Black Canyon Coffee: A Case StudyBy: Marlayna Botello, Grace Charles, Max Teeter, Andrew Ayers, Carnell Emanuel

Presentation Agenda

1. Company Background

2. Situation Analysis•General Analysis, Industry analysis, Competitor analysis, Internal analysis, As-is financial analysis

3. SWOT Analysis

4. Strategy Formulation•Strategic alternative, Alternative evaluation, Alternative choice.

5.Strategic Alternative Implementation•Action items•Action plan

• Differentiation Leadership• Thailand-based coffee shop that has grown to become the largest coffee shop chain in Thailand• Founders were able to create an Old West, American vibe that attracted its newly sought out

target market• Opened its first location in a country with low coffee consumption, through strategic marketing, • BCC is looking at a facing a competitive market with new international/local competitors arriving

in Thailand

1. Company Background

Black Canyon Coffee (BCC)

2. Which type of franchise should BCC focus on in its expansion (kiosks, mini restaurants, full sized restaurants)?

1. Which competitors BCC should focus on?

Black Canyon Coffee needs to consider certain key criteria before expanding globally1. Company

Background

General Analysis

Demographic Segment• Population Size: 67,741,401 in ThailandAge Structure: • Median Age: 36.2 years • Baby boomers would be over 65 years of age, so they could account

anywhere from 5% to 9.5% of the population, leaving it an insignificant figure.

Ethnic Mix: Compared to other countries Thailand has a less diverse ethnic mix. With only 25% of the market that is diverse BCC probably has less experience and familiarity with adjusting their business to other diverse groups.

2. Situation Analysis•General Analysis, Industry analysis, Competitor analysis, Internal analysis, As-is financial analysis

0-14 Years

15-24 Years

25-54 Years

55-64 Years

65 Years & Older

0.00% 10.00% 20.00% 30.00% 40.00% 50.00%

18%

15%

47%

11%

10%

Age Structure

Age Structure

Source: World Population Review

The Economic segment can improve BCC’s standing in the Thai market. Thailand is having relatively positive steady growth, and

with unemployment under 1% of the labor force (one of the lowest in the world), Thailand’s future economic growth looks

fairly certain.

2. Situation Analysis•General Analysis, Industry analysis, Competitor analysis, Internal analysis, As-is financial analysis

General Analysis: Economic SegmentUnemployment Rate • 2.2%

GDP • 387.25 Billion USD

Real GDP Growth Percentage

• 5.2%

Inflation Rate • .70%

Percentage of people below poverty line

• 13.5%

Interest Rates• Interest rates have dropped .25% over the past three years, and

now reside at 2%. Banks are cutting rates to encourage spending after the slowdown of economic growth.

Budget Deficit • -2.5% of GDP

Thailand Trade Deficit

• Current approximation holds it at 1,800,000,000. Although, in September it had a trade positive of 1,140,000,000. Due to Thailand depending heavily on exports, it is susceptible to large fluctuations

Source: Moody’s Analytics Dismal Scientist

2. Situation Analysis•General Analysis, Industry analysis, Competitor analysis, Internal analysis, As-is financial analysis

Thailand’s government, technology, and sociocultural segments may affect the success of any existing or new company that may want to enter into the Thailand market due to:

Government

Constitutional Monarchy

Laissez-faire economy with no government intervention in the

marketplace

Has ability to regulate businesses that possess greater market share &

sales than designated by the Trade Competition

Commission

Productivity reform needed in Thailand due to continually diminishing GDP

growth rate

Technology

The Thailand government supports technology with low tariffs on assembled

imports, and the changes in technology tend to occur

every two to three months

Thai government body, The Ministry of Science and

Technology, is responsible for the increase of science and technology in Thailand and

several other bodies assist in regulation of technology

Culture

Over 90% Buddhist (largest in world)

Approximately 50% of workforce is composed of

women and Thailand women in the workforce

mostly unskilled, low level of education

The work environment is more laid back than

the United States; work and socialization

go hand-in-hand in Thai businesses

Source: Moody’s Analytics Dismal Scientist

Industry Analysis2. Situation Analysis•General Analysis, Industry analysis, Competitor analysis, Internal analysis, As-is financial analysis

Thailand relies heavily on the tourism industry

There is new growth in the industry that Black Canyon

Coffee can capitalize on

Sales in cafes and coffee bars have increased by 4% in 2002, and the market is expected to see 11% value growth within

the year

Source: Moody’s Analytics Dismal Scientist

2. Situation Analysis•General Analysis, Industry analysis, Competitor analysis, Internal analysis, As-is financial analysis

- BCC’s biggest competitor is

Starbucks, which has a solid hold in the

market.- Other competitors in the market do not

hold considerable power, but with an

expected 11% industry growth in

the upcoming years - This could become

an opportunity for both competitors

and BCC to compete for more market

share

Threats from Rivalry among Competitors

- With steady growth in the number of

coffee shops in Thailand, buyers

have more bargaining power.

- Locations such as Bangkok have the

highest buyer power because of the high population density.

