Caribou coffee company started as a coffee shop located in Minnesota to a current publicly-traded company on the NASDAQ. It was the second-largest owned coffeehouse in the united states of America in 2007 with several coffee houses in operation. Through its resources and capabilities, it has been able to maintain a high competitive advantage over a long time. The companies devotion to improving workers’ skills and experience has given the company a good reputational image over its competitors. By establishing good human capital and focus on differentiation strategy has enabled caribou to lead in this industry. This essay discusses external and internal forces and business strategic methods caribou management has applied to remain competitive.
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General Environmental Elements Affecting Companies in the Industry
Social and cultural attitude trends
The rate of change on both cultural and social impact on the coffee industry can vary from one country to another. A good example that could highlight this is the presence of a strong coffee-drinking culture that has resulted in an increased rise of specialized shops in Australia (Alexandridis 115). Coffee consumption behavior continues to vary in both directions. On the bad side, excessive coffee consumption tends to cause obesity among many people, and on the good side, coffee benefits the heart fights cancer, diabetes, and improves sex life (Alexandridis 116).
This deals with the direction and the nature of the financial system in which the coffee industry operates. Since the relative affluence of various market segments will affect consumption patterns, companies must consider this when planning their strategy (Alexandridis 117). In the past, Australia has had a performing financial system and in recent years, there has been low-interest rates, low inflation, and high growth that have characterized a growing economy. An efficient government division control and regulates the coffee industry with the availability of an aggressive business sector and a supple labor market.
Political and Legal Environment
These are laws and regulations that a business has to follow to make sure that the business owners do not get contravene or go against the norms in any given society as well as maintaining law and order. The laws and regulations are comprised of fair trade certification and rein forest agreements. The government enacted these rules to give disadvantaged farmers a guaranteed price on their coffee products and rein forest alliance was made to focus on the management of coffee farmers.
Threats and Opportunities
In a rapidly changing environment, the coffee industry must address several threats and improve on opportunities if it is to prosper and grow (Alexandridis 118). The main threat has been farmer concentration on the key retail chains and has continued to pose a big threat to the coffee industry and therefore increasing the level of competition.
Then many other food processing firms the manufactures of Coffee have an access to a wider variety of distribution channels (Porter 79). An increase in the demand for coffee could be attributed to the increased changes that are realized in the tastes and preferences of coffee consumers. Due to these changes, the manufacturers of coffee are forced to produce more coffee with more brands coming on board and the overall outcome is increased profitability of firms in the industry.
Porter’s Five Forces Analysis
The main objective of carrying this analysis is to evaluate all capabilities of the company and identify threats that are faced by the firms that are operating in the industry from rivalry intensity to the industry attractiveness (Porter 78).
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The threat of New Entrants
The threat of new entrants is common in the coffee industry due to the strong coffee drinking culture in most countries of the world (Porter 79). The increasing coffee culture has led to a positive change in specialized coffee shops especially among the growing generation therefore allowing many traders to join this business. Companies can create barriers to new market entrants through the exploitation of economies of scale, use of government policies to discourage entrants, and product differentiation.
Bargaining Power of Buyers
This entails the consumer preference to purchase different brands of coffee from the nearest shop or supermarket. Coffee consumers are sensitive to price changes (Porter 80). Price sensitivity is demonstrated where coffee is rarely considered a commodity at the lower price end. For example, the Starbucks coffee case in 1994 freeze in Latin America increased the prices of Arabica worldwide, which later exerted a lot of pressure on the prices of Starbucks’ coffee beverages (Ajit 135). In Australia, the coffee market is very competitive but consumers have turned to be brand loyal and becoming more sophisticated.
Bargaining power of suppliers
The supply of coffee in the globe is determined by weather conditions, the quality and demand of beans. Research shows that coffee is the second-largest traded commodity after petroleum (Ajit 133). Coffee houses depend on outside brokers and deal directly with exporters for the supply of coffee because it’s the highest product imported by the United States. Due to the low supply of coffee beans, the prices have gone up and increased demand has caused a major threat in the coffee industry. Only limited suppliers who can meet coffee standards will be able to supply giant companies and can be a potential challenge (Porter 84).
The Threat of Substitute Products
In the coffee industry the threat of substitutes can be considered (Porter 88). Coffee shops are beginning to face a very important substitution threat in the form of alternative distribution channels (Ajit 134). The food industry is posing a very big threat to the coffee industry because it bringing cheap products making coffee consumers shift to the food industry. Due to the negative effects of excess coffee consumption most of the customers are turning to other beverages with are considered cheap and reliable (Porter 87). Also, coffee shop providers are shifting to other cheap and reliable sources.
