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2MBA – Strategic Analysis

4.1 External Environment Analysis

4.1.1 Macro Environment Analysis

Technological Developments
Technological developments in the industry have focused on the fresh coffee (espresso and cappuccino) segment ignoring the soluble coffee segment. However, fresh coffee developments have failed to address significant issues in both milk-based and filter varieties.

Milk-based Coffee Equipment

  • Espresso machines must be cleaned regularly to maintain the output quality
  • Standard of espresso/cappuccino produced depends on operator expertise and equipment maintenance; this leads to significant amounts of substandard coffee being sold at a premium.

Filter-based Coffee Equipment

  • Filter coffee must be discarded approximately every 30 minutes leading to inefficiencies. In busy restaurant environments, this policy is often forgotten which leads to substantial substandard coffee being served to customers.
  • La Barista challenges contemporary thinking in soluble and roast and ground coffee technology as well as addressing the problems of milk-based and filter coffee equipment technologies.

Social and Attitudinal Trends

  • Espresso coffee industry achieved prominence eight years ago and continues to grow.
  • Current coffee craze due to shifts in consumer tastes toward more expensive, premium flavored coffee.
  • In 1990, only 3% of coffee was sold at a premium; today, it is over 40% suggesting more discerning consumers and higher margins in the industry.
  • US is developing a European style coffee culture, with emphasis on quality rather than quantity, leading to emergence of specialty coffee chains across the US.

Economic Trends

  • Consumers today have a larger disposable income
  • Urban populations are growing and feeding periods shortening
  • Research suggests that coffee sales increase if the product is made more available to the consumer

These findings, coupled with today’s more discerning consumer, suggest that La Barista will be able to capitalize on the impulse nature of the coffee purchasing decision in both the Cafe Nescafe cart format and through large food chains enabling brand owners access to the huge, mobile and impatient urban markets.

4.1.2 Market Description

  • In 1999 886,338 tonnes of coffee were sold in the US.
  • Soluble coffee accounts for 9.1 % of the total market and fresh coffee 90.1%.
  • Fresh coffee is the faster growing sub sector in both volume and value terms with increases of 2.4% and 32.6% respectively from 1994 to 1999.
  • The soluble coffee sub sector has declined with a 1.8% fall in value during 1999. Despite its higher price, soluble coffee is perceived as inferior to fresh.
  • More coffee now is being consumed away from home accounting for 57% of the total market. This is reflected in declining supermarket sales of both soluble and fresh coffee.

Value of retail sales of coffee 1994 & 1998

US$ (million) Fresh Instant Total
1994 $5,851 $764 $6,615
1998 $7,761 $779 $8,540

US Per Capita Coffee Consumption By Age 1999

Age No. of cups per day
25 – 29 4.2
30 – 59 3.8
60+ 2.8

These figures show that although coffee is a growing market with continued expansion forecast, the growth is focused in the fresh coffee sub sector of specialty coffees, consumed primarily away from the home and primarily by younger generations. Therefore the young, specialty coffee segment will be important for any prospective corporations that are targeted for 2MBA, Inc. strategic alliances.

4.1.3 Competitive Environment Analysis

Intensity of Competitor Rivalry

  • Targeting an under serviced sector of the market
  • Resistance from established competitors
  • Unique combination of products catering to niche corporate needs
  • Not price competitive in corporate coffee segment

Low Risk

Supplier Bargaining Power

  • Extensive industry networks via key board member
  • Less critical components are generic and can be outsourced
  • Multiple suppliers for each component and part
  • Expertise in-house to construct complex components

Low Risk

Risk of Potential Entrants

  • Largest food company in the world secured as a strategic partner
  • IP protection

Low Risk

Power of Buyers

  • Existing relationship with Nestle
  • Large corporate buyers

Medium Risk

Threat of Substitute Products

  • No alternatives offering combination of features
  • Early mover
  • Low cost of production

Low-Medium Risk

Implications of Analysis

Due to the market segment targeted and the nature of the industry, it is possible to earn above normal profits in this industry.

4.1.4 Competitor Analysis

2MBA Inc. Bun Manufacturing American Metal Wear Scanomat Saeco
Financial backing 3 5 5 4 5
Customer exclusivity 4 5 5 4 4
Distribution channels 5 5 5 4 5
Product 5 3 3 4 4
After sales service 5 3 4 4 4
Position in life cycle 5 1 1 4 2
Commitment to technology 5 2 3 4 3
Cost structure 5 3 2 4 2
Selling force 3 4 4 4 4
Totals 40 31 32 36 33

Legend 5=excellent; 1=poor

Scanomat: This technology uses soluble coffee to make milk-based coffees (espresso and cappuccino) making this a direct competitor, however it can only use powdered milk, adversely affecting the taste. This process takes 12 seconds; while faster than espresso this is slower than La Barista.

American Metal Wear; Bun: These are the two largest manufacturers of filter coffee machines and are the current suppliers of many of the major food chains. Being filter coffee they are not direct competitors; however, they occupy the segment we seek. To win this battle, we must stress the quality of our coffee output and the demand by consumers for more deluxe coffee varieties to be carried in large food chains.

Saeco: The world’s largest manufacturer of espresso machines is well established in both commercial and domestic markets with their patented “automatic brewing mechanism”. These machines appeal more to specialty coffee houses and enthusiasts, as their operation requires greater attention and expertise.

4.1.5 Customer Profile

2MBA, Inc. has two customer categories: Nestle and Non-Nestle customers.

Nestle

In light of the current market trends favoring fresh coffee consumed “out of home”, Nestle find themselves needing to penetrate the higher margin market segments and satisfy US consumers’ growing taste for gourmet coffee. Nestle is currently spending $60 million on their nationwide relaunch of the Nescafe brand in the USA. The MVU enables access to the “out of home” market and through La Barista Nescafe can to infiltrate the specialty coffee segment as La Barista is able to challenge perceptions and convert soluble into gourmet coffee. The Nestle relationship has been successfully test marketed in Australia to the satisfaction of all parties and provides 2MBA Inc. with valuable customer insights.

Non-Nestle Customers

2MBA Inc. will target large corporate food chains and catering companies seeking to capitalize on the current euphoria of specialty coffees. Due to the expertise and patience required to deliver specialty coffees, this has not been a practical option for many such corporations needing to serve high volumes in short periods with modest staff training and high staff turnover. La Barista will fill this need with the added convenience that soluble coffee offers.

The profile of this customer group will include the following criteria:

  • Significant market share
  • Able to offer corporate support and distribution
  • Looking for solutions to coffee preparation

4.2 Internal Environment Analysis

See Appendix A for summary of Bell Mason Diagnostic. Major strengths and weaknesses that were identified during the Diagnostic process appear in the SWOT analysis in Appendix C.


 

2MBA
Table of Contents Appendices
0. Executive Summary
1. The Offer
2. The Products
3. The Organization
4. Strategic Analysis
5. Key Strategic Issues
6. Marketing Plan
7. Production Plan
8. Organization Plan
9. Financial Plan
A. Internal Environment Analysis
B. Critical Risks and Problems
C. SWOT Analysis
D. Testimonials
E. Production Layout
F. Action Plan
G. Team Member Details
H. Reference Sources
I. Financial Analysis Worksheets
All information herein is confidential and belongs to 2MBA, Inc.
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