The Coffee Retail Industry in Giomo
The coffee retail industry in Giomo was dominated bylarge coffee shops such as Tan Hortons, Coffee Time, StarlarksCoffee and Country Style. Tan Hortons had the largest share of themarket of coffee consumers at 31%, followed by Starlarks Coffeewith a market share of 25%, Coffee Time at 21% and Country Styleholding 13%. The Coffee growers in Giomo traditionally sold thebulk of their coffee beans produce to the coffeeshops.
As a result of a combination of advanced technology infarming and good weather conditions, the coffee growers increasedtheir production of coffee beans. However, they found to theirdismay that the coffee shops were reluctant to increase theirsupply of coffee even though the demand for coffee beverages was onthe increase. This was in a bid to create artificial fall in supplyof coffee beverages and increase retail prices of thebeverage.
In an attempt to survive and prevent the fall in supplyprice of the raw material, the coffee growers formed a cooperativeand together raised $6.5 million. They opened their own chain ofcoffee shops called Second Cup Coffee, which they suppliedthemselves. An excellent sales force was put together to facilitatethe sale of the beverage to the residents in Giomo. The sales forcesucceeded in convincing people that a second cup of coffee was agreat way to start a day, a second cup was necessary when taking abreak at midday and at night, a second cup was the way to finish anevening meal.
The Giomo Coffee retail industry was characterised byconsumer sensitivity to price and low switching cost. Within twoyears of the establishment of Second Cup chain of coffee shops, theannual coffee consumption in Giomo had increased by 15%. However,Tan Hortons’ market share had fallen from 31% to 12% resulting inthe laying off of about 200 of its employees. Starlarks Coffee hadlost 15% of its market share while Coffee Time retained only 7% ofits share of the market. Country Style could only hold on to 5% ofthe total market share.
After five years of operation, Second Cup Coffeecontrolled more than 65% of the market of coffee consumers. Whileother coffee shops served traditionally brewed coffee, Second CupCoffee has a variety of coffee in different flavours such asvanilla, strawberry, caramel and mint. It opened drive-throughservices for hard pressed for time customers. It also formeddistribution alliances with Wendy’s, producers of sandwiches andpastries which customers of coffee loved to eat with theirdrinks.
By the tenth year of operation, Second Cup Coffee hadmore than 200 coffee shops, about 1200 employees and 8 differentkinds of coffee drinks. Its shareholders were mostly coffee growerswho owned more than 100,000 acres of coffee beans farms and producemillions of tonnes of coffee each year. Coffee has become thetraditional drink of the people of Giomo.
(Source: Adapted from Carpenter et al, (2011) StrategicManagement, A Dynamic Perspective, New Jersey, Pearson PrenticeHall)
Explain three factors that made the major supplier grouppowerful in the Giomo Coffee Retail Industry
Explain three reasons for Second Cup Coffee’s successeven as a new entrant into the Giomo Coffee RetailIndustry
Examine two factors that accounted for the fall inmarket share of the four dominant companies in the Giomo CoffeeRetail Industry
Discuss two barriers that could have prevented newentrants from entering the Coffee Retail Industry
