Coffee Case Study

A Case Study Presented to the

Faculty of the Tertiary Education Department of

FEU Roosevelt

Marikina

In Partial Fulfillment of the requirements in

Basic Microeconomics

Submitted By:

Besmonte, Alessandra Lei

Geronimo, Joana Francine

Tomas, Andrea Danielle

Submitted to:

Jose Marcellano Eupeña, LPT, MBA

Professor

March 13, 2023

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 Case Background

Andrea Illy, A CEO of the global premium

coffee company that bears his family's name.

Unfortunately, the current coffee market differs

from such an ideal. Coffee growers in most parts

of the globe work at a barely subsistence level.

Illy believes that the solution to the sad

situation is to initiate a "virtuous circle" that

draws the grower, the roaster, the barista, and

customer together. Growers with better knowledge

of the market will work to improve their crops or

experiment with new varieties.

Time Context

The issue happened by the start of the third

wave of roasters, where every business came with

story of its origins.

Viewpoint

The researchers chose the perspective of the

Shop managers as this has a relatively high

position in the market which allows them to oversee

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 the daily operations of the shop, assuring

efficiency and profitability.

They are responsible for the growth and success

of the division that they are managing, and thus

they are knowledgeable in the field, including

consumers’ behavior.

ASSUMPTIONS

GENERAL ENVIRONMENT STABILITY

Political Factors

Due to governmental strength and stability,

trade links with foreign nations enable companies

like Illy caffe and to sustain offshore company

affiliations quickly and successfully.

Corporate expenses won't be passed on to

customers, allowing them to take advantage of

competitive and attractive pricing.

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 Economic Factors

For Illy Caffe to succeed, the economy needs

a low level of inflation. The economy will benefit

as a result, and disposable income will rise

overall. The favored consumer spending patterns

are those that result in more purchases and

consumption of Illy Caffe products. By improving

product quality and using effective marketing

techniques, these higher consumer trends can be

positively influenced.

Social-Cultural Factors

Illy Caffe having a larger proportion of

young people is advantageous since it will give

the business a broader customer base. A younger

population will also bring with it the prospect of

more educated, skilled, and human resources for

Illy Caffe, which will widen and deepen the talent

pool.

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 Due to the rise in health consciousness, Illy

Caffe have collaborated and undertaken CSR

projects that emphasize not only physical health

and wellbeing but also mental and emotional

wellbeing.

Technological Factors

Businesses like Illy Caffe is increasingly

implementing technological advancements and

innovation to boost organizational effectiveness

and efficiency. All industries have a high rate of

innovation, which makes Illy Caffe competitive and

forward-thinking. Because of this specific

competitive advantage in terms of technology

improvements, Illy Caffe continues to employ and

take part in innovation processes to improve

business cycles and operations.

Illy Caffe is increasingly obtaining consumer

data and information through social media.

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 Moreover, Illy Caffe uses its own social

media channels to engage with customers, ask

comments from them, and announce sales. Also, it

has begun using social media for hiring purposes,

highlighting the shifting social media usage

tendencies in the business world.

Environmental Factors

Illy Caffe has introduced dedicated websites

for the disposal of products for recycling. Like

many other businesses, Illy Caffe is also

launching a brand-new product range of recycled

goods for the benefit of customers.

Illy Caffe and other companies in the linked

sector are progressively using hydroplanes, solar

energy, and management of business operations. To

aid with manufacturing, Illy Caffe has a company-

controlled, small-scale hydro plant.

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 Legal Factors

The safety and health of employees includes

not only their physical health but also their

emotional and mental health. Illy Caffe places a

great value on its employees' health and safety

and works hard to keep making improvements.

Employment contracts provide a positive

relationship between all parties and prevent

miscommunication or collusion. Illy Caffe adheres

to employment laws and informs potential employees

of these rules during the hiring process. The Illy

Caffe HR department also routinely holds training

sessions and workshops for staff members to engage

them and educate them on employment regulations

and other legal requirements.

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 INDUSTRY GROWTH PROSPECT

Threat of New Entrants

The barriers of entry in the coffee industry

had increased significantly since the appearance

of specialty coffee and its product

differentiation. It has raised the standards when

it comes to the taste of coffee and its quality.

Also, the coffee industry's economies of scale

have grown in tandem with the size of the leading

companies. This is why, although it is relatively

easy for new entrants to appear due to the low

capital requirements, they do not pose a threat

especially towards companies like Illy caffe which

offers premium coffee.

Threat of Substitute

Tea, local hot beverages, and milk tea are

considered as the major alternatives to coffee.

This poses as a threat to the coffee industry as

the affordability and availability of replacements

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 is high. Consumers can also easily switch a

company's products with substitutes such as

instant beverages from vending machines,

convenience stores, and home-brewed coffee from

local coffee shops. But nonetheless, premium

quality and brand loyalty assist in minimizing

some of this force.

Competitive Rivalry

Since Illy caffe operates in a competitive

industry, it also faces rival companies such as

Lavazza Co, Costa Coffee and Starbucks. There are

few significant differences in the products that

these companies offer, therefore it leads to a high

level of rivalry as customers can easily switch

from one player to another. Strong competition can

limit profitability and drive competitive

activities like as price cuts, increased

advertising investment, or investing on

service/product enhancements.

