Case Solution

(Scientific Approach)

Title: Lou Café

Time Frame: Present

Viewpoint: Lou Cafe’s CEO, Managers, and Coffee beans growers

(farmers)

Objectives:

1. To be able to solve the issues regarding Responsible Supplier

Relationship.

2. To be able to handle the new strategies in Lou Café through the

innovations and changes made.

Statement of the Problem:

1. In 1989 Lou Café’s management decided to change its supply

chain from a regular one to a direct purchasing.

2. The quality of the coffee played a significant role in Lou Café’s

business. Company’s CEO and managers believed that coffee

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 loses its quality after going through different stages in the supply

process.

Areas of Consideration:

1. Lou Café is one of the ten best companies in the coffee industry.

2. It was founded in 1933 by Francesco Lou and in 1994 was given

over to Andrea Lou. Since its formation, Lou Café’s main goal was

to deliver the best quality coffee to its customers.

3. Lou Café became the first company in the coffee industry, which

started buying directly from farmers.

Alternative Courses of Action:

1. Since in few years Lou Café may appear in an unpleasant

situation among competitors it needs to start taking appropriate

actions in order not to lose its position in the coffee market.

2. Further steps need to be taken in order to stay competitive in the

market, and different strategies might be help for the company.

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There are four strategies, which can help the company to gain

competitive advantage. These strategies are as follows:

 First strategy - Differentiation means charging customers a

premium price and convincing them the product offered by the

company is worth of paying more. Since Lou Caffe’s most

important criterion is highly quality of its coffee, company could

concentrate on that. However, this would contradict company’s

CSR’s strategy, which is aimed at paying premiums to the

farmers without affecting prices of an end

product. In addition, there many companies, which emphasize

the quality of their products without charging an extra price. Lou

Café would need to come up with a very convincing reason why

customers should use its products over its competitors.

 Second strategy – Cost leadership means reducing production

costs to the minimum to become the cheapest producer nd a

supplier of the end goods. In case of Lou Caffe this nearly

impossible , since it has already eliminated its supply chain and

started buying coffee beans directly from the farmers. In

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 addition, as was mentioned before, company pays a premium

to its growers without charging its customers an extra price. Lou

Café would need to come up with a very convincing reason why

customers should use its products over its competitors.

 Third strategy – differentiation focus means having one item

among the products, which is unique and differs from

competitors products. Until Andrea Lou has become company’s

CEO in 1990, Lou Café was a company of innovations. It has

become one of the leading coffee producing companies due to

the unique products and ideas it was bringing to the market.

Second CEO, Ernesto Lou, has invested in the researches

connected to the coffee business. Since company new CEO’s

goal to become responsible has been achieved. Lou Café could

concentrate on innovations again. This would help it to stay

competitive in the coffee market and to differ from its

competitors.

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  Fourth stategy – Cost focus means reducing cost for one

product among other products. This does not require a cost

reduction in the whole production, but only a small part. Since

Lou Café offers a number of other products besides coffee, it

can choose an item to reduce a production cost of. Since the

company has already a cost disadvantage over its competitors,

reducing costs without harming its quality would be one of the

solutions. However, coffee is the main product of Lou Café, and

this strategy would only partially solve the problem.

Another approach could be applying supply chain to a portion of the

company again. A number of Lou Café’s competitors have applied

this strategy and are introducing direct purchasing slowly. This could

help company partially reduce costs. It also would reduce the risks of

conflict of interests with its partners. Company could retain its older

and more reliable partners for the direct purchasing and include

others into the supply chain. This is, perhaps the last option company

could have to consider, since it means going back but not moving

forward and only in the case of an emergency it could applied.

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Recommendation:

I recommend that the alternative courses of actions should be applied

for the new strategies of Lou Café to meet it goals.

Conclusion:

No matter what strategy company decides to use, it definitely has to

come up with a way to stay competitive in the through further increasing its

value for all its stakeholders. The strategies listed above have their

advantages and disadvantages, and a company has to consider all the

possible obstacles it may have along the way. The best strategy for Lou

Café at present would be to smart an innovation process again. Through

this strategy company will always remain fresh for its consumers and

competitive for other companies in the coffee industry.