Espresso Espresso Case Study
The coffee shop industry and culture are in rapid growth in recent years. Of the various segments within the specialty coffee industry, most of the growth was attributable to beverage retailers “Coffee and kiosks”. In 1979 there were approximately 250 specialty coffee retailers. The number quadrupled by 1989 to approx 1000 outlets, and it exploded to roughly 15000 by 2002. Nationally, specialty coffee sales totaled over $ 10 billion in 2005. Espresso Espresso coffee shop is one of the coffee shops on March 2006 near University of South Alabama. which opened in 2006. 13000 students and staff in University are the target customers of the coffee shop. The owner and entrepreneur Todd Sylvester consider that he would be successful more in expanding into the midtown area of the city.
Assessment of Espresso Espresso coffee shop by Michael Porter’s Five Force Model:
1. Bargaining power of buyers: There so many strong competitors like Starbucks that customer could go.
2.Threats of new entrants: There are pioneers in a growing market with huge capital and could threaten the other small brands’ chain in selling areas.
3. Bargaining power of suppliers: There are 13000 buyers in the target market. Espresso Espresso coffee shop has power on the price that everything on their menu is 10% less than competitors.
4.The threat of substitutes product: Coffee is not everyone daily necessities. There are some many substitutes and alternatives, like soft drinks, boba teas, water, etc.
5.Threats from the rival: There is an impact of famous brands. The competitor has more location and bigger menu than Espresso Espresso coffee shop.
Mr. Sylvester, the owner of the Espresso Espresso coffee shop, wanted that his coffee shop is a place that customers could find comfort. The good services and welcoming feeling result in good reputation and more repeat customers. Todd placed such an emphasis on comfort, that it was a major consideration when developing business. No only customer but also the employee who work here feel like family.
There are a limitation and weakness of Mr. Sylvester running this coffee shop. For example, he might lack management and business skill. The owner only has limited hours to run business and also trains employee personally. There is a loss in net income shown on the income statement.
The advantages of Mr. Sylvester’s core value is in the local area, most of the people might choose this coffee shop because its decent service and good reputation, and local customers would most likely become a source of repeat customers other than students in the university. It is a pretty competitive coffee shop which able to challenge the chain coffee shop in a certain scale. The disadvantages are to keep the core value running would occur more cost in business ruining and more effort in long-term. Tourists or passengers from other places may not easily recognize this good coffee shop without a guide.
Objectives and strategies of Mr. Sylvester make his coffee shop is a place that customers could find comfort. The cost structure of Espresso Espresso coffee shop has a relative high percentage on fix cost which is direct labor which results in a loss in net income. Meager profit but high turnover is the positioning strategy of Mr. Sylvester. Starbucks. Satori coffee House, Carpe Diem and Daily Gring are the main competitors of Espresso Espresso coffee shop. Starbucks obviously is most successful one, and Satori coffee House could be relatively not successful because of its bad environment and not concentration on coffee. Except for Starbucks, the other three are the actual competitors of Espresso Espresso coffee shop because of different target groups and concentration.
SWOT of Espresso Espresso coffee shop:
Strength: Returning customers, cozy atmosphere, free Wi-Fi, good working atmosphere, good image.
Weakness: high cost on direct labor and rent, limited time operation, limited sales channel.
Opportunity: change the shape of the business, expansion of coffee shop scale.
Threat: Local competitors and chain competitors like Starbucks, and the saturation of the market in this area is high.
Base on the SWOT, coffee shop would like to keep its strength on a good environment and image. Having better advertisement for coffee shop results in more new customer and return customer. Otherwise, it is better to have a deduction on the cost of direct labor in order to decrease the fixed cost and have a lower break-even point. The coffee shop has to be out of red in order to think about the expansion or open a branch.
Todd’s marketing approach is to provide a cozy environmental and good service to compete with other competitors. To enhance the advantages of Espresso Espresso coffee shop, there are few things Todd have to do. Having big decoration on the whole coffee shop by artists who know the local culture. There should be additional options on the menu include not only coffee but also a snack or meal. To open a Facebook page or Twitter account told every the new stuff coffee shop has. Showing how coffee shop supports charity and claim a percentage of the revenue would turn into charity. Base on the fixed operating cost and constant cost of goods sold, if this enchantment could all be implementation, then sale revenue could at least show a turn from loss to profit on current financial condition.
Todd’s expansion plan is to purchase a building in a midtown location with a cost of 500000 dollars. The target market for this new location would be young professionals. It could have the same standard and performance as the main coffee shop. The expansion could a bright idea but at the wrong time, because the main coffee store has more troubles and still need time to settle on its financial condition. The expansion should be postponed until Espresso Espresso coffee shop running steady.