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Black Canyon Coffee: A Case Study

By: Marlayna Botello, Grace Charles, Max Teeter, Andrew Ayers, Carnell Emanuel

Presentation Agenda

2. Situation
Analysis
1. Company
Background

General Analysis,
Industry analysis,
Competitor analysis,
Internal analysis, Asis financial analysis

4. Strategy
Formulation
3. SWOT Analysis

Strategic alternative,
Alternative
evaluation,
Alternative choice.

5.Strategic
Alternative
Implementation
Action items
Action plan

1. Company
Background

Black Canyon Coffee (BCC)

Differentiation Leadership
Thailand-based coffee shop that has grown to become the largest coffee shop chain in Thailand
Founders were able to create an Old West, American vibe that attracted its newly sought out
target market
Opened its first location in a country with low coffee consumption, through strategic marketing,
BCC is looking at a facing a competitive market with new international/local competitors arriving
in Thailand

1. Company
Background

Black Canyon Coffee needs to consider certain


key criteria before expanding globally

1. Which
competitors BCC
should focus on?

2. Which type of franchise


should BCC focus on in its
expansion (kiosks, mini
restaurants, full sized
restaurants)?

2. Situation
Analysis
General Analysis,
Industry analysis,
Competitor analysis,
Internal analysis, Asis financial analysis

General Analysis
Age Structure
65 Years & Older
55-64 Years

9.50%
10.90%

25-54 Years
15-24 Years
0-14 Years

46.90%
15%
17.60%

0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
Demographic Segment
Age Structure
Population Size: 67,741,401 in Thailand
Source: World Population Review
Age Structure:
Median Age: 36.2 years
Baby boomers would be over 65 years of age, so they could account
anywhere from 5% to 9.5% of the population, leaving it an insignificant
figure.
Ethnic Mix: Compared to other countries Thailand has a less diverse ethnic
mix. With only 25% of the market that is diverse BCC probably has less
experience and familiarity with adjusting their business to other diverse
groups.

2. Situation
Analysis
General Analysis,
Industry analysis,
Competitor analysis,
Internal analysis, Asis financial analysis

General Analysis: Economic Segment


Unemployment Rate
GDP

2.2%
387.25 Billion USD

Real GDP Growth


Percentage

5.2%

Inflation Rate

.70%

Percentage of people
below poverty line

13.5%

Interest Rates

Interest rates have dropped .25% over the past three years, and
now reside at 2%. Banks are cutting rates to encourage spending
after the slowdown of economic growth.

Budget Deficit

-2.5% of GDP

Thailand Trade Deficit

Current approximation holds it at 1,800,000,000. Although, in


September it had a trade positive of 1,140,000,000. Due to
Thailand depending heavily on exports, it is susceptible to large
fluctuations
Source: Moodys Analytics Dismal Scientist

The Economic segment can improve BCCs standing in the Thai


market. Thailand is having relatively positive steady growth, and
with unemployment under 1% of the labor force (one of the
lowest in the world), Thailands future economic growth looks
fairly certain.

2. Situation
Analysis
General Analysis,
Industry analysis,
Competitor analysis,
Internal analysis, As-is
financial analysis

Thailands government, technology, and sociocultural segments


may affect the success of any existing or new company that may
want to enter into the Thailand market due to:

Government

Constitutional
Monarchy

Laissez-faire economy
with no government
intervention in the
marketplace

Has ability to regulate


businesses that possess
greater market share &
sales than designated by
the Trade Competition
Commission

Productivity reform
needed in Thailand
due to continually
diminishing GDP
growth rate

Technology
The Thailand government
supports technology with
low tariffs on assembled
imports, and the changes in
technology tend to occur
every two to three months

Thai government body, The


Ministry of Science and
Technology, is responsible for
the increase of science and
technology in Thailand and
several other bodies assist in
regulation of technology

Culture

Over 90% Buddhist


(largest in world)

Approximately 50% of
workforce is composed of
women and Thailand
women in the workforce
mostly unskilled, low level
of education

