Black Canyon Coffee Case Solution

Coffee industry

Coffee is an important commodity that is globally traded and has huge value in terms of local usage. It creates livelihood for several of rural households, with million farmers who depend on coffee beans farming for their earning. Coffee is becoming a very popular drink gradually in comparison to tea, and seeing that there are very less competitors in this industry, which makes it very opportunistic.  It has the potential of growing at significantly larger rate. With the rise in urbanization; the need for quick and quality products is expanding. The market is expected to further inflate at high rate, creating room for ample of sales and profits. As shown in the exhibit 1; the levels of coffee consumption is increasing with the years, which suggests that expansion in coffee industry is necessary.

In Thailand

With above 62 million populations in 2002, Thailand had a large potential for coffee industry. The country was politically stable with high literacy and mortality rate. Coffee consumption in Thailand was comparatively lower, but was growing substantially. The demand in 1990 almost tripled to the demand 2000 from 10,000 to 28,000 tons. The demand was expected to 42,000 tons by 2000 (FAO).

The average coffee consumption per person also increased in 1976 from 0.1 kilogram per person to 0.5 kilogram per person in 2003. Coffee consumption in other countries were greater as compared to Thailand (Exhibit 1).

Along with the increase in consumption, changes were seen in the types of coffee that were preferred. The growers were changing sophistications in growing coffee. The import of Lavazza, which was a premium brand of Europe, was increased to 14 tons in 2003 as compared to the original 3.5 tons in 2001. (Rosenthal).

Thailand overall had a relatively positive and steady growth, with very less employment rate. It’s future economic growth appeared to be fairly certain (Exhibit 2).

Thailand’s Sociocultural, Technology, and Governmental segments need to be analyzed by BCC before expansion.

Government:

Thailand had a constitutional monarchy, and Laissez-faire economy. There was no governmental intervention in the market place. It also has the ability for business regulations which have significant market share and sale as compared to those designated by trade competition commission. Although there is a need for productivity reform.

Technology:

Low tariffs are imposed by Thailand’s government to provide support to assembled imports, and the changes occur every 2-3 months. Several bodies are involved in the regulation of technology. Although, mainly the government and the ministry of science & technology is responsible for the promotion.

Culture:

90% of the population in Thailand are Buddhist. 50% of the population is comprised of women who are mainly unskilled with low level of education. The work environment is also laid back compared to the US.

Threats in Thailand

Threat of bargaining power of Suppliers:Since the coffee imports in Thailand are wide, the threat of bargaining power of supplier is very low.Threat of substitution:Threats from outside of coffee shop are significantly higher.Buyers mostly purchase instant coffee from super markets or stores, as instant coffee is cheap compared to coffee shops coffee. This gives consumer a cheaper alternative.The consumption of instant coffee is higher in Thailand, with Nescafe holding the major share. There are other drinks as well,which are viable substitutes to coffee like juices, drinks, tea etc.

Threat of New entrants:

Since the government regulations are not strict, it is fairly easy for new competitors and shops to enter into the market.

Threat from Bargaining power of buyers:

As the amount of coffee shops in Thailand are constantly increasing, the bargaining power of buyers is increasing along with it. Although the buyers can switch between the brands of coffee, almost 60% of the market is held by two coffee shops.

Threat of competition:

Large amount of local and private coffee shops are posing a huge risk of substitution. Starbucks covers 45% of the market whereas BCC owns only 13%. Starbucks is the biggest competitor to BCC as it holds the highest market and Coffee world being the second. Other competitors also exist in the market posing great threat to BCC. As the coffee market is expected to increase by 11%, which would create opportunities for BCC and other competitor to compete for the market share………….

 

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