Coffee is taken as one of the most liked beverages and consumed all over the world in different regions. The frequency of usage varies from country to country due to taste and weather, but the overall usage is extremely high as the global coffee industry collects revenue of more than 100 billion USD with an average of 500 billion cups consumption within each year. The growth of the coffee industry is positive at 5.5 percent which shows the attraction of the industry (Menke, 2018). Porter’s five forces analysis is conducted to understand the industry in detail.
Competitive Rivalry
Despite having a growth of more than 5 percent, the industry is facing a fierce rivalry due to the presence of multiple competitive competitors. Starbucks is leading the coffee industry with a revenue collection of 22.38 billion USD while Tim Horton comes at second spot with a revenue collection of 3 billion USD each year.
Panera Bread, Lavazza, Costa Coffee, Peet’s Coffee, Dunkin Donuts, and Caribou comes at 3rd, 4th, 5th, 6th, 7th, and 8th spots with a revenue collection of 2.8 billion USD, 2.4 billion USD, 900 million USD, 800 million USD, 662.5 million USD, and 500 million USD respectively (Rowe, 2019). It means that the players that are competing in the coffee industry are internationally accepted with massive financial strength posing a high level of competition for each other. It is important to note that these are the international chains and the local chains within each country are also part of a competition that further intensifies the competition in the coffee industry.
Bargaining Power of Buyers
The bargaining power of buyers in the coffee industry is high due to the presence of a large number of coffee providers without having any radical differentiation. Customers do have loyalty with the brands, but the loyalty is not strong enough and the switching behavior of the customers in the coffee industry is high with low or no switching cost (Geereddy, 2013). The buyers have options to choose from multiple international and local brands that keep the power of the buyers high, and the companies provide offers keeping in view the strength of the buyers for bargaining.
Bargaining Power of Suppliers
The bargaining power of suppliers is low as the companies are strong and they have a large number of suppliers to buy from. Many companies produce their own coffee beans which are the major ingredients of the coffee. The company has the option to buy from different suppliers which puts the companies in the dominant position. The sales level of the companies is the strength during bargaining with the suppliers because the suppliers are willing to get the contract from such massive companies to generate economies of scale (Geereddy, 2013).
Threat of New Entrants
The threat of new entrants in the coffee industry is high because the number of hurdles for market entry is low. Even the hurdles that are available in the coffee industry are not complex and they are easily possible to eliminate which is the reason for easy entry to the market. There is no need for massive capital requirements because the coffee shop or supply can be started at a small level with a small takeaway shop at the corner of the street. It means the capital requirement is not the hurdle in the coffee industry for the new entrants.
The skills required are not highly technical, but they are trainable which further makes it easy to enter into the coffee industry (Mighty, 2017). The 5 percent growth of the coffee industry further attracts the new entrants and eases the situation for the newcomers in the coffee industry making the threat of new entrants high.
Threat of Substitutes
The threat of substitutes for the coffee industry is high because of the availability of multiple substitutes. The number of substitutes for the coffee industry is increasing which is a threat to the coffee industry. Tea is one of the major substitutes for the coffee industry which is harming the situation for the coffee. In many countries, tea is highly preferred over coffee and coffee is taken as an occasional drink. The other local hot beverages also offer a threat of substitutes to the coffee industry due to the acceptance of local hot beverages.
References
Geereddy, N., (2013). Strategic analysis of Starbucks corporation. Harward [Електронний ресурс].–Режим доступу: http://scholar. harvard. edu/files/nithingeereddy/files/starbucks_ case_analysis. pdf.
Menke, A. (2018). The Global Coffee Industry. Available at: https://globaledge.msu.edu/blog/post/55607/the-global-coffee-industry
Mighty, M. A. (2017). “We Likkle, but We Tallawah”: Maintaining Competitive Advantage in the Crowded Specialty Coffee Market. Journal of international food & agribusiness marketing, 29(1), 70-91.
Rowe, S. (2019). Top 10 coffee companies in the world. FDF World. Available at: https://www.fdfworld.com/top10/top-10-coffee-companies-world