- Although buyers can switch products

relatively easily, only two coffee shops

hold nearly 60% of the market.

Threats from Bargaining Power of Buyers

- Due to government regulation, it is fairly

easy to open new businesses, coffee

shops included. - Coffee

consumption in Thailand is

dependent on instant coffee, with Nestle holding the

largest retail share.

Threat of New Entrants

- Threats from outside the coffee shop industry are

very high, with most buyers still buying

instant coffee from stores.

- Instant coffee, on average, is still

cheaper than coffee from a coffee shop, giving consumers ta

cheaper alternative. - Other products

such as energy drinks are another viable

substitute.

Threats from Substitute Products

- Rate of substitute products is very high

in Thailand, while there are a large

amount of private or local coffee shops

- BCC owns aprox. 13% of market,

Starbucks holds a staggering 45%

- Low bargaining power of suppliers

due to wide range of coffee imports,

although Thailand itself has decent

exports

Threats from Bargaining Power of Suppliers

Industry Analysis

Competitor Analysis2. Situation Analysis•General Analysis, Industry analysis, Competitor analysis, Internal analysis, As-is financial analysis

• Other competitors in the market do not hold considerable power, but with an expected 11% industry growth in the upcoming years

• This could become an opportunity for both competitors and BCC to compete for more market share. Even though there is high product differentiation between competitors, switching costs between products are relatively low, due to the nature of the industry

BCC Coffee World Starbucks Au Bon Pain Gloria Jeans0

10

20

30

40

50

60

70

80

90

Major Chains in Thailand 2003

Source: Thailand Country Review

Competitor Analysis

Starbucks • Starbucks has more than 21,000 locations in over 65 countries

worldwide • This heavy reliance on the US market can be a either a weakness or an

opportunity for more global expansion. • Starbucks maintains a global strategy for its international involvement. • Unable to tailor its products to specific regional markets• Starbucks has a clear disadvantage with its product standardization and

lack of flexibility in multiple international markets.• A clear competitive advantage is its global name brand recognition for

the high quality coffee products it provides to its customers.

2. Situation Analysis•General Analysis, Industry analysis, Competitor analysis, Internal analysis, As-is financial analysis

Source: Starbucks Company

Competitor Analysis

Au Bon Pain (ABP)• ABP holds more than 300 café bakeries

throughout the world, including India and Thailand.

• Locations are strategically set up near high traffic areas that are able to access a large number of customers.

• ABP brings a contemporary, colorful, and comfortable environment at its coffee shops, and it offers fresh baked goods and different types of beverages.

• Using a focused differentiation strategy, ABP provides many choices for its customers by using chef-inspired, bold and unique flavors on its menu.

2. Situation Analysis•General Analysis, Industry analysis, Competitor analysis, Internal analysis, As-is financial analysis

Source: Au Bon Pain

Competitor Analysis

• Coffee World (CW)• Coffee World has more than 100

stores in 7 countries: Bangladesh, China, Indonesia, Sudan, Thailand, Vietnam, and the US. Similar to Starbucks

• Has highly trained baristas that can provide consistent quality in the products it offers.

• Implements a multi-domestic international strategy by tailoring its products specifically to each location to best satisfy local customer tastes.

• Some standardized menu items include waffles, sandwiches, signature cakes, muffins and cookies

2. Situation Analysis•General Analysis, Industry analysis, Competitor analysis, Internal analysis, As-is financial analysis

Source: Coffee World

Internal AnalysisBCC has the opportunity to expand its locations on a more global scale

• Thailand allows BCC to make its major decisions in one central location

• All procurement of raw materials, menu design, restaurant design and support, and employee development are all performed at the headquarters

• The potential for growth is limited to available English-speaking employees in the company

• BCC has experienced slower than desired growth abroad due to the struggle of finding English speaking employees that are necessary for new location startups.

2. Situation Analysis•General Analysis, Industry analysis, Competitor analysis, Internal analysis, As-is financial analysis

Source: Black Canyon Coffee

Internal AnalysisResources

2. Situation Analysis•General Analysis, Industry analysis, Competitor analysis, Internal analysis, As-is financial analysis

VRIOFRAMEWORK

VALUABLE? RARE? Costly To Imitate? Nonsubstitutable? Competitive Consequences

Performance Implications

FINANCES YES NO NO NO Competitiveparity

BELOW AVERAGE RETURNS

HUMAN RESOURCEMANAGEMENT

YES YES YES YES Sustainablecompetitiveadvantage

ABOVE AVERAGE RETURNS

PROCUREMENT YES NO NO NO Competitiveparity

AVERAGE RETURNS

MARKETING YES YES YES YES SustainableCompetitiveadvantage

ABOVE AVERAGE RETURNS

SALES/RETAILLOCATIONS

YES NO YES NO TemporaryCompetitiveadvantage

AVERAGE TO ABOVE AVERAGE RETURNS

Source: Black Canyon Coffee

Internal AnalysisBCC is set apart from its competitors with the type of locations it operates. Depending on the type of location, customers can either have a full restaurant experience with a highly sophisticated menu, or grab a quick snack or beverage at a conveniently placed kiosk.

