Global Strategy Coffee
Coffee is one of the most world’s widespread drinks with more than a million cups of coffee being consumed by people every year. The two well-known types of coffee are regular and espresso. The espresso is the coffee variety which is found in the majority of cafes and restaurants around the world, while the regular coffee is only found domestically in the homes. Whitbread intends to expand its Costa shops into France. The company greatly differs from other companies due to its great adaptability and flexibility. The coffee industry in France offers employment to a lot of people with thousands of people working in the coffee industry. The Porter’s Five Forces framework can enable the company to achieve a competitive advantage in the industry that it operates in.
Porter’s Five Forces Framework
Companies are able to gain competitive advantages by differentiating their products from those of their competitors through the use of low costs. The company can market its products by using a much broader target which would enable the company to cover the entire marketplace or even focus on a much lower target depending on the attractiveness of the market (Johnson, Scholes, & Whittington, 2005). There are generic strategies like the product differentiation, focus, and cost leadership which the company like Whitbread can undertake in order to gain a competitive advantage from the globalization of its brands across borders into different countries.
Differentiation of the product is very important as it helps give the company a competitive advantage. When the company uses the differentiation strategy, it is able to charge a certain price level for all its services and products in the given market. Some forms of differentiation that companies can use include better performance of the products or even better and enhanced service levels offered to the customers (Lynch, 2006). There are some costs which are associated with differentiation like advertisement costs which the company has to incur while differentiating its products or services.
The focus strategy is also called the niche strategy. The company can achieve a competitive advantage by focusing on its target segments through the use of the focus strategy. The company can mainly focus on the market areas where the competition levels are extremely low by offering products which are specialized for the specific audience (Lynch, 2006). Different customers have diverse needs which the company has to analyze and thus devise products which fit the needs of the customers to enhance customer satisfaction.
The cost leadership strategy is where companies attempt to become low cost producers in a specified industry. The company which employs low costs is capable of earning high profits in case other substitutes or competing products are not differentiated. The companies which make the attempt to follow this strategy often put a great emphasis on the reduction of all costs involved in the value chain activities (Parnell, 2006). In the French coffee market, the company can be a cost leader, but that does not mean that its products have to be cheap. The company which is able to use the cost leadership strategy is mostly positioned to be able to capitalize the value proposition which can emerge from the strong emphasis on low costs.
The environmental forces which have a great impact on the company’s ability to compete with other close related companies in a specified market are the Porters’ five forces (Kim, Nam & Stimpert, 2004). These five forces can enable Whitbread’s expansion of its Costa Coffee into the coffee market of France by diagnosing and determining the main competitive pressures which exist in these markets, and also enable the company to know the strengths and importance of each of the forces to its benefit.
i). Supplier’s bargaining power
On the French coffee market, the bargaining power of the suppliers is very high. In the case when the focus and differentiation strategies are used, the suppliers can be able to exercise their primary powers. Whitbread can be able to use the focus and differentiation strategies in an attempt to have the ability to pass the burden of the increases in suppliers’ prices in the industry to the final consumer through a premium pricing strategy.
ii). Consumers’ bargaining power
The bargaining power of coffee consumers in the French coffee industry is high. The presence of many competing companies and substitute products which can pose a great threat to Whitbread shows that the consumers can choose cheaper coffee being offered on the market. This displays that for Whitbread to survive in this competing industry, it has to offer lower prices than the competitors in order to win a larger clientele base by ensuring that the consumers buy coffee from the company on a regular basis without opting for a close substitute.
The change in the buyers’ purchasing power is always according to the three generic strategies. If Whitbread would become a cost leader, it could have the ability to offer lower prices to very powerful consumers. The scenario could differ greatly if the Whitbread decided to use the focus and differentiation strategy: the consumers’ bargaining power would be highly reduced as there would be very few alternatives which could be available to them to choose from.
iii). New Entrant Threat
In the coffee market of France, the threat of new entrants into the coffee market is low. For new companies, the approach to a saturated market has a negative and discouraging influence, with the economies of scale being the most substantial barrier for entering the coffee industry in France. The new coffee market entrants in France face significant issues like the access to capital and distribution channels as the most attractive locations for establishing coffee shops are mostly occupied by other competing coffee shops, coffee chains, retailers, and restaurants. The capital requirements are also very high for new companies having the intention to start coffee shops in the French coffee market as well as other operation expenses, which thus limit the number of new entrants into the coffee industry in France.
