Unique Strength of Caballero Coffee

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<< Scenario >>

Company Overview: Caballero Coffee

Ownership Type: Public
Market Maker: NASDAQ
Auditor: Emsquare Research, Inc.

Business Description
Caballero Coffee was founded as a single retail location in 1986, roasting coffee on the premises. As Caballero grew to more than 110 coffeehouses, it maintained and expanded its relationships with specialty importers, brokers, and specific growers especially in Central America, Colombia, and Indonesia. It is important to Caballero to maintain relationships with importers and growers who share in Caballero's philosophy of social and environmental responsibility.

Product Portfolio
Caballero has developed a particular emphasis on organic, shade tree, and fair trade coffees, sometimes collectively described as "sustainable." A large portion of Caballero's coffee sales are currently certified as organic and/or fair trade, higher than for most of Caballero's competitors, and the company plans to further increase that proportion. Although most of Caballero's coffee sales are medium, dark roast, or extra dark roast, (including espresso-based), the company also offers a range of decaffeinated coffees. At present, 95 percent of Caballero's sales are generated through its coffeehouses; the remainder come from its online division. Customers can find coffee beverages, pastries, packaged coffee beans, and related paraphernalia like drip coffee makers in all Caballero coffeehouses. Caballero's coffeehouses are for no-nonsense coffee drinkers seeking high-quality brewed coffees or high-quality coffee beans to brew at home.

Product Positioning
Caballero's commitment to quality and freshness means that all coffee is shipped (as whole beans) within 24 hours of roasting, and company policy requires Caballero coffeehouses to return any beans not sold within two weeks of roasting. Caballero strives to offer its customers a wide variety of coffee beans from a number of different countries. Caballero's ability to sustain its position in its regional coffee market is largely because of the strength of its customer base and the reputation of its brand with serious coffee drinkers.

Strategic Objectives
Caballero's corporate goal is to continue its growth by selling its specialty coffee through its coffeehouses and through retail establishments. To achieve this goal, Caballero strengthens its strong position by maintaining a diverse array of premium coffee beans for immediate consumption.

Overview of Caballero's Competition

Competition Overview: Sumac and Harmonica
The following are competition overviews of Sumac Coffee and Harmonica Coffee. These two companies represent Caballero Coffee's primary competition.
Sumac Coffee
Ownership Type: Public
Status: Corporation
Market Maker: NASDAQ
Auditor: Kersey International Research
Harmonica Coffee
Ownership Type: Public
Status: Corporation
Market Maker: NASDAQ
Auditor: Kersey International Research

Sumac Coffee Business Description
The leading specialty coffee competitor is Sumac Coffee. Sumac Coffee has grown to some 3,500 company-operated coffee stores and 1,100 licensed locations, present in most U.S. states, plus an increasing international presence, with currently 400 overseas company-operated stores and 1,000 licensed locations. While most of Sumac Coffee's revenue is from beverages and pastries sold in the company's retail locations, Sumac has expanded its business by placing its packaged coffee beans and coffee beverages (including cold coffee drinks) in grocery stores and restaurants. Sumac has also licensed its brand name for use with ice cream. Despite sales of over $2 billion annually, Sumac accounts for just a small part of total U.S. coffee volume consumed.

Harmonica Coffee Business Description
The second-ranking coffee competitor is Harmonica Coffee. Harmonica Coffee, founded in 1973, is headquartered in Syracuse, New York, and is the oldest of the top-selling nationwide coffee sellers. Harmonica does not sell specialty coffee but it has started to offer flavored coffees. Harmonica currently has over 2,000 company-operated coffee stores and about 1,000 licensed locations located throughout the United States. Harmonica has also expanded its business by placing its packaged whole beans in grocery stores, and restaurants. Harmonica has recently opened 80 company-operated stores overseas and plans to open an additional 100 stores overseas in the next calendar year.

Industry Profile
There are an estimated 8,000 specialty coffee stores in the United States, along with several thousand kiosks and carts selling gourmet or specialty coffee. Together, these account for 77 percent of retail specialty coffee dollar spending, the balance coming from all other trade channels.

There are four or five independent companies of comparable size to Caballero, based in different regions of the United States, and many smaller ones. These companies have built their business on providing coffee through coffeehouses, as did Sumac, Harmonica, and Caballero. In addition, many of these companies market its coffee and tea products through its retail stores, online, or via a catalog, and also seeks to expand into new distribution channels. The specialty coffee divisions of some major multinational food companies are also seeking to gain market share in the at-home market for specialty coffee consumption.

