STRATEGIC MANAGEMENT

ASSIGNMENT-1
Submitted by

Prince Kumar
(BM18031)

Q-Help Emily and go through each step above. Answer the questions and make a complete analysis.
What is your assessment of the industry?

1. It is a beverage as well as hospitality industry.

Actors face same buyer.
Actor may or may not face same supplier.
Actors face same and moderate entry barrier.
Actors face same substitutes.
 Vertical scope – End usage of coffee beans
 Product/service scope – Products: Hot Coffee, cold coffee, black coffee, filter coffee, coffee beans, coffee
powder, coffee latte, etc.
Services: Indoor and outdoor seating, live music, etc
The services are also provided by hospitality industry and the products can also be available in restaurant
industry
 Geographic scope- Initially local and regional and later may be national.

2.

Threats of
new entrants
: MEDIUM

Buyer’s Threats of
Industry
power : substitute :
rivalry : HIGH
HIGH HIGH

Suppliers
power : LOW
 Competitors that face the same competitive force : Tea shops, Juice corners, cold drinks vendor machine
shops.
 Buyers and buyers group: Students, Corporate bodies, Hospital canteen, college canteen, railway stations,
airports, etc.
Suppliers and suppliers groups: Particular brands (Nescafe, coffee day, etc. ), regional suppliers (Karnataka
coffee manufacturer, Tamil Nadu coffee manufacturer, etc.), malls that provide premises, Government
regulation on price of milk and coffee.
 Potential entrants: Presence of several established brands, hangout places, fast food joints, etc.
 Substitutes: Aerated drinks, milk shakes, juice centres, tea shops, fast food joints like Pizza Hut, Mc Donald’s,
etc., Hookah Parlours, etc.
3. Porter’s five forces :
 Threats of new entrants : Medium
Presence of several established brands, hangout places, fast food joints,etc
Main underline factor: Hangout place
 Buyer’s power : High
Variety of products, Variety of services, Low switching cost
Main underline factor: Low switching cost
 Supplier’s power : Low
Government regulation on price of milk and coffee, backward integration.
Main underline factor: Government regulation on price of milk and coffee
 Threats of substitutes : High
Aerated drinks, milk shakes, juice centres, tea shops, Fast food joints like pizza hut, Mc Donald’s, etc.
Main underline factor: Aerated drinks, milk shakes, juice centres, tea shops
 Industry rivalry : High
Local coffee chains like Barista, Café coffee day and entry of international coffee chains like Starbucks, etc.
Main underline factor: Local coffee chains like Barista, Café coffee day, etc.
 Strong competitive forces :
Buyer’s power: buyers are the ultimate revenue and also they have low switching cost.
Threats of substitutes: because of their availability, ambience and affordability.
Industry rivalry: because of the growth stage of the industry and also word of mouth
 Weak competitive forces :
Threats of new entrants: because of the presence of several established brands, hangout places, fast food
joints,etc.
Supplier’s power: less dependency on suppliers because there can be many suppliers.
4. Overall industry structure :
 Coffee is one of the largest commodities. Coffee consumption is higher in south India, however, the coffee
shops or the cafes are gaining their popularity throughout the country. This industry is highly concentrated
at top and fragmented at the bottom. Major products sold by coffee shops include beverages as well as
complimentary food items. Many coffee shops also sell coffee beans for home consumptions. The industry is
growing tremendously and attracting its customers towards itself as a lifestyle and status need.
 The typical and committed coffee drinkers are 20 to 40 years old, affluent and educated adults. However
coffee shops seem to be more attractive to the young generation as a hangout place. Coffee is the second
largest commodity next to oil and more than half of the world’s population drinks coffee.
 Most important competitive forces: Buyer’s power, Threats of substitutes.
Buyer’s power controls profitability. The profitability of individual companies depends on the ability to
secure prime locations, drive store traffic, and deliver high quality product.
 Yes. Coffee shops like CCD, Starbucks, etc are better positioned in relation to the five forces.
5. Growth rate is 40% over last 5 years. Coffee shop industry is one of the biggest and fastest growing
industry.
 Market trends: Growth is expected in the upcoming years. Not only the urban market but rural and semi-
urban market will drive consumption of coffee.
Changes in the five forces are :
Threat of new entrants: this will increase tremendously creating a threat for the overall industry.
Threat of new substitute: this will also increase.
Buyer’s power: this may become moderate with the course of time.
Supplier’s power: this will remain low.
Industry rivalry: this will also remain constantly high.
 The threats of new entrants and new substitute will be a negative change, increasing the competition in the
market. Coffee shop industry is showing positive changes. It tends to be more of a lifestyle and luxury which
is driving the growth of this industry.
 The entry of international coffee chains like Starbucks is driving the industry towards more of a lifestyle
segment within the end customers.
6. In relation to the five forces where the buyer’s powers and industry rivalry is high, the positioning will
be :

Modern ambience

here

High price Low price

Old ambience
 Here the weak forces are less likely to be exploited.
 The threat of substitutes can be neutralised by making fast foods available in the coffee shop itself,
like CCD.
 It is possible to exploit the industry change by following the market strategy of the leading coffee
shops and following their benchmarks.
 Coffee shop industry is already changing in its own way. However two most crucial thing that they
can do to influence the growth in the industry is, first, start educating the consumers about coffee,
their ingredients, quality differences, etc., so as to develop a relationship with the customers which
in turn will lead to brand loyalty. And secondly, it is important to alliance opportunities of
partnership for innovations, cost reduction and also market expansion.

My assessment of the industry: In India, coffee shops is in developing stage, with majority of demand for coffee
beverages arising from urban centres such as New Delhi, Mumbai, Bengaluru, Chennai, Hyderabad and Kolkata. This
coupled with implementation of various government plans to develop smart cities, etc., is projected to drive growth in
India market for coffee shops.Sales of other beverages along with foreign cuisines and fast food in India is
experiencing rapid growth, due to growing income levels and rising awareness among consumers. However, the
market is facing challenges with respect to widespread adoption of traditional beverages, along with high cost of
these new offerings. Companies are spending resources in order to increase awareness regarding their products and
keep up with global concepts. Thus, changing consumer preferences and tastes is implemented to motivate the other
market players to introduce new variety of products.Overall, India Coffee Shops has evaluated the future growth
potential of India coffee shops industry.

Q-Based on your analysis: How should Emily handle the different forces ? What strategic options
should she consider?

 Emily’s buyer’s power as well as industry rivalry is high, so mostly her focus should be on the quality and
personalisation of her products.
 The supplier’s power is low is such a vast market. Emily should choose and maintain a healthy supplier
relation.
 The threat of substitute is very high and so Emily’s products should be such that she could maintain the
consistency of her customers and maintain a preferable ambience to attract those who relate a coffee shop to
luxury and life style.
 Emily here, wants to open a coffee shop in an urban area where the competition is high, and hence she should
choose the focus strategy and under that she should choose the focus-best value also known as
differentiation focus.
 Focus – best value or differentiation focus is when Emily starts offering valuable products or services to a
certain range of customers even if they are relatively expensive. Her target segments must have buyers with
unusual needs. Although cost focus seems necessary because it is a start-up, but in this type of industry and in
an urban area the customer needs are more important to them. Price is a minor factor for them and their needs
are confined to more of lifestyle and status. Differentiation focus exploits the special needs of buyers.

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