Coffee Retail Market Analysis in France
As a global strategy consultant, I am supposed to conduct comprehensive research all over the world and monitor as well as analyze coffee industry trends in the world. Although in this case, the consultant is given the mandate to analyze the environment of the coffee industry in France. This incorporates in-depth data regarding the market share as well as the size of the market, cultivating Costa Coffee’s awareness of France’s coffee market, evaluating the strengths of the current competitors, and ensuring accurate and well-focused strategies for the. The market research done by the consulting firm supports each level of the client business entity and backs it in brand management and strategic development. Additionally, it helps in marketing and, to a greater extent, mergers as well as acquisitions (Baghdiantz-McCabe, 2008).
In this essay, one will discuss various aspects that a new company may probably face while introducing its services in France. The consulting firm is responsible for analyzing the coffee retail market in France. The paper also discusses the best possible manner, in which Whitbread would employ in introducing its services in France and it will also explain what franchising is. It also presents challenges that Costa Coffee would experience and possible recommendations.
Using Porters Five Forces in Analyzing the Coffee Retail Market in France
Michael E. Porter derived five forces used in marketing to analyze the competition level in the industry and the development of a business strategy. This analysis of Michael E Porter brings about the image1.pngEconomics of Industrial Organization, simply stated as (IO), to obtain five forces used to describe the intensity of competition in an industry and subsequently manifest the attractive nature of an industry. This attractiveness is the profitability of the industry in general (Thurston et al., 2013).
The Threat of New Entrants
Highly profitable markets will attract many firms. In this case, Costa Coffee from Whitbread will be attracted by the fact that there is a good coffee market in France. According to Roy (2009), this would cause a reduction in overall profit for all firms. Roy (2009) also argues that this condition may be checked if the invasion of these firms is blocked by the incumbents. These incumbents refer to the large company that is already established on the market (Roy, 2009). There are large and well-established coffee firms and brands already in France, for example, Starbucks and Nestle. They may play a significant role in hindering other companies to establish themselves in the France coffee retail industry.
The Intensity of the Competitive Rivalry
This is the second force derived by Michael Porter. According to Roy (2009), the strength of the competitive rivalry determines the competitiveness in that industry. In France, there is intense rivalry among the big coffee firms, including Kraft Foods Company and Starbucks. Potential factors include transparency level, the ratio of the companies’ concentrations, and powerful competitive approaches.
Suppliers’ Bargaining Power
This is the third force and Roy (2009) claims that suppliers of things like the raw materials and expertise may be a power source over a company in case of few substitutes. If only one industry supplies raw material for making coffee, then according to Porter, a coffee company has minimal options (Roy, 2009). Thus, it has to purchase the same materials from that specific supply at the dictated price. In this, case in France, there are several suppliers of raw materials and a handful of expertise, so Costa Coffee may not find this to be a big challenge in establishing its brand in the country. Some potential factors include the intensity of the distribution channels and the level of input differentiation.
Customers Bargaining Powers
Michael Porter describes this as the output market for the company’s products. The power of the buyers becomes intense if they have many alternatives. In France, there are many coffee buyers, although they have several options for where they will buy their coffee. However, other factors in the French coffee sector hinder them from having all alternatives at their disposal; this includes the prices for coffee products. The other companies’ coffee prices may enable Costa Coffee to set their prices low to attract customers who prefer low prices (Roy, 2009).
Substitute Products’ Threat
This is the last force and Roy (2009) claims that if there are other alternatives to the company’s products, the customers may tend to go for those products if these products are unreachable due to factors like high prices. In France, people usually prefer traditional coffee but they may switch to the modern one if it has favorable attributes like taste, it is good for health and it sells at an affordable price. The factors here include the purchaser switching cost and the availability of an immediate substitute.
Franchising is a strategic form of the alliance that is formed between coalitions of individuals possessing certain relationships as well as responsibilities with the main intention of creating a dominant force on the market, subsequently getting hold of as many customers as possible as compared to their immediate competitors (Mendelsohn, 2004).
Coffee Market Analysis of France
It is easy to get customers from France since they are receptive to specific products that they regard healthier and also those they perceive as eco-friendly. They have a rigid coffee culture, which means that they prefer flavored coffee. Local traditional cafes have greatly dominated the French market and they have significant on-trade sales. The French also like doing online buying since they see it as more convincing, although there are still several distribution outlets that still attract some customers. Because of this fact, fresh organic kinds of coffee have recently experienced noteworthy growth in France. Fresh ground kinds of coffee, as well as several individually packed ones, have a great impact on coffee value. According to Thurston et al. (2013), retail sales hit 3.9 billion dollars in the year 2012 which was a significant increase since it was 3.7 billion dollars the previous year. Thurston et al. (2013) also claim that there was a 6% increase in the unit price of this commodity in 2012, and this was attributed to the increase in the cost of raw materials. In a span of five years, 2% of the Compound Annual Growth Rate (CAGR) is expected.