Whitbread could use the differentiation strategy to create entry barriers for other potential entrants into the French coffee industry because of increased customer loyalty toward the company’s brand. Many customers always prefer to be associated with a company which is a niche player. With the focus strategy, Whitbread can understand over time the needs of its customers in the French coffee market using the focus strategy to create entry barriers and gain a competitive advantage, which could be extremely hard for other potential entrants into the industry.
iv). Threat of Substitutes
In the French coffee market, the threat of new substitutes is high. Whitbread is likely to face fierce competition from other competing companies like Starbucks, McDonald’s, and other coffee companies already operating in the French coffee market industry. In order for Whitbread to survive in the highly competitive French coffee market, it has to make good use of the differentiation strategy as well as the differentiation-focused strategy for the company to be able to reduce the threat posed by the existence of substitutes to its coffee. With the differentiation strategy, the threat can be greatly reduced through consumer loyalty to the company’s unique product qualities as there would be no other substitutes which could win the mind of the consumer. Whitbread’s nature of its coffee and its core competence could also aid in the reduction of the threat by the substitutes.
v). Competitive Rivalry
Competition in the French coffee industry is fierce. The intense competition could pressurize the profit levels of Whitbread, which means that the company has to devise strategies which can enable it to attain a competitive advantage in the new French coffee industry. Some of the close competitors of Whitbread in the coffee industry in France include McDonald’s and Starbucks among others. With the entry threat being so high, the cost leadership strategy could be advantageous to Whitbread as the company would be able to compete on the coffee prices in the coffee industry in France although it might cause an intense rivalry with the competitors with increased price pressures. This could make all the companies operating in the French coffee industry drastically reduce their coffee prices. The best strategy to fight this threat is by using the differentiation strategy in an attempt to retain Whitbread’s most loyal consumers as they would make a choice to still continue buying the products of the company instead of using the products from competing companies. Focus targeting could also assist in eliminating the threat as the competitors would not be able to cope with the customer’s specialized needs in the target market.
The Porter’s Five Forces framework shows that Whitfield can maximize its performance in the French coffee industry by being a cost leader, differentiating its products from the competing products and focussing on a narrow market target. The Porter’s Five Forces framework can aid Whitbread in defending its business practices against any incoming competitive forces which may arise in the French industry.
Most Appropriate Market Entry Strategy
Franchising is the best market strategy for Whitbread Company to enter the French coffee market. This is because it is considered to be a very effective way of global expansion of an already successful business. The franchisor gets an alternative to developing new chain stores to aid in the distribution of products that do not necessarily need liability chains or investments. The success of the franchisor is mainly based on the success of the franchisee. This shows that both the franchisor and the franchisee gain from doing business together. The franchisee also has greater incentives than the direct employees because of the direct involvement in the business. The franchisor bears all the security protection of the trademarks and the know-how and controls all the business concepts, while the franchisee conducts all the services which make the trademark famous (Kotler & Kelvin, 2006). Whitbread can negotiate the license requirements and develop the business or marketing plan with the franchisor. Some of the reasons as to why franchising is the best market entry option for Whitbread are as follows:
i). Reduced risk. As compared to the other forms of market entry strategies like the joint venture, the level of risk associated with franchising is very minimal because the already potential customers have some knowledge on the products of the company and they have trust in the brand of the company.
ii). Economies of scale. Franchising can enable Whitbread to effectively compete in the French coffee retailing industry and make the company be able to take advantage of the economies of scale. A franchised network can enable the purchasing of products at rates which are more favourable than those of the solely owned companies. This could be an opportunity to Whitbread as it could offer a significant advantage over the small personally owned competing companies. The services and products would have a high consumer acceptance degree.
iii). Skilled management. In a franchise, the franchisee always has a direct access to the skilled management which could enable the company to establish itself in the market and avoid any pitfalls which could be associated with mistakes done by the individual companies during the company start-up. The franchisor offers enough advice and support which is one of the most valuable resources which could be of use to Whitbread in its global strategy as it enters the coffee retail industry in France. This advantage could give Whitbread a competitive advantage during recession when the company could perform better than any other company in the market.