The Intensity of Rivalry among Competitors
If the competitors in the industry are few, industry concentration will be high and the competitors will restrain their rivalry because they have recognized their mutual interdependence (Porter 90). In addition to these challenges, many firms in the industry are experiencing an increased number of engaged and operation of the specialized outlet of coffee and chains that offer very competition to the brands the firms offer to the same market (Ajit 132). The level of sophistication among consumers of coffee has been increased by the strategy and is responsible for the uneven rise in the sales value of specialized coffee shops (Porter 93).
Analysis of Internal Environment of the Company
Caribou coffee company has been able to achieve a very high competitive advantage through customer satisfaction by focusing on both human and social capital (Wood 315). Human capital development is accounted to strategic initiatives that were implemented by Mr. Coles, the company chief executive officer, and the president, to improve their operations by competent selection and proper training of coffeehouse personnel (Ajit 134). By establishing human capital, Caribou coffee firm facilitated the creation of skills for individual capabilities, knowledge, and experience of the company’s employees. Through the network of relationships, the company can create social networks that employees have throughout the organization (Wood 317).
Human resource is among the intangible resources of the company because the caribou coffee company provides continuing support for all its instead of it having their partners or shareholders improve the appropriate knowledge and skills about the coffee business (Porter 93). A premium and a tremendous taste build the reputational resource of the company. This is important because it makes the company’s name different and unique.
Tangible resources included the financial sector, organizational resources, and physical resources. Mr. Coles, the company chief executive has a high expectation that the number of coffee outlets to double in the next four to five, therefore, believing that there will be growth opportunities for the coffee industry in India (Wood 319). Through mergers and acquisitions, caribou can achieve high economies of scale and a global distribution network (Ajit 136). A capability of the business strategies entails the core competencies and they provide caribou with an advantageous market place.
Knowledge, skills, and abilities are the main core competencies of the company and help to differentiate between the roots of an effective company and a superior performance (Ajit 136). Through the better and improved training methods of the caribou company, it can achieve its mission that “an experience that makes the day better” which enables the company to meet its expectation. Caribou coffee company uses these training methods as one of the core competencies because they help the company in creating a strong employee who is willing to work for the company (Alexandridis 119).
Caribou has set up a training lesson and set aside classes to help in improving the career skills of all new employees. The new employees are also given instructions to become “drink certified” in-store certified trainers providing regular guidance in service and training.
The company also has better methods of rewarding team members and dedicated employees therefore holding human capital (Wood 315). The employees are dedicated to working hard as the manager bonus depends on profits, sales, and service as the company has a strong belief that is “as life is short good work will come through the hard work only.” Though this is good for consumers, it is imposing a bad impact on company employees and the company’s short-term performance (Wood 315).
Through its need for expansion, caribou opened up eight franchised coffee houses, 475 coffee houses, and 25 franchised coffee houses. Caribou also collaborated with coca-cola company in North America that enables the company to enter into ready to drink category and taking the benefit of CCNA’S world-class distribution (Ajit 134).
Some of the company’s strengths like recruitment and training of efficient and high-quality managers contribute to the provision of quality services and sales increment. Other strengths like good service atmosphere and different taste/flavor improve the competitive advantage of the company with other companies like Green mountain coffee roasters and Starbucks that are in the same industry (Alexandridis 117). Caribou’s weak operational and financial resources can be overcome through emerging opportunities like an increase in the level of coffee drinkers.
Caribou Coffee Business Level Strategy
After realizing that it cannot compete favorably with other companies like star bucks, Caribou coffee company applied a differentiation strategy to improve its competitive advantage therefore rooting diversification of coffee products (Wood 310). The company implements this strategy to dedicate the human capital to providing consumer needs and maintaining a competitive advantage while applying the strategy successfully at the business level (Wood 315).
The company maximizes the capabilities and resources available because competitors easily imitate them and failure to maximize productivity reduces its business level (Ajit 137). The company’s CEO consistently targeted segmentation strategy and fully focused niche markets. In this, the company targeted consumer groups that value quality other than quantity. It is evident from research that consumers valued caribou products both in taste and coffee house general atmosphere.
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The company management and employees worked extra hard to differentiate its products and services from its competitors by offering unrivaled products which are evidenced throughout its value chain by its dedication to quality, excellence and strive to impress all elements (Ajit 132). By accessing the distribution chains, most corporate giants in the coffee industry have enabled caribou to achieve a high competitive advantage above many players like Starbucks.