Product Portfolio
Sumac
Sumac Coffee has built its success on selling coffee to young, high-income professionals, through trendy cafes. A majority of Sumac's sales derive from company-owned coffeehouses, which sell beverages, food items (pastries, confections, sandwiches), whole-bean coffee, and coffee making equipment and accessories. Sumac's stores offer a choice of regular and decaffeinated coffees, including at least one "coffee of the day", and a broad selection of Italian-style espresso beverages. Sumac also carries a variety of whole bean coffees.

Harmonica
Harmonica Coffee has focused on a lower-income bracket than Sumac's and Caballero's and has achieved brand loyalty over its nearly three decades in operation. Harmonica's sales derive mainly from coffeehouses that are less "cozy" than either Sumac's or Caballero's (e.g., customers can sit and drink, but there are no fireplaces or sofas, and no facilities such as electrical outlets that would allow customers to work on laptop computers in the store.) Also, many of Harmonica's stores are located in high-traffic areas and feature drive-through windows.

Of significant note are factors that differentiate Harmonica's coffee products from its main competitors. Harmonica Coffee's standard blend is a much lighter roast than brews coming from the West Coast, such as Sumac's and Caballero's. In response to a potential shift in tastes to darker roasts, Harmonica recently added a "cafe blend" to the varieties of coffee available through its franchises. But Harmonica does not plan to change its old standard, which is popular with Harmonica's most loyal customers. Also, sales of this new darker blend have been slow. In addition, unlike Sumac and Caballero, which do not offer flavored coffees, Harmonica offers a range of flavored coffees such as vanilla and hazelnut. These flavored coffees have been popular with their customers.

Product Positioning
Sumac emphasizes the experience of coffee drinking, and presents its cafes as places where customers can relax, socialize, or work quietly. Sumac is dedicated to roasting and brewing excellent coffees, and is best known for its espresso-based beverages. Harmonica focuses on coffee "for people on the go" and presents its stores as places where customers can get coffee fast and inexpensively.

Strategic Objectives
Sumac Coffee's corporate objective is to establish Sumac as the most recognized and respected brand in the world. To achieve this, Sumac executives plan to continue rapid expansion of the company's coffeehouses and to provide its coffee in a variety of different places, including grocery chains, warehouse clubs, and in a variety of products, such as flavored ice creams and cold drinks. Sumac also has a website/mail-order operation.

Harmonica Coffee's corporate objective since 1994 has been to establish Harmonica as the highest-revenue coffee vendor in the world. To achieve this, Harmonica's leadership is enacting rapid expansion of the company's stores both domestically and abroad. Harmonica executives also hope to tighten the company's dominance as the leading coffee brand distributed to cafeterias, schools, and private companies by industrial food-distributors.

Overview of Consumer Coffee Trends

Consumer Trends: Specialty Coffee
Although total coffee consumption per capita in the United States has declined since 1962, it is enjoying a bit of a resurgence and peaks amongst the over-50 "boomer" group. Analysts at Kegan Research Group believe that this group comprises a potentially profitable untapped segment.

The specialty-coffee segment has exploded since 1990, reaching around $11 billion or so in 2002. The demographic audience for specialty or gourmet coffees tends to be younger than for traditional coffee. This may be due to the deliberate targeting of young professionals by specialty coffee houses like Sumac, whose primary focus is 18-34 year olds. Indeed, industry surveys show that the most frequent coffeehouse customers are 18-to-34 year olds. Another group that frequents coffeehouses (and there is some overlap with the 18-34 year olds) are those with annual incomes over $75,000. However, more people are beginning to identify themselves as consumers of specialty and gourmet coffee. In fact, the number of daily drinkers of gourmet coffee has increased from 7 million to 27 million over the past five years. The largest group of consumers for whole coffee beans are aged 35-54. These consumers tend to live in upscale and middle class suburbs and upscale metropolitan areas.

The table below shows the percentage of adults surveyed in the United States who consumed specialty coffee daily or occasionally in 1997 and 2001.

U.S. Specialty Coffee Consumption 1997 and 2001
% of Adults Who Consumed Specialty Coffee Daily % of Adults Who Consumed Specialty Coffee Occasionally
1997 3% 35%
2001 14% 62%

In general terms, industry analysts see three types of specialty coffee drinker. The first is young, and favors dark roast and espresso-based coffees, such as cappuccino and latte. The second tends to be slightly older, well educated and high income, and regards coffees like premium wines, to be sampled and appreciated. The third group is broader demographically, and favors flavored coffