Cafe Industry and Strategic Analysis

Industry and Strategic Analysis

Industry:

In today’s growing economy, the coffee shop/cafe industry has remained a nearly perfectly competitive market, due to the sheer amount of consumers, opportunities, and relatively low costs of entry/exit. The Canadian domestic market for coffees and teas alone nets around $1.5 billion [Agriculture Canada], with sales of all other pastries and goods being unaccounted for. Incorporating these avenues however, grows the overall domestic market.

To adequately appraise the competition faced by all coffee shops, it must be noted that the general coffee industry itself is developed and extremely competitive. Coffee shops do not just face competitions from one another, but also from all other stores and venues that serve coffee as a complementary product. With all competitors being aware of this, they utilize various differentiating methods that range from affordability to variety. The key driving factors of consumer demand are consumer taste and personal income.

The growth of the industry domestically has been bolstered by the imports of various coffees from around the world, allowing for a specialty coffee market to develop, along with the practice of blended coffees. Much of the supply side business is focused on contracts between suppliers and shops. The industry is dependant on labour, from both a supplying and servicing standpoint. Sales are seasonal in nature, with the peak season being the winter season; as a result, the long term success of our business will hinge on our ability to sell on the basis of more than just coffee.

Strategic Analysis -Background: the market and competition

As of November 2012, coffee shops that are within a ten-minute walking distance. This does not account for the various other clientele that potentially exist as a part of the businesses that operate in the surrounding area and is therefore a conservative estimate.

Delving further into the value proposition of the three brands of coffee shop competitors that exist, we see that each brand serves a purpose and segment of the market; this knowledge is key as these restaurants are franchises that are well established and their position in the market must be thoroughly understood if we wish to effectively compete. As such, after thorough analysis we have observed that there exists a general consensus for each of these direct competitors; Tim Hortons competes on the basis of location and diversified product line/offering, Starbucks competing on the basis of specialized high end coffee, while Timothy’s coffee falls into the middle ground competing on the basis of supplementary products and store atmosphere/environment. Knowing that these niches are currently occupied by competitors, our Cafe’s chances of success dramatically increase if we are able to cultivate a sustainable basis on which we can compete which differs from those already being served.

Location, price, quality, and speed of services are the few predominant factors that influence customers’ pick of restaurants; once these factors have been experienced brand loyalty may or may not develop thereafter. As a whole, our bargaining power with suppliers and consumers alike is low [Appendix B]. As mentioned in the industry analysis, the coffee industry is perfectly competitive, thus coffees and other products provided by the aforementioned coffee shops can be seen as almost perfect substitutes of each other [Appendix B]. Therefore, to attain a competitive advantage over our competitors, we must focus on substantially differentiating its services from those provided by competitors, tailoring the service to the needs of our target market.

SWOT Analysis

Strengths: Over 60 years of expertise in food and beverage service, offering unique homemade flavors, which also has allowed them to build up a small but loyal customer base. Gerrard Cafe is a sole proprietorship, which means we have no need to follow any corporate governance. There is flexibility in products and services, with much larger room to maneuver. Over 60 years experience in consumer trends and business cycles of the industry.

Weaknesses: Customer awareness of Cafe Gerrard is one of our major weaknesses. Some of our competitors, namely Starbucks and Tim Horton’s, are either corporate chain stores or successful franchises, which enjoy immense popularity in the market. Gerrard Cafe, on the other hand, only has a single location, thus customer awareness is significantly lower compared with the big players.

The store still takes order manually, which means we have a disadvantage in terms of speed of order taking and food processing. The inefficiency in order taking can significantly lengthen time spent on food and beverage preparation, and directly lead to a prolonged customer waiting time in the queue, which in turn will adversely affect our business. The lack of a comprehensive database which stores all customer information is detrimental to customer relation building, and hampers any effort to provide high quality and tailored services to our customers.

Inventory is managed manually, which gives greater room for errors and employee fraud. A computerized interface gives much more accurate information about inventory level, and is less subject to human errors. Meanwhile, some tasks such as ordering supplies can be automated by computer, when inventory level is low, whereas ordering must take place manually at the moment because inventory is managed manually. No online presence, while our major competitors have already conducted countless waves of promotions on social media and web. Today, the active use of social media is one of the most significant contributor to a company’s brand awareness, especially among younger generations.

Opportunities: Growing trends of specialty coffee and personalized cafe services can be incorporated into continuing business plans. We can slowly attain Economies of Scale; as our chain grows, our costs decrease as we cater to more and more consumers. There are growing consumer trends for convenience and accessibility. Streamline back-end business processes through the use of information systems, this includes supply chain management, employee databases, and even training modules. Growing popularity of ‘coffee shop office’ idea, where professionals and students are embracing working in a cafe setting, where food and drink are abundant, and service can be personalized.

Threats: The coffee shop industry has a relatively low cost of entry, which means that there is a relatively high possibility of Gerrard to see more competitors in the adjacent area.

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