Threat of New Entrants: Moderate
There is a moderate threat of new entrants into the industry as the barriers to entry are not high enough to discourage new competitors to enter the market. The industry’s saturation is moderately high with a monopolistic competition structure. For new entrants, the initial investment is not significant as they can lease stores, equipment etc. at a moderate level of investment. At a localized level, pastry industry can compete with the likes of Pat and Sam Delicacies and Julies Bakeshop, because there are no switching costs for the consumers. Even though it’s a competitive industry, the possibility of new entrants to be successful in the industry is moderate. But this relatively easy entry into the market is usually countered by large incumbent brands identities like Goldilocks and Red Ribbon who have achieved economies of scale by lowering cost, improved efficiency with a huge market share. There is a moderately high barrier for the new entrants as they differentiate themselves from Goldilocks and Red Ribbon product quality, its prime real estate locations, and its store ecosystem ‘experience’. The incumbent firms like Goldilocks and Red Ribbon have a larger scale and scope, yielding them a learning curve advantage and favorable access to raw material with the relationship they build with their suppliers. The expected retaliation from well-established companies for brand equity, resources, prime real estate locations and price competition are moderately high, which creates a moderate barrier to entry.
Threat of Substitutes: High
There are many reasonable substitute beverages to coffee, which are mainly tea, fruit juices, water, soda’s, energy drinks etc. Bars and Pubs with non/alcoholic beverages could also substitute for the social experience of Starbucks Consumers could also make their own home produced coffee with household premium coffee makers at a fraction of the cost for buying from premium coffee...
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