Retail Coffee Industry

Report
Retail Coffee Industry
Kay C., Julie, Mike
Agenda
• Industry Information
• Local Industry Pricing Strategies
• Specific Pricing Strategies
• Conclusion
Why?
•
US $40 billion dollars spent on coffee every
year
•
54% of Americans drink coffee every day
•
Average price of espresso-based drink is
$2.45
•
Average price of brewed coffee is $1.38
•
How does this compare to price in Ithaca?
Industry Information
Chain of Supply
• Brazil,
Vietnam,
Colombia,
Indonesia
• Rising costs
via low crop
yield
• Wholesale
Intermediary
• High
Concentration
• High barriers
to entry
• High
competition
• Low Barriers
to entry
• Medium
concentration
Coffee Suppliers at a Glance:
Total Number of Coffee Establishments in the United States : 359
Revenue: $8.8 billion
Profit: $798.6 million
Top 5 players are estimated to generate 71.7 % of industry revenue
Key External Drivers: world price of coffee, demand from grocery wholesale, per capita
coffee consumption, world price of crude oil
Market Share:
16.3%
14.1%
17.6%
24.8%
11.8%
Coffee Retailers at a Glance:
Industry Key Drivers: Retail
Coffee
Internal
External
• Consolidation
• Consumer Spending
• Wage and input increases,
thus cost control
• Health food trend
• Market position & “highprofile” outlets
• Franchising
• Per capita disposable
income
• Per capital coffee
consumption
Product Mix
Brewed Coffee
Iced Coffee
Food & Drink Specials
Seasonal Drinks
Specialty Drinks
Concentration, HHI
• High concentration in the retail coffee industry
• HHI of =1907.5
• Market structure of a few major global player with
world-wide brand recognition facing competition
regionally with high quality local providers
Concentration, HHI
• HHI index based on the Industries major players: 1549
• Concentration in the coffee industry is HIGH
• Major players  low value, high-volume, branded products
• Smaller players  high-value, low volume, niche products
• Competition in this industry is increasing due to brand loyalty
and different perceptions of quality
• Barriers to entry are HIGH and increasing because of the
market power of the major players
Major Local Players
Our Analysis
• Collected prices of 4 standard drinks from:
•
•
•
•
•
•
•
Starbucks (2 locations)
Dunkin Donuts
McDonalds
Collegetown Bagels
Gimme Coffee shop
Manndible Café
Trillium Express & Olin Cafe
Local Industry Pricing
Strategies
Coffee Pricing in Ithaca
(overview)
Hot Coffee
2.5
Manndible
2
Price
Starbucks
CTB
Trillium
1.5
Olin Café
Mcdonalds
Dunkin Donuts
1
0.5
12 oz
16 oz
20 oz
Coffee Pricing
(Overview continued)
Latte
4.5
4
Price
Manndible
Starbucks
3.5
CTB
Campus
Mcdonalds
3
Dunkin Donuts
2.5
2
12 oz
16 oz
20 oz
Specific Strategies
Premium Pricing
• Keeping the price of the product relatively high in
order to encourage favorable perceptions among
buyers, based solely on price
• May exploit the tendency for buyers to assume that:
Retailers that use this strategy:
Premium Pricing
Starbucks 16 oz vs. McDonalds
$4.50
$4.00
Prices
$3.50
$3.00
Starbucks
$2.50
McDonalds
$2.00
$1.50
$1.00
Coffee
Iced Coffee
Latte
Drinks
Mocha
Cost-Plus Pricing
• The retailer works out all costs associated
with the product and adds the amount of
profit they need to make.
• Most costs associated with selling a cup of
coffee are fixed: example labor- same salary
for the barista if she is pouring you brewed
coffee of making espresso drink
• Generally speaking, the bigger the drink you
get, the higher the profit margin for the
retailer
Retailers that use this strategy:
Costs Associated with
Selling a Cup of Coffee:
• Coffee Beans
• Wages for barrista
etc.
• Cup/Lid
• Overhead Costs
(rent, upkeep)
• Any extras (milk,
soy, espresso)
Cost Plus Graph
Manndible Coffee
Price vs. Price/oz
3
0.18
0.16
0.14
2.5
0.12
Price
0.1
Price
0.08
2
0.06
0.04
0.02
1.5
0
12 oz
16 oz
20 oz
Price/oz
Linear Pricing
• Linear pricing is defined as paying a set amount per
oz, multiplied by the # of oz in the drink
• All the coffee retailers exhibited this strategy within
each drink category. This is seen in the different size
options.
Linear Pricing
Hot Coffee
2.6
2.4
2.2
Manndible
Starbucks
Price
2
CTB
1.8
Trillium
Olin Café
1.6
Dunkin Donuts
1.4
1.2
1
12 oz
16 oz
20 oz
2nd Degree Price
Discrimination
• Bundling: breakfast deals
• Coffee Cards- frequent user incentives
• Add ons- soy milk, extra espresso, extra flavor shot
• Manndibucks- prepaid
• “Unlimited” mugs
Price Bundling
• Companies often bundle items
together to achieve maximum
consumer surplus.
• Dunkin Donuts coffee complements
their bakery products and breakfast
sandwiches.
• Although these can be bought
separately, buying them together as a
value meal is cheaper.
• Manndible offers a breakfast bundle
of Coffee and a Bagel with Cream
Cheese
Complementary Pricing
• Charging a very low price for an
item compared to its competitors,
while raising price on other items.
• McDonalds offers a small cup of
coffee for $1, and runs a seasonal
campaign of any size coffee for $1.
• Artificially low price of coffee
stimulates interest, brings in
customers who are then more
likely to buy some food along with
their inexpensive cup of coffee.
Gimme! Vs. Manndible
• Same coffee, different prices. Why?
Coffee
Mocha
2.6
4.6
2.4
4.4
2.2
4.2
1.8
Gimme
1.6
Manndible
Price
Price
2
4
Gimme
3.8
Manndible
3.6
1.4
3.4
1.2
1
3.2
12 oz
16 oz
20 oz
12 oz
16 oz
20 oz
Conclusion
Analysis & Recommendations
• Investment Recommendations:
• Large opportunity for national and international expansion
• Non-coffee sales
• Homebrew
• Company Recommendations
•
•
•
•
•
Specialty coffee
Coffee bean sales
Social responsibility & community relations
Customer service
Product innovation
National vs. Local
• Average national price:
• Brewed- $1.38
• Espresso- $2.45
• Average Ithaca price• Brewed- $1.58
• Espresso- $2.93
Questions?

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