How Tough is the Local Competition?
There are three high ranked coffee brands in France. Nestle, one of the premium coffee companies, maintains its recently as far as coffee market dominance in France is concerned and boasts a 32% off-trade worth of shares. This player possesses a rigid position when it comes to fresh ground kind of coffee pods. This company has ‘Nespresso’ as one of its brands and it sells it via the internet, but major sales are done through its stores in France. Nescafe Dolce Gusto is the second brand and it is largely found in France’s hypermarkets. The performance of Nescafe, the third major brand in France, has also made this company ranked the best in France. Despite their best quality, these brands respond to all consumers’ needs since they provide a wide variety of coffee products. Additionally, the giant company still invests in new products; in their bid to retain their customers and keep them away from their potential competitors, they conduct intense advertisements and give offers to their existing customers (Thurston et al., 2013).
Does the Government Respect Trademark and Franchise Rights?
Economic policies in almost all countries are largely influenced by policies that are implemented by their respective governments. Knowing these policies very well, it is quite easy for a marketer to enter such markets and acquire valuable insights on how current impending actions of the government may influence core markets. In France, there are no precise laws governing the relationship between a franchisor and franchisee in the contracts of the current franchise. However, the general rules of those contracts have to be applied. The government of France respects the rights of the franchiser. In France, certain rules relating to various contractual obligations within the franchise relationship’s network apply; this may include licenses regarding the rights of intellectual property. In France, a franchisor has control over the franchise. The latter may qualify as an employee, subsequently leading to the application of the French labor law. Applications of the French competition laws also do happen to a certain degree as stated in the franchise contracts. The French government respects all trademarks and as an active member of the European Franchise Federation (EFF), allows its members to exercise the European Code of Ethics for Franchising. The French government also has non-binding regulations as far as termination and content of the franchise agreements are concerned (Baghdiantz-McCabe, 2008).
Can Profits be Easily Repatriated?
The French Tax Procedure Code has rules governing tax treatment on profits made by taxpayers who intend to transfer them abroad. It allows easy repatriation of such funds without taxing them further. In addition, there is no withholding tax applied. If the taxpayer complies with all the conditions stipulated in this Code, sanctions and penalties will not apply since the profits being transferred or rather a denied call for deduction would have been dealt with and assessed by the French tax authorities. Repatriated finances would not be subjected to the income tax of the already audited company in France (Baghdiantz-McCabe, 2008).
Can the Company Buy All the Needed Supplies Locally?
In France, it is possible to acquire an experienced labor force that is easily available in Paris and its environs. As far as expertise is concerned, France is a good source of those who are well conversant in handling coffee at all departments of coffee industries. There are several coffee plantations in France, and one may decide to source locally or import the raw products from elsewhere (Thurston et al., 2013).
Is Commercial Space Available and Rent Affordable?
In France, commercial spaces are readily available and the procedure of acquiring one is the same as acquiring a private premise. It is normally a straightforward procedure, although regulations have to be followed and precautions observed. One can acquire a mortgage of even 80% on commercial properties but one has to finance the business on his or her own. While acquiring a commercial space, one is advised to seek professional as well as legal advice. The acquiring cost varies enormously. In France, all opportunities are available; one may buy an existing business venture, including all its premises, or acquire the business but rent its premises. Furthermore, their options for acquiring the rights of leasing as well as renting the business’ premises. The cost is also determined by the size and the location of the commercial space one intends to acquire (Baghdiantz-McCabe, 2008).
Do Local Partners Understand Franchising Basics?
Franchising in France is seen as a mode of working for oneself but not by oneself. There are successful coffee brands in France, and there are partners who understand the concept very well and run the market in an effective manner. Most firms in France opt for franchising to expand their businesses and attract more customers. Franchisers have developed a business model that suits the local owners of the firms in the brand. Owners of various French franchise networks provide all their franchisees with the necessary tools they need to run a profitable business venture and ensure its success. In return for a small fee that the franchisee pays to the franchisor as well as a certain percentage of the revenue gained as agreed between the two parties, the franchisor gives full support to the franchisee ranging from the head office to the use of the brand in marketing. Necessary advice is also given to the franchise and it also offers some encouragement as far as the running of his entity is concerned (Baghdiantz-McCabe, 2008).