The company management through the President deliberately embarked on a diversification strategy through its strategic partnerships that are made to achieve economies of scope through optimum leveraging of its core competencies (Wood 313). Through this strategy, the company has managed to satisfy its customers in three basic criteria that include core competency, similarity within the organization, and offering superior value to the loyal and devoted customers. The Company should therefore focus on human and social capital, store design, the superior quality of products and services, and customer relations to remain relevant in the competitive market (Porter 85). The company needs to diversify its differentiation strategy to target more unique factors that are not easy to imitate by competitors (Wood 317).
The company’s management has been able to balance resources with capabilities. The training facilities and career lessons provided to the company workers have facilitated the good relationship between the workers and the customers of the company therefore improving the reputational image of the company. The human resource personnel is very competent and provident in extra activities for both the management and employees thereby creating a favorable working atmosphere for coffee houses, which attracts many customers giving the company a competitive advantage (Porter 92).
With a stable financial base, the company has been able to expand its facilities by building eight franchised coffee houses and 475 coffee houses thereby improving on customer accommodation and through its partnership with Coca-Cola Company in North America, it was able to improve on its reputational image (Wood 314)
The steep scale of competitors’ future growth objectives threatens companies like caribou that focus on niche markets because of the great impossibilities of attaining economies of scale to growing corporate entities. There is a great risk on market demand that it may show an increased tendency to forego quality end in the future in favor of low priced products provided by competitors (Porter 80). The diversification approach of Caribou involves a very high capital investment. Therefore, it will take each new store an average of four to five years to repay the initial amount, which might discourage potential shareholders, and existing investors might withdraw their funds that are essential to the attainment of long-term company objectives (Alexandridis 119).
Strategic Actions were taken to Grow the Company
A good selection is important to reduce the possibility of closure of the coffee house and increase profits. However, the increase of coffeehouse opening has to be monitored very closely to make sure that operations are running smoothly without challenges that could ruin the firm’s reputation (Wood 311). Routine checks should be conducted to achieve this objective. To increase customer awareness about the company’s products, the management will have to initiate several advertisements in newspapers for new products to gain awareness from new and existing customers and facilitate product promotion. A good company brand name can be created through environmental and social efforts aimed at increasing customer awareness (Ajit 136).
New product development directed towards customer demands and needs is significant to retain customers through development and processing costs may be high. Product differentiation is a key element in countering most challenges such as the bargaining power of buyers (Wood 312). Developing fresh products will counterbalance impending threats. For instance, if there is an unexpected increase in coffee bean prices, the firm will use sales from its alternative products to counter the reduction in coffee sales. A strategic alliance is important because the organization cannot always cope with the increasingly dynamic environment (Alexandridis 115).
Caribou should engage in the management of its reputational image and not only responding to competitor criticism about the company’s products or services. Tracking of competitors’ reputation is very important and the firm should strategize on how to capitalize on competitors’ failures.
Competitors will, in turn, improve on business strategies to outperform caribou by embracing some of these management strategies and therefore caribou management should set strategies that cannot be copied by its competitors (Ajit 137). Caribou should emphasize greatly human capital improvement through intensive training methods by incorporating both theory and practice to equip its workers and improve the firm’s competitive edge. The management should also embrace entrepreneurial methods that are responsive and flexible to a shift in market demand (Alexandridis 117).
The firm should also champion innovative behaviors for both workers and senior employees by enabling creativity that is supported by managerial functions, which pays attention to workforce creation with intensive training in all sectors of customer relations. The management should improvise a culture of recognizing good performance and achievement by rewarding dedicated workers. The firm’s commitment to rewarding skilled and loyal employees could lead to the motivation of employees thereby improving their performance and the performance of the firm (Wood 319).
Differentiation strategy in the coffee houses and embracing human capital is the main factor that has given caribou coffee company a competitive advantage. The company developed very strong abilities in recruitment, retention, and staff development. To maintain the level of growth and remain competitive, the firm must keep a record of accomplishment of competitors’ reputation and maintain a strong focus on human capital. The company must also capitalize on the competitors’ weak points to retain its loyal customers and improve on employee training to maintain good relations with its customers.
Ajit, Prasad. “The impact of non-market forces on competitive positioning understanding global industry attractiveness through the eyes of M.E. Porter.” Journal of Management Research 11.3 (2011): 131-137. Print.
Alexandridis, Anastasios. “An analysis of factors affecting the price and volatility of coffee future returns.” Middle Eastern Finance and economics 8 (2010): 114-122. Print.
Porter, Michael. “The five competitive forces that shape strategy.” Harvard Business Review 86.1 (2008): 78-93. Print.
Wood, John. “The effect of buyers’ perceptions of environmental uncertainty on satisfaction and loyalty.” Journal of Marketing Theory & Practice 16.4 (2008): 309-320. Print.