialty coffee market are Tully’s coffee, Seattle’s Best Coffee, Peet’s Coffee, Caribou Coffee and other smaller chains. Those outside the specialty market include, Folgers, Proctor & Gamble, Dunkin Donuts, McDonalds and numerous other coffee serving establishments. Starbucks leverages its customer loyalty, premium quality coffee and the homey atmosphere of its stores to fend off competition. Specialty Coffee Industry Attractiveness
The most attractive industry for any profit maximizing firm within a capitalistic society would be one in which they can have a pure monopoly. In economics this refers to situations in which one established firm can be the sole provider of a product or service in a particular market segment. This theory of monopoly would be one end of the industry attractiveness scale, while the other endpoint would be defined by the theory of perfect competition. This scale will help us to define the attractiveness of the specialty coffee industry in relation to these two extremes. The five forces analysis of the specialty coffee industry has allowed us to identify some of the key structural characteristics of the main players in the industry, such as the buyers, suppliers, potential new entrants, potential substitutes and rivals within the industry. These key structural characteristics suggest that the forces exerted by these five players on the specialty coffee industry initially made it ideal for a situation to develop in which the industry structure was closer to the monopoly end point on the scale of attractiveness rather than the pure competition end point. The primary competition among rivals within the industry was not price oriented; the buyers of specialty coffee and the sellers of Arabica beans had little bargaining power at their disposal; and there existed no true substitutes for specialty coffee. The strongest force acting on the industry was that of the potential new entrants, which could be mitigated by a first mover firm if it was able to establish dominant brand recognition, successfully expand aggressively and create a defendable differentiated product. Therefore, placing the specialty coffee industry at its inception in the late 1980s on the scale defined above is now possible and it appears to reside closer to the monopoly end of the scale than perfect competition, making it a very desirable industry from the standpoint of a profit maximizing firm such as Starbucks.
The second important factor influencing the attractiveness of an industry is the demographic makeup of the consumer base. The higher average American consumption of coffee per day, added to the attractiveness of the industry by providing an enormous pool of potential customers.
These two factors also play a significant role in determining the attractiveness of the industry because they show that the average customer of the specialty coffee industry has more financial resources, education and consumes more coffee than the typical American. This implies a consumer base that is more flexible to price fluctuations and is less likely to fuel...