Advantages and Disadvantages of Franchising
Franchising reduces the risk of one’s business failing because it is based on some existing ideas that are already proven. A potential franchisee has the chance of evaluating the performance of the franchisor in the market before partnering. Another advantage is that the products that the company intends to introduce in the market will have already found a market share (Spinelli, Rosenberg, & Birley, 2004). One of the main disadvantages is that the costs may end up being higher than previously estimated. Some of these costs may include management fees. Fellow franchisees using that same trademark may damage the reputation of the brand name. The franchisor might be rigid and hinder the franchisee’s intentions to introduce certain changes to his or her business (Mendelsohn, 2004).
Challenges that Costa Coffee may Face while Entering the French Market and Recommendations
The expansion of Costa Coffee into this country may prove challenging; Costa Coffee does not have a universal brand pedigree like Starbucks, which symbolizes an American style, subsequently attracting more customers. The potential of this company in France may be inhibited by increasing coffee prices. There is also a mismatch that exists between the coffee culture that prefers French espresso and the chain-style form of coffee (Thurston et al., 2013).
For Costa Coffee, facilities should be located in areas where the traditional cafes are not concentrated. Such areas would include touristic areas, shopping centers, and French airports. A new invention also would greatly boost the success of Whitbread in this region. They may introduce a new sitting arrangement in their joints to differentiate them from the existing traditional ones. In introducing more sitting space and allowing customers to have ample time taking a coffee while they use their laptops would sound well as far as attracting the French is concerned. To boost the audience in France, Costa Coffee should introduce meals in their joints, including breakfast formulas (Baghdiantz-McCabe, 2008).
Adapt Standardized Hybrid
The success of a company is not brought by standardization or the adaptation but rather both of them combined. Developing the correct degree of this standardization and adaptation across strategies of marketing and marketing mix ingredients is essential. The location of a company will determine its success. Costa Coffee should be located where the targeted consumers of coffee are easily available. It should not locate its outlets near the traditional cafes.
While developing a design to improve or better the marketing mix, the marketer has to come up with a manner, in which to develop his or her product. The product should be customized or standardized in a manner that will suit the consumers.
Tangible manufacturing cost is not easily measurable, and the service cost also cannot be evaluated easily by the materials used to develop the product. Therefore, it is quite challenging to attach a price tag on the service or the product.
The service or the product should be consumed and produced in the same place. The place of the provision of the service or that of the products is comprehensively analyzed to ease access. Fast food cafes or, in this case, a coffee restaurant or an outlet should be located in main streets to attract customers passing by the cafe or a restaurant. A dining restaurant, on the other hand, should be located in a quiet place to allow privacy and exclusivity.
A physical product is less replicated as compared to service. It is paramount to develop a brand image that is exclusively desirable to attract more customers than competitors can. Here, differentiation ends up being the main objective of attracting customers.
The basis is that persons providing or supplying the service to the clients or the consumers have a significant part to engage in while communicating the correct message. They also have an important impact on the experience of the user. It is a vitally significant element in the product marketing mix. Many firms invest heavily in defining the correct persons to provide services to businesses. They are trained to fit in the execution of desirable services and producing products of the expected standards.
A process ought to be clearly defined. This fundamental process should guarantee the same degree of service delivery to consumers at all times. Within the process, certain areas should be stipulated where a consumer preference may be accommodated to present unique experiences.
The service delivery location also has significance. The degree of comfort, as well as attractiveness of the location of a specific service, may create a lot of difference to the experience of the user. A soothing and calm environment may offer some sense of security to fresh customers.
A geocentric firm is one that has its management expanding its scale and eye on the international level. The management looks at the way, in which it can conduct its operations anywhere. It does not concentrate so much on its operations in a specific country. This kind of management mixes the staff all their branches in any state based on their skills but not on their originality (Thurston et al., 2013).
For one to succeed in franchising, one has to acquire a clear conception of the legal ramifications concerning the relationship between the individual and the franchisor as well as the entire family of franchisees. The main task that one is supposed to focus on in this process is to work with the present franchisees in marketing the brand and making use of the brand name in the best way possible to increase the customers’ list and keep hold of them (Mendelsohn, 2004)
The reason why Costa Coffee should employ this tactic of franchising while introducing its services in France is that it will be easy for it to be conversant with the market over a short period of time and conquer it. The method would also assist Costa Coffee in establishing its own customer base and retaining it. It would be a challenge if Costa Coffee decides to approach the market alone without a franchisor. Some of the challenges are as discussed above, for instance lacking enough customers since Costa Coffee does not have a universal brand pedigree (Roy, 2009).
Companies like Starbucks faced similar obstacles while entering the French market. Whitbread’s Costa Coffee opportunities in France still exist, the sector is widely expected to experience significant growth over a short period since it is forecasted that per capita will grow from the existing EUR94 to approximate EUR95 before the year 2018 despite the coffee market being saturated and mature (Mendelsohn, 2004).