The work
environment is more
laid back than the
United States; work
and socialization go
hand-in-hand in Thai
businesses

Source: Moodys Analytics Dismal Scientist

2. Situation
Analysis
General Analysis,
Industry analysis,
Competitor analysis,
Internal analysis, Asis financial analysis

Industry Analysis

Thailand relies heavily on the


tourism industry

There is new growth in the


industry that Black Canyon
Coffee can capitalize on

Sales in cafes and coffee bars


have increased by 4% in 2002,
and the market is expected to
see 11% value growth within
the year

Source: Moodys Analytics Dismal Scientist

2. Situation
Analysis
General Analysis,
Industry analysis,
Competitor analysis,
Internal analysis, Asis financial analysis

Industry Analysis

Threats from Bargaining Threats from Substitute


Products
Power of Suppliers
- Rate of substitute
products is very high
in Thailand, while
there are a large
amount of private or
local coffee shops
- BCC owns aprox.
13% of market,
Starbucks holds a
staggering 45%
- Low bargaining
power of suppliers
due to wide range of
coffee imports,
although Thailand
itself has decent
exports

- Threats from
outside the coffee
shop industry are
very high, with most
buyers still buying
instant coffee from
stores.
- Instant coffee, on
average, is still
cheaper than coffee
from a coffee shop,
giving consumers ta
cheaper alternative.
- Other products
such as energy drinks
are another viable
substitute.

Threats from Bargaining


Threat of New Entrants
Power of Buyers
- Due to government
regulation, it is fairly
easy to open new
businesses, coffee
shops included.
- Coffee consumption
in Thailand is
dependent on
instant coffee, with
Nestle holding the
largest retail share.

- With steady growth


in the number of
coffee shops in
Thailand, buyers
have more bargaining
power.
- Locations such as
Bangkok have the
highest buyer power
because of the high
population density.
- Although buyers
can switch products
relatively easily, only
two coffee shops
hold nearly 60% of
the market.

Threats from Rivalry


among Competitors

- BCCs biggest
competitor is
Starbucks, which has
a solid hold in the
market.
- Other competitors
in the market do not
hold considerable
power, but with an
expected 11%
industry growth in
the upcoming years
- This could become
an opportunity for
both competitors
and BCC to compete
for more market
share

2. Situation
Analysis
General Analysis,
Industry analysis,
Competitor analysis,
Internal analysis, Asis financial analysis

Competitor Analysis
Major Chains in Thailand 2003

90
80
70
60
50
40
30
20
10
0
BCC

Coffee World

Starbucks

Au Bon Pain

Gloria Jeans
Source: Thailand Country Review

Other competitors in the market do not hold considerable power, but with
an expected 11% industry growth in the upcoming years
This could become an opportunity for both competitors and BCC to
compete for more market share. Even though there is high product
differentiation between competitors, switching costs between products
are relatively low, due to the nature of the industry

2. Situation
Analysis

Competitor Analysis

General Analysis,
Industry analysis,
Competitor analysis,
Internal analysis, Asis financial analysis

Starbucks
Starbucks has more than 21,000 locations in over 65 countries
worldwide
This heavy reliance on the US market can be a either a weakness or an
opportunity for more global expansion.
Source: Starbucks Company
Starbucks maintains a global strategy for its international involvement.
Unable to tailor its products to specific regional markets
Starbucks has a clear disadvantage with its product standardization and
lack of flexibility in multiple international markets.
A clear competitive advantage is its global name brand recognition for
the high quality coffee products it provides to its customers.

