Overview of the company
Caribou Coffee is the largest coffee retailer in the US; it has global presence in 415 locations in the country with 97 franchisee shops. The Caribou coffee shops sell coffee, tea, drinks and baked food items. The company was founded in the year 1992 in Minneapolis. It is known for high quality coffee and beverages. “Caribou Coffee sells its products to club stores, grocery stores, mass merchandisers, office coffee providers, airlines, hotels, sports and entertainment venues, college campuses, on-line customers and other commercial customers. The company also issues licenses to third parties to use the Caribou Coffee brand on quality food and merchandise items.” (Caribou coffee company, Inc. – financial analysis review, 2009).
The company has its headquarters at the Brooklyn centre, Minnesota USA; it has different full-fledged operations which are recognized internationally and globally. It is the second largest company after the Starbucks in the US market.
“PESTLE analysis is an analysis of the external macro environment (big picture) in which a business operates.” (PEST/PESTLE analysis introduction, 2009).
This includes analysis of different factors like political, economical, social, technological, legal and environmental factors involved in the company. The PESTLE analysis is a strategic tool for the business strategy analysis, which provides a clear forecast of the business; it is the study of the macro environment to analyze the emerging trends, market growth and opportunities and the business development life cycle.
The political factors depend on the government policy, its tax policy, monopolies and the restrictions act, and the trade tariffs. The political climate has a changing effect depending on the country’s policy on import and export. As far as Caribou Company is concerned there is stability in the countries from which they purchase the coffee and the raw materials for production. They also have the emphasis on the different methods or policies in the export arena by the host countries in the purchasing of the products.
As far as the economic factors are concerned, during the analysis of the company it is found that the company operates in the economic environment with decreased number of customers, and decline in buying behaviour of the customers. Coffee has a wide contribution to the country’s economy. “World consumption of coffee is projected to increase by 0.4 percent annually from 6.7 million tonnes (111 million bags) in 1998 – 2000 to 6.9 million tonnes (117 million bags) in 2010.
Coffee consumption in developing countries is projected to grow from 1.7 million tonnes (29 million bags) in 1998 – 2000 to 1.9 million tonnes (32 million bags) in 2010, at an annual rate of 1.3 percent.” (Francais n.d.). “As the economy contracted, the Company responded by closing retail outlets and staff, which according to its latest 10-Q for the period ended June 28, included 62 fewer operating coffeehouse weeks, or a decrease of 3.3% of revenue on a same-store basis.” (Technical trading overview for caribou coffee company (CBOU), 2009).
The socio cultural factor consists of demography, life style, consumer behaviour, purchase power parity, culture, gender and income. The company has done a good analysis and different methods are adopted as the promotion tool. Analyses are to be done for the product to suit the changing life style of the people; the different categories of the people; different age groups. Purchase power of the people should be considered and they should be given in bulk packages where the people with very high potential are involved. The company has its own culture; it is not overly structured and the employees are at liberty to work on different projects and handle much responsible situation.
The technological analysis is much useful to know about the technological advancement in the company. It has the R&D department to analyze different aspects about the competitors and the variety of products in the market. It includes the latest technology of internet and the web marketing opportunity and opportunity for customers to do online shopping. There are also web advertisements which are part of technological advancement.
The environmental factors have a great effect in the human environment. The river gets contaminated by the de-pulping process that is done at the plants. The pulp wastes are at times directly dumped to the river water which can cause the decaying of the waste and deplete the oxygen content in the water which is harmful for wild life and the aquatic life. According to the study, about 57% of the effect on wild and aquatic life is caused by the coffee bean.
The legal factors that are to be considered are export and import laws of the country; the government is the major law making body. The government considers different laws which are beneficial to them in terms of revenue and profit.
Industry characteristics and life cycle
Coffee is imported to US from overseas; coffee adds much to the nation’s economy; it also contributes to the GDP. “The major players in the U.S. ground-coffee market include well-known manufacturers of consumer packaged goods. Procter & Gamble (P&G) produces Folgers, Kraft produces Maxwell House and Yuban, and Sara Lee produces Hills Bros., Chock Full O’ Nuts, MJB, and Chase & Sanborn.” (The coffee value chain, n.d., p.2).
The US has revenue of $11 billion from coffee production; they are much concentrated industry with the consideration on the consumer’s tastes and preferences. The coffee industry is considered to be a labour intensive industry. The coffee industry has majority of the players and the competency with the gas stations, restaurants and vending machines. The innovations of the electronic system are much useful which leads to the technical sales, point of sale and credit card processing.
