Economic segment
Coffee is a very popular drink in the USA and coffee consumption has been gradually growing in the past few years. In Figure 1 one can see that the 2009 was the year when the revenue of the U.S coffee and snack shops began to grow again after the sharp fall because of the economic recession. Coffee houses and specialty eateries do especially well when the macroeconomic conditions are favourable. During the period of economic growth, the households witness the increase in their disposable income and therefore they can consume more coffee.
Figure 1 U.S coffee and snack shops revenue dynamics in 2002-2015
In order to analyze the economic factors that influence the coffee and snack shops, one should keep in mind that the USA remains to be the top-market for all American companies. All companies get the largest share of their revenue in the USA. Therefore, a stable economic situation in the USA is absolutely vital for the U.S. coffee industry’s performance.
At the moment the market of coffeehouses and snack shops is divided as in Figure 2. One can see that the two top-companies are Starbucks and Dunkin Donuts. They are especially exposed to the risks related to the performance of the American economy.
Figure 2 Major competitors in the coffee house industry
The American economy has been showing very positive results recently. The unemployment level is less than 8%, the inflation rate does not exceed 1.5%, and the interest rate is 0.5% (Index of Economic Freedom, 2015). The GDP has been growing by approximately 3% annually for the past four years (See Table 1). The personal savings rate has been at the level 5.5% and the U.S. Budget deficit declined down to -2.5% of the GDP (Trading Economics, 2016).
For the demand-driven businesses, including coffee and snack shops, such positive statistics is a sign that the American economy finally recovered from the negative perturbations and the people will continue to feel confident and spend their money on the basic items such as coffee.
Technological segment
U.S coffee and snack shops will have to become more technologically advanced in order to compete successfully against the other companies involved in the food and beverage industry. The existing technologies are maturing and have a very large impact on the way how the businesses operate. In general, technologies help to lower the cost/time of brewing and improve the quality of a product or a service. In addition, internet and mobile technologies contribute to the increase of demand for coffee. E-commerce, internet of things, social media, sharing economy, smart technology are just a few technology-related terms that are used by the companies in all industries.
E-commerce sales in the USA have shown a double-digit growth in the past decade (See Table 2). Such growth may be attributed to the growing popularity of the mobile devices, online communication platforms, and advanced marketing strategies that the companies can apply nowadays.
Source: Internetretailer.com
Development of e-commerce may be difficult for the coffee houses due to the nature of their business. At the same time, by means of technology the coffee houses may offer the order-ahead services or use targeted advertising that will increase the sales. Mobile payments and Wi-Fi networks have already attracted a large number of new customers to the coffee houses. In the future, the companies will capitalize on the mobile apps and other innovative ideas.
Three factors that U.S coffee and snack shops need to consider in terms of the technological development:
Innovative technologies for coffee brewing. New coffee makers have precise technology and brewing algorithm. They can improve the taste of the brewed coffee and increase efficiency and effectiveness of the business processes in the coffee houses.
Generations Y and Z (Millennials). The people who were born in 1977-1999 are the target audience for the vast majority of the coffee houses. They are technology wise and do not react to traditional marketing. Technologies will help to interact with the Millennials more effectively. (Schroer, n.d.)
Big data. Coffee houses now have access to the large volumes of customer data thanks to Facebook, Google and other companies that collect information about the users. In the future, they will use such information more often for analysis and adjustment of the business activity in order to increase the customer responsiveness and gain the competitive advantage.
Global Segment
Despite the fact that the USA is the most lucrative market for the largest American companies, the other countries often offer excellent opportunities for outsourcing and/or market expansion. Yum Brands, McDonalds, Starbucks and many other popular American brands operate worldwide. Nevertheless, the decision to enter a foreign market must be well-balanced due to the multiple risks. First of all, coffee houses cooperate with the suppliers from Latin America, Africa, and Asia-Pacific who are members of the Fair Trade organization. Large coffee houses especially care about their reputation and look for the reliable partners who grow high quality coffee beans and respect the human rights of the workers.
There are also some other global factors that influence the business activities of the coffee houses. The global markets are usually divided geographically into the regions – Europe, Asia, South Asia and Pacific, Latin America, North America, etc. – or countries with large population or high-income. All regions and countries have a different level of socio-economic development and sometimes the political or economic events significantly influence the performance of the foreign companies. For instance, in China, which is a top foreign market for many companies, the authorities decided to change the currency rate in August 2016. This decision led to the depreciation of Chinese currency that made the American products more expensive. American companies usually decide to expand into the developed countries or some large countries with emerging economies such as China, India or Brazil.
However, market expansion may be difficult at times due to the cultural differences. For example, in the Asian countries people do not drink much coffee. In China and India a person drinks only 80g of coffee a year (5 cups). Even in the large cities such as Shanghai people drink maximum 2 kg of coffee a year. For comparison, American people drink 3-5 kg of coffee and most Europeans drink 5-8.9 kg of coffee a year (Lewis, 2012).
Moreover, there are many local companies that make the market entry for the foreign companies more difficult. For example, in India the local company Coffee Day Enterprises owns more than 1,500 cafes in 200 cities and the other competitors find it difficult to attract a sufficient number of customers (Shanker, 2015). In Europe there are also strong coffee chains that were operating for many years long before the American coffee houses were launched.
References
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