2. Situation
Analysis
General Analysis,
Industry analysis,
Competitor analysis,
Internal analysis, Asis financial analysis

Competitor Analysis

Au Bon Pain (ABP)


ABP holds more than 300 caf bakeries
throughout the world, including India and
Thailand.
Locations are strategically set up near high
traffic areas that are able to access a large
number of customers.
ABP brings a contemporary, colorful, and
comfortable environment at its coffee shops,
and it offers fresh baked goods and different
types of beverages.
Using a focused differentiation strategy, ABP
provides many choices for its customers by
using chef-inspired, bold and unique flavors on
its menu.
Source: Au Bon Pain

2. Situation
Analysis
General Analysis,
Industry analysis,
Competitor analysis,
Internal analysis, Asis financial analysis

Competitor Analysis

Coffee World (CW)


Coffee World has more than 100
stores in 7 countries: Bangladesh,
China, Indonesia, Sudan, Thailand,
Vietnam, and the US. Similar to
Starbucks
Has highly trained baristas that can
provide consistent quality in the
products it offers.
Implements a multi-domestic
international strategy by tailoring its
products specifically to each location
to best satisfy local customer tastes.
Some standardized menu items
include waffles, sandwiches,
signature cakes, muffins and cookies
Source: Coffee World

2. Situation
Analysis
General Analysis,
Industry analysis,
Competitor analysis,
Internal analysis, Asis financial analysis

Internal Analysis
BCC has the opportunity to expand its locations on a more
global scale

Thailand allows BCC to make its major decisions


in one central location
All procurement of raw materials, menu design,
restaurant design and support, and employee
development are all performed at the
headquarters
The potential for growth is limited to available
English-speaking employees in the company
BCC has experienced slower than desired
growth abroad due to the struggle of finding
English speaking employees that are necessary
for new location startups.

Source: Black Canyon Coffee

2. Situation
Analysis
General Analysis,
Industry analysis,
Competitor analysis,
Internal analysis, Asis financial analysis

Internal Analysis
Resources

VRIO
FRAMEWORK

VALUABLE?

RARE?

Costly To Imitate?

Nonsubstitutable?

Competitive
Consequences

Performance
Implications

FINANCES

YES

NO

NO

NO

Competitive
parity

BELOW AVERAGE
RETURNS

HUMAN RESOURCE
MANAGEMENT

YES

YES

YES

YES

Sustainable
competitive
advantage

ABOVE AVERAGE
RETURNS

PROCUREMENT

YES

NO

NO

NO

Competitive
parity

AVERAGE
RETURNS

MARKETING

YES

YES

YES

YES

Sustainable
Competitive
advantage

ABOVE AVERAGE
RETURNS

SALES/RETAIL
LOCATIONS

YES

NO

YES

NO

Temporary
Competitive
advantage

AVERAGE TO
ABOVE AVERAGE
RETURNS

Source: Black Canyon Coffee

2. Situation
Analysis
General Analysis,
Industry analysis,
Competitor analysis,
Internal analysis, Asis financial analysis

Internal Analysis
BCC is set apart from its competitors with the type of locations
it operates. Depending on the type of location, customers can
either have a full restaurant experience with a highly
sophisticated menu, or grab a quick snack or beverage at a
conveniently placed kiosk.
Breakdown of BCC Outlets
10
5

Kiosks

Mini-restaurants
Full restaurants

80

Source: Black Canyon Coffee

2. Situation
Analysis
General Analysis,
Industry analysis,
Competitor analysis,
Internal analysis, Asis financial analysis

As-is Financial Analysis


Black Canyon Coffee is in a strong financial position in
comparison to its competitors:
In 2002, revenue was $318,000,000 and its profit
margin was at 10%
BCC has little debt in its 10 years of continuous
business operations.
Since the company has seen annual growth of 1520% each year, a similar trend can be expected in
the upcoming financial period.
In 2002 the company received an investment of
Baht 18 Million from the Thai Government small
and medium enterprises venture capital fund,
managed by one Asset Management plc.