iv). Advertising. In a franchise, the franchisee would only have to pay a small contribution in regard to the advertisement costs which are mainly administered by the franchisor. The resource pooling of other franchising companies and the franchisor’s contribution could allow Whitbread to gain access to a more extensive advertising in France which could aid in increasing the awareness about the company’s brand and the profitability margins.
v). Financing. When Whitbread enters the French coffee retail industry through the franchise, the company could gain a strong reputation and brand name built by the franchisor. This could reduce the time which could be used for making the business a success which could further cause reduction in the working capital requirements of Whitbread. Finance is often more ready for the companies using franchises than the companies which choose other market entry options like the owning. The majority of the franchisors have the ability to negotiate the lending rates with major lenders for easy access to capital loans which could make the rates very favourable. Whitbread could only be required to invest a small amount of capital as there is the willingness of financiers in the industry to assist financially with the capital requirements which could prove the franchise to be the best market entry strategy for Whitbread into the French coffee retail industry.
vi). Business growth. Franchising in Whitbread could enable business growth as it is a cost-effective way for it. The company will not have to cover all the costs which are associated with investing in a new company or staff. The company would have a better market penetration.
Major Challenges in Penetrating the French Market
Whitbread is liable to face many challenges while expanding its Costa Coffee brand into the French market. Some of these challenges include the following:
1. Bureaucracy: The biggest challenge that Whitbread will face penetrating into the French market is bureaucracy which is considered one of the highest in the entire Europe. This makes the French market very challenging to penetrate into. The country’s rules and regulations for establishing a business are very strict with a lot of administrative restrictions enacted in regard to the investments from foreign companies expanding their businesses into France.
2. High cost of labor: In France, the minimum wage often called the Salaire Minimum Interprofessionnel de Croissance (SMIC) is set at €1,445, which is extremely expensive showing that the cost of labor in the French market is very high. This can be a great challenge for Whitbread because employees are very important in any business that is goal-oriented and has the intention of being a global leader.
3. High competition: In the French coffee market, there are concentrated retail networks and chains because of the attractiveness of the market. The suppliers and manufacturers in France have a high bargaining power as they have a very strong control over almost all the retail networks and chains. In the French coffee market, the small independent retail distributors are often being replaced by other larger retail distributors.
4. High taxes and other regulations: In France, high taxes have damaged business investment relations because businesses operating in the country have to pay seven tax payments per year. These high taxes can drain money from the business, making it a challenge for Whitbread.
5. Cultural challenges: Adaptation of a culture is very important for any business having intentions of expanding its business operations to a foreign country. The French people often have coffee as a part of their meal, and their passion should be strictly observed, which poses a challenge to Whitbread. Learning and understanding the cultural differences is very essential for a successful business because culture is the main determinant as to how people approach issues and problems, how they behave, whether they believe in what they do, or even how they act.
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Whitbread could be successful in its expansion into the French coffee industry through the use of the cost leadership, differentiation, and niche/focus strategies. These strategies could enable the company to achieve a competitive advantage over the other close competing companies in the industry and aid it in mitigating the major challenges that it has in its operations in the French market.
i). Implementation of effective human resources strategies: this could be aimed at attraction and retention of top developed talents (Johnson, Scholes, & Whittington, 2005). It could reduce rivalry in the coffee industry as the company will have the most experienced employees who would provide the best services and customer satisfaction. This could assist in mitigating the challenge associated with high labor costs in the French market. The company could have better experienced employees with the best skills which could help decrease costs which are associated with skill enhancement training of employees.
ii). Product diversification: product diversification by Whitbread could enable the company to reduce the bargaining power of the suppliers and consumers. This is because the company will be able to offer diverse products so as to meet all the needs of the customers and build brand loyalty among the consumers. This could aid in mitigating the challenge of high competition in the industry.
iii). Constant innovation: Whitbread can become a technological leader in the French coffee market through constant technological and innovation infrastructure like the use of modern and advanced coffee and espresso machines. This technological advancement can give the company a competitive advantage over others. This could help Whitbread reduce the threat of substitutes and competition in the French coffee market.
iv). Building of cultural awareness: Whitbread can increase cultural differences awareness through exploration and study. This will enable the company to know everything that it needs about the cultural premonitions and biases regarding the French market and the pressure points. The leaders in Whitbread need to evaluate, understand, and be able to overcome any cultural challenges to make sure that the company can stay competitive in the French market.