The industry life cycle depends on the different stages of the life cycle of an industry; every industry has to undergo through the different stages from birth stage to the decline stage. There are 5 stages.
The early stage phase is the designing, positioning and establishing; second phase is the innovation which includes the new added variety in the industry sector.
The cost or the shake out phase is the third stage for the industry where the small industries are forced for a lock out and the industry begins to be in a dominant role.
Fourth stage is the maturity phase where they are not concentrated on the goal rather on the market share of the company revenue and cash flow. The deceased stage or the declining stage is the last stage where the industry can have a substitute with the new innovatory and the startling product which can pull them back.
“Market segmentation is the identification of portions of the market that are different from one another.” (Marketing: Market segmentation, 2007). The different segment of the market includes the geographical, psychological, demographical and behaviourist.
Geographical segmentation includes the geography the area size and the location where the product can have good sale depending on the geographic patterns.
Psychological segment includes the psychology of the persons regarding the product, the different kinds of belief on the product whether they are good for health and the adverse effect on the health or whether they have the different kinds of psychological belief.
The demographic segmentation depends on the income, life style and the purchasing power of the people. The demography has a major influence on the sales and the success of the product in the market.
Behaviour segmentation is how a person behaves towards the product; how people have the brand preferences and the usages of the brand and the loyalty towards the brand. The behaviour segment is very closely associated to the product.
Different forces affect the product in the market; the main five forces put forward by Michael Porter.
The threat of new entrants
The new players in the market try to gain huge part of the market with the new product with less pricing and new promotional offers.
Rivalry in the industry is closely related in terms of productivity and profitability.
Each and every manufacturer and producer try to make their product a leader in the market. The competitor for the Caribou Coffee is Starbucks.
Power of buyers
This is the backward integration process where the power of buyers includes good impact created on the product by the buyer and bulk purchase done. The buyers are said to be strong if the company concentrates more on the buyers and they produce the according to the taste and preferences of the customer.
Power of suppliers
The suppliers are those who supply the raw materials to the company. The raw materials are those which contribute to the fast availability of the products. The suppliers are said to be strong when the profit of the company is more and the customers are also strong and they offer attractive offers to the suppliers.
Threat of substitutes
The substitute for a product is the same product manufactured by a different manufacturer with different features and different methods like reduced price or increased offers to capture the market. Coffee industry has a lot of substitutes from the small and the medium level players.
Opportunities and threats
Coffee has always been highly demanded product and coffee industry has always been very fast growing industry. Main reason is coffee is used in many items such as beer, malt liquor, organic foods etc. These are opportunities for the company.
Main emerging threats for the company is increasing competitors and one of the main competitors are Starbucks. Switching over by the buyers to the competitors result in low sales.
Has the company followed a clear Generic Strategy (Generic Strategies)
The Caribou Coffee Company has followed a clear general policy in its business activities. It has tried to provide good services to the customers by providing high quality products and also a good environment for the customers. It has built up ability to employ, develop and maintain their employees which can be followed by other competitor companies.
How has the company analyzed and responded to its markets. (Market Segmentation)
“Caribou Coffee has been able to achieve a competitive advantage by satisfying customers through its efforts focusing on human and social capital, but it can be compromised given recent events. Establishing human capital has enabled Caribou Coffee to create a strong hold between the individual capabilities, skills, knowledge, and experiences of the company’s employees.“ (Bruton n.d.).
The company has been able to develop a competitive advantage from the large amount of resources obtained from quality of product, capital and the design.
“Starbucks dwarfs other coffee chains in terms of market value, revenue and profit. Caribou Coffee is making a play as one of the Starbucks alternatives. As of late last year, it had 348 coffeehouses in 14 states. Just to put that into perspective, Starbucks had 10,241 coffeehouses worldwide.” (Krantz 2006).
What knowledge based resources has the company acquired (Core Competencies)
Caribou Coffee Company has acquired several knowledge based resources. The company was able to acquire knowledge, capabilities, experience and talents of the employees in the company. The core competencies include high product quality, design of store and atmosphere, capital etc. “The company is touted for offering its customers high-quality gourmet coffee and espresso-based beverages, as well as specialty teas, baked goods, whole bean coffee, branded merchandise and related products.” (Serena 2007).
Does the company excel at managing value adding activities (Value Chain Analysis)
“Value chain analysis describes the activities that take place in a business and relate them to an analysis of competitive strength of the business.” (Strategy – value chain analysis, n.d.).