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 Bargaining Power of Suppliers

In the coffee industry, the bargaining power

of suppliers is low since several variables, such

as suppliers' low economic state, the presence of

many farm owners, and the identical character of

coffee beans, reduce suppliers' bargaining

strength significantly. However, this does not

affect Illy Caffe’s supply chain as the company

works directly with coffee growers to perfect the

growth and processing of coffee beans while also

paying a higher price for the product. Also, the

suppliers’ bargaining power has improved due to

the growing unity among coffee growers and the

increased value given to high-quality coffee beans

by consumers.

Bargaining Power of Buyers

Individual consumers continuous to be the main

buyers in the coffee industry, as they do not

purchase in huge amounts relative to a

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 corporation's overall sales. As the coffee market

grew, so did the number of rivals that offer high-

quality coffee. Due to this, it was far more

difficult for coffee industry players to separate

themselves through quality. Aside from the

increasing quality uniformity of coffee,

consumers do not face significant switching costs

and have a vast selection of vendors from whom to

purchase.

COMPANY’S COMPETITIVE POSITION

Marketing

Illy's marketing strategy strives to

highlight the brand's Italian heritage and

excellent product quality through the

incorporation of different promotional channels.

The company advertise their brand through popular

social networking sites like YouTube in a global

scale. Occasional sales promotion campaigns are

also conducted through e-mails, catalogues, and

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 special offers. Moreover, Illy engages in a broad

variety of marketing events including coffee expos

and barista contests.

To compare Illy’s marketing strategy with one

of its competitors, Starbucks takes advantage of

social media networks to establish their brands,

promote new releases and contents, and offer

customer service.

Information Systems

Illy Caffe uses Oracle HCM Cloud to provide

consistent HR standards to its employees

throughout all locations of their business. The

platform serves as a mean to ensure consistent pay

and benefits, gather and identity exceptional

employees, and to provide division managers with

a single source of accurate data about the

company’s workforce.

On the other hand, Starbucks can track all

its revenues, thus understanding each store’s

performance against labor, visualize product

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 performance during peak hours, align its sales

targets, and also improve the sale margins.

Production/Operations

To produce a coffee bean that has the highest

quality they will ever produce, they once did the

traditional of picking. By picking, they were able

to check the beans they are going to produce. As

this is the same with Starbucks, Operations

management at Starbucks uses various productivity

criteria, depending on the area of operations

under consideration.

Financial

a. Italian coffee roaster and café chain, Illy Caffè,

has reported sales of € 500m ($536m) in 2021, a

17.4% increase compared to the previous year, but

highlights geo-political instability for its

uncertain outlook.

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 b. Starbucks gross profit for the twelve months

ending December 31, 2022 was $22.313B, a 5.52%

increase year-over-year. Starbucks annual gross

profit for 2022 was $21.933B, a 7.93% increase from

2021. Starbucks annual gross profit for 2021 was

$20.322B, a 28.43% increase from 2020.

This Financial Statements above seeing the result

that they are still making a profit successfully,

basing on the annual year of 2021, Starbucks had

the highest Annual Gross Profit with worth of,

$20.322 Billion, while the Illy’s café had a

profit of $ 536 Million.

Organization & Management

Mission

To delight lovers of goodness & beauty all

over the world with the best coffee nature can

provide enhanced with the best technology and art.

Vision

To be the world reference for coffee culture.

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 To be an innovating company, aiming to create and

offer the finest products throughout the world’s

best destinations, while demonstrating its

character as the leader in the premium coffee

segment.

Values

Ethics: long-terms value creation through

sustainability, transparency, and personal

development.

Excellence: love for beauty and goodness.

Human Resources

Illy’s Café uses Oracle Human Capital Management

(HCM) Cloud because it helps the HR team offer

standard pay and benefit packages across

geographies, identify talented employees to staff

its new locations, and gives managers a single

source of detailed information about each member

of its growing family.

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 Over many years, Starbucks has built a capability

to foster a relationship-driven, employees-first

approach, which encourages staff to form close

bonds with each other. Called “partners” rather

than employees, even part-time staff (in the U.S.)

receive stock options and health insurance. At the

height of the global financial crisis, when other

companies were cutting HR costs wherever they

could, Starbucks invested in staff training,

including coffee tastings and courses that

ultimately qualified for credit at higher

education institutions. Former company president

Howard Behar believed that employees who feel

cared for will care about their customers.

Research and Development

Illy Caffe has a long history of innovation dating

back to its founding. The company contributed to

the coffee industry by innovating three out of

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 eight inventions that changed the industry. Illy’s

first contribution was the first pressurized

packaging which was released in 1934.

This enabled coffee makers to seal and preserve

the freshness and natural flavor and aroma of the

coffee beans. The company also invented Illeta,

the prototype of the modern espresso machine,

E.S.E.(Easy Serving Espresso) Pods and their

latest major innovation, Iperespresso. The company

established four research facilities: AromaLab,

SensoryLab, TechLab, and BioLab to investigate the

biological and chemical properties, aroma, and

sensory effects of coffee in order to provide

better coffee to their customers. To compare,

Starbucks use an open-source approach to

fortifying the coffee industry, new varietals and

growing techniques that are shared freely with

researchers and farmers around the world.