2. Situation Analysis•General Analysis, Industry analysis, Competitor analysis, Internal analysis, As-is financial analysis

10

5

80

Breakdown of BCC Outlets

KiosksMini-restaurantsFull restaurants

Source: Black Canyon Coffee

As-is Financial Analysis

Black Canyon Coffee is in a strong financial position in comparison to its competitors:• In 2002, revenue was $318,000,000 and its profit

margin was at 10%• BCC has little debt in its 10 years of continuous

business operations. • Since the company has seen annual growth of 15-

20% each year, a similar trend can be expected in the upcoming financial period.

• In 2002 the company received an investment of Baht 18 Million from the Thai Government “small and medium enterprises” venture capital fund, managed by one Asset Management plc.

2. Situation Analysis•General Analysis, Industry analysis, Competitor analysis, Internal analysis, As-is financial analysis

Source: Fiscal 2003 Annual Report

Threats

• Incoming competition

• Substitutes: energy drinks, juice, soy beverages

• Growing sophistication of coffee consumers

• Competition from big chains

Opportunity

• Coffee demand is growing in Thailand

• Growing sophistication of coffee consumers in Thailand

• Product expansion• Geographic

expansion• Strong government

ties with Asian countries

Weakness

• Not as Knowledgeable about the existing market or how to run a company like BCC

• Challenge of overseas expansion due to supply chain complexity

• Foreign relations• Culture (language

barriers)• Limited Expansion

Strengths

• Low coffee prices: Competitive Advantage

• Extensive variety of coffee and foods

• First coffee shop of its kind created in Thailand

• Is well known in Thailand and has a firm customer base

• Constantly growing and is opening chains worldwide

SWOT Analysis

Strategic alternatives Black Canyon Coffee has three options if it wishes to expand internationally:

4. Strategy Formulation•Strategic alternative, Alternative evaluation, Alternative choice.

Continue expansion of the company through kiosks

throughout Asia

Sell branded premiere Black Canyon coffee beans in

supermarkets and other retail outlets

Expand into the niche of high end restaurant business

throughout America and Europe

Alternative evaluation4. Strategy Formulation•Strategic alternative, Alternative evaluation, Alternative choice

Kiosks•Provide the company the highest profit margin•If multiple kiosks are implemented this could continue to increase the company’s growth potential•Productivity was double for a kiosk versus a restaurant; however, rent was typically four times higher for a kiosk

Branded Coffee

•Selling branded coffee would allow BCC to enter into a new market•BCC could provide a product for customers to consume in the comfort of their homes•Could increase revenue for the company while avoiding high costs associated with operating a kiosk or restaurant

Western Market Expansion

•Need to expand marketing efforts to implement •Since BCC offers both Western items and other Asian specialties, in order to reach success in western markets, it would need to let potential customers know it offers a variety of items since BCC is an unknown establishment in a new market

Alternative choiceBlack Canyon Coffee will benefit the most if its strategic implementation consists of franchising opportunities coupled with selling branded BCC coffee beans in supermarkets and other retail outlets.

4. Strategy Formulation•Strategic alternative, Alternative evaluation, Alternative choice

BCC headquarters will have the

ability to control the location of new franchises

and provide adequate training for new franchise

owners

Creating locally owned and managed

franchises allows each location to

add specific menu items that are

appropriate for each region they

are serving

BCC can continue its reliance on its

Bangkok headquarters as a

distribution warehouse which provides quality control of all the offered products

Strategic Alternative Implementation

Plan:

Sell pre-packaged in current franchises and

company owned locations. (0 - 12 months)

Expand into supermarkets in Bangkok (corporate

home). (Year 1 – Year 2)

Expand to rest of Thailand. (Year 2 – Year 5)

5.Strategic Alternative Implementation•Action items•Action plan

Strategic Alternative Implementation

5.Strategic Alternative Implementation•Action items•Action plan

- Previously implemented and sufficient supply chain- Current resource contracts, only minor increase necessary (at first)- Increased revenue- Market for instant coffee is huge in Thailand- High profit potential due to low costs associated with instant coffee production- Highly recognizable brand, potentially easy assimilation into new market

- Established market composed of current instant coffee producers- New contract with packaging company; difficult to back out if failed- Increased plant capacity/new plant possibly necessary for increased processing needs- Increased production costs

Bene

fits

Risks

Strategic Alternative ImplementationFeasibility:

5.Strategic Alternative Implementation•Action items•Action plan

Due to BCC’s highly recognizable and

positive brand image, assimilation into the

instant coffee market is associated with the

lowest risk.

With an established supply chain and a

contract with a large supplier, expansion

should be fairly easy and only require a revised contract.

BCC is incapable of self-packaging on a large scale

level, it will ally with a packaging company in

Bangkok for near future production. The low cost associated with instant

coffee production and BCC’ s high brand recognition and perceived quality make for a

smooth and highly profitable expansion.