Value chain activities have been responsible for developing competitive advantage in the company. Value chain analysis includes inbound logistics and outbound logistics. Inbound logistics is the important process which is undertaken in the organization to plan and control its transportation activities. The transportation is involved in buying and selling the equipments from and to the customers. Outbound logistics are involved in distributing the goods across the world. An appropriate analysis of value chain will help in targeting the business risks and opportunities. This helps in facilitating the smooth flow of goods from the seller to the buyer.
Key capabilities of Caribou Coffee Company
- Most of the units of this company are placed where there is great deal of sales.
- Its main product coffee is available in different flavours.
- This company trademark is superior foodstuff and merchandise substance.
- Provides good service to the customers.
- They have several knowledge based resources.
Strength of the company
Caribou Coffee Company is one of the largest coffee houses in United States which is famous all over the world. This company supplies its products in many states and all the products are of good quality. Therefore, there is great demand for their products in the market. Their main products are hot drinks and cool drinks. There are various other products also. “The outlets, designed to resemble ski lodges and Alaskan cabins, offer a variety of coffee blends, as well as specialty coffee drinks, teas, and baked goods. The company also sells whole bean coffee and brewing supplies.” (Caribou coffee company, Inc., 2010).
Caribou Coffee Company not only supplies the food items and drinks but some renowned garments and accessories also in some of their units. One of the specialties of coffee is that coffee is available in different flavours like chocolate, vanilla etc. It also sells bakery items and fruit juices. “The company is engaged in providing its clients with good quality gourmet coffee and espresso-based beverages along with specialty teas, baked goods, whole bean coffee, branded merchandise and related products.” (Caribou coffee company, Inc. – financial analysis review, 2009).
Specialty of the product made this company famous all over the world and when the demand for the product increases, it results in development of the company. The company y established its units in many countries. “Caribou Coffee has shown consistent revenue growth and plans to open new stores.” (Reeves 2009). They opened their new stores mainly in the airports, colleges, offices and other entertainment areas where good deal of selling take place. This resulted in the financial growth of this company.
Main weakness of this company is that it is finding difficulty in moving along with competitors. Company didn’t have good strategy to carry the consumers along with them. Company is taking too much time for implementing new strategies.
Company’s financial situation
Financial situation of Caribou Coffee Inc suggests that there has been up and downs. Income statement of Caribou Coffee Inc 2006, 2007, 2008 has been shown below in table format. (All numbers in thousands)
|Cost of Revenue||109,632||108,358||98,656|
Table shows that total revenue for the year ended 31-Dec-2009 was $236,229. Cost of revenue over that year was $98,656 and gross profit calculated for that year was $137,573. All these numbers are getting increased in 30-Dec-2009. Total revenue for the company over that year was $256,834. While cost of revenue was $108,358 and gross profit was $148,476. These values are much higher than the values of 31-Dec-2006. But, all these values decreased by the end of 28-Dec-2008. Total revenue over that year was $253,899 which was less compared with the year 2007. Cost of revenues over that year was $109,632 and gross profit was $144,267. This shows major decrease in the year 2008 while comparing with the year 2007.
But in 2009 fiscal year, things have improved. “Consolidated sales increased 3.0% compared to the third quarter of 2008.” (Caribou coffee reports third quarter 2009 results, 2009).
There has been $0.03 earning per share for third quarter while in 2008 third quarter it was loss of $0.45. The commercial sales of the company were increased by 47% while compared with 2008. “EBITDA increased 125% to $4.5 million compared to $2.0 million in the third quarter of 2008.” (Caribou coffee reports third quarter 2009 results, 2009).
There is a 0.5% decrease in coffee house sales. In third quarter of 2009 sales were $54.5 million while compared to $54.7 million in 2008. Similarly, commercial sales also increased in 2009 while compared with 2008. In case of franchise sales, for both third quarters of 2009 & 2008 it was $1.7 million. “In the third quarter of 2009, the company reported a pre-tax loss of $1.0 million and a tax benefit of $2.8 million.” (EnPro industries announces third quarter 2009 results, 2010).
Strategic Options over the foreseeable future
Caribou is in danger. The main reason is entry of competitors. To compete with them, one of the best strategies is that company has to maintain or better its human capital. This is very important to meet customer needs. Company should always keep dedicated employees. Dedicated employees always keep value to the company. These are some strategic options company should keep in mind to stay in this competitive world.
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