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 Statement of the Problem

This study aims to find the most helpful process

for the coffee, to have the best roasters in their

industry.

The conflict started when the third wave of

transformation in the coffee market was already

starting.

Andrea Illy faces the third wave issue which

relates to consumers who don’t get involved in

where their coffee comes from or where the coffee

beans are produced, but rather focus mainly on how

the coffee gets roasted and sold (the end product),

which leads to a lack of concern over the growers.

As a result, they are not paid enough premium for

their production of coffee beans.

A. How will Illy’s Café process the coffee beans from

the roasters?

B. Will they be able to meet the standards of

consumers?

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 C. How will they stand along with the other café

company upon starting the so called “third wave

transformation”?

SWOT ANALYSIS

Strength

Due to its widespread consumption, Illy Cafe has

a big market. A wide consumer base contributes to

the enormous revenues that coffee firms make. Illy

Cafe can produce more goods and services because

of the demands of coffee all over the world.

Weaknesses

Businesses in the coffee sector must contend with

fierce competition. Low entry barriers have led to

a large number of businesses offering essentially

identical coffee today. This is obviously a

vulnerability for a business in the coffee sector.

Illy Cafe's strategy will be used by other

companies if it is proven for success.

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 Opportunities

Using technology to provide fresh flavors to the

market helps businesses stand out from their

rivals. This may provide them a competitive

advantage. Illy Café can add new trends that will

surely make their coffee stand out.

Threats

People's living standards may decline as a result

of a worldwide recession. They will consequently

give up drinking coffee. As a result, the market

for the coffee of Illy Café may experience a

decline, which would reduce profit margins.

Alternative Courses of Action

Promote agritourism to establish the "Virtuous

Circle."

Coffee brewing or processing is a

procedure that requires expertise and extensive

knowledge to make the right cup of coffee. However,

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 it has not been properly featured to coffee

consumers for them to be educated of what affects

the aroma, flavor, and acidity of the coffee they

consume. Agritourism, the practice of allowing the

public to view agricultural related activities, is

one of the ways to showcase the expertise of the

growers and for consumers and/or roasters to enjoy

an agriculturally oriented educational experience.

This would benefit both sides since agritourism

offers diversification and economic incentives for

growers while visitors widen their tastes and

knowledge about coffee.

Production and Incentives Improvement

In order to ensure the long-term

viability of farmer communities, the company must

recognize the value of each individual farmer and

pay fair trade or responsible farming bonuses,

among other measures. It also needs to monitor the

entire production and processing process rather

than just the quality of the final product. In

addition, the effectiveness of logistics, packing,

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 and transportation should be evaluated and

improved, which will eliminate or reduce the

expensive, unsustainable steps.

Recommendation

By coming up with new ideas to enhance the

business's processing process and highlight it,

Illy Café should put a greater emphasis on the

growers, roasters, and customers. The competition

is expanding as a result of the rising demand for

coffee. In this situation, Illy Café must provide

all available options to make their coffee stand

out by educating both consumers and growers.

The researchers concluded that going along with

the trend while innovation from the management

itself will make Illy’s café work through along

with the various count of café’s growing in this

industry. By knowing feedbacks from the customer

will make their café recognize what will be the

problem or any improvements that the café needs to

do to satisfy their customer.

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 References:

Dudovskiy, J. (2013). Illy Marketing Strategy.

Research-Methodology. https://research-

methodology.net/illy-marketing-strategy/

illycaffè. (n.d.-a). illycaffè: our mission and values

- illy. Www.illy.com. https://www.illy.com/en-

ww/who-we-are/illy-mission-values

illycaffè. (n.d.-b). Innovation for Quality’s Sake.

Www.illy.com. https://www.illy.com/en-us/coffee-

innovations

Meah, J. (2018, August 6). Starbucks Marketing Strategy

| 15 Actionable Ideas for Restaurant Marketing.

Www.joshmeah.com.

https://www.joshmeah.com/blog/starbucks-

marketing-strategy-15-extremely-actionable-

ideas-for-restaurant-marketing

Oracle Cloud helps illycaffè deliver “world’s best

coffee.” (2019). Oracle.

https://www.oracle.com/customers/applications/il

ly-caffe/

Post, L. C. (2019). Oracle BrandVoice: Blending

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 Tradition And Technology, Illycaffè Produces One-

Of-A-Kind Coffee. Forbes.

https://www.forbes.com/sites/oracle/2019/10/21/b

lending-tradition-and-technology-illycaff-

produces-one-of-a-kind-coffee/?sh=34d5d88a9733

Starbucks Gross Profit 2010-2022 | SBUX. (n.d.).

Www.macrotrends.net.

https://www.macrotrends.net/stocks/charts/SBUX/s

tarbucks/gross-

profit#:~:text=Starbucks%20gross%20profit%20for%

20the%20twelve%20months%20ending%20December%2031

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