Source: Fiscal 2003 Annual Report

SWOT Analysis

Strengths

Weakness

Opportunity

Threats

Low coffee prices:


Competitive
Advantage
Extensive variety of
coffee and foods
First coffee shop of
its kind created in
Thailand
Is well known in
Thailand and has a
firm customer base
Constantly growing
and is opening
chains worldwide

Not as
Knowledgeable
about the existing
market or how to
run a company like
BCC
Challenge of
overseas expansion
due to supply chain
complexity
Foreign relations
Culture (language
barriers)
Limited Expansion

Coffee demand is
growing in Thailand
Growing
sophistication of
coffee consumers
in Thailand
Product expansion
Geographic
expansion
Strong government
ties with Asian
countries

Incoming
competition
Substitutes: energy
drinks, juice, soy
beverages
Growing
sophistication of
coffee consumers
Competition from
big chains

4. Strategy
Formulation
Strategic alternative,
Alternative
evaluation,
Alternative choice.

Strategic alternatives
Black Canyon Coffee has three options if it wishes to expand
internationally:

Continue expansion of the


company through kiosks
throughout Asia

Sell branded premiere Black


Canyon coffee beans in
supermarkets and other retail
outlets

Expand into the niche of high


end restaurant business
throughout America and Europe

4. Strategy
Formulation
Strategic alternative,
Alternative
evaluation,
Alternative choice

Alternative evaluation
Kiosks

Branded Coffee

Western Market
Expansion

Provide the
company the
highest profit
margin
If multiple kiosks
are implemented
this could continue
to increase the
companys growth
potential
Productivity was
double for a kiosk
versus a
restaurant;
however, rent was
typically four times
higher for a kiosk

Selling branded
coffee would allow
BCC to enter into a
new market
BCC could provide
a product for
customers to
consume in the
comfort of their
homes
Could increase
revenue for the
company while
avoiding high costs
associated with
operating a kiosk
or restaurant

Need to expand
marketing efforts
to implement
Since BCC offers
both Western
items and other
Asian specialties,
in order to reach
success in western
markets, it would
need to let
potential
customers know it
offers a variety of
items since BCC is
an unknown
establishment in a
new market

4. Strategy
Formulation
Strategic alternative,
Alternative
evaluation,
Alternative choice

Alternative choice
Black Canyon Coffee will benefit the most if its strategic
implementation consists of franchising opportunities coupled with
selling branded BCC coffee beans in supermarkets and other retail
outlets.

BCC headquarters
will have the
ability to control
the location of
new franchises
and provide
adequate training
for new franchise
owners

Creating locally
owned and
managed
franchises allows
each location to
add specific menu
items that are
appropriate for
each region they
are serving

BCC can continue


its reliance on its
Bangkok
headquarters as a
distribution
warehouse which
provides quality
control of all the
offered products

5.Strategic
Alternative
Implementation
Action items
Action plan

Strategic Alternative
Implementation
Plan:

Sell pre-packaged in
current franchises and
company owned locations.
(0 - 12 months)

Expand to rest of Thailand.


(Year 2 Year 5)

Expand into supermarkets


in Bangkok (corporate
home). (Year 1 Year 2)

5.Strategic
Alternative
Implementation

Benefits

Action items
Action plan

Strategic Alternative
Implementation
- Previously implemented and
sufficient supply chain

- Established market composed of


current instant coffee producers

- Current resource contracts, only


minor increase necessary (at first)

- New contract with packaging


company; difficult to back out if
failed

- Increased revenue
- Market for instant coffee is huge
in Thailand
- High profit potential due to low
costs associated with instant coffee
production

- Increased production costs

Risks

- Highly recognizable brand,


potentially easy assimilation into
new market

- Increased plant capacity/new


plant possibly necessary for
increased processing needs

5.Strategic
Alternative
Implementation

Strategic Alternative Implementation


Feasibility:

Action items
Action plan

BCC is incapable of selfpackaging on a large scale


level, it will ally with a
packaging company in
Bangkok for near future
production. The low cost
associated with instant
coffee production and BCC
s high brand recognition
and perceived quality make
for a smooth and highly
profitable expansion.

Due to BCCs highly


recognizable and
positive brand image,
assimilation into the
instant coffee market is
associated with the
lowest risk.

With an established
supply chain and a
contract with a large
supplier, expansion
should be fairly easy
and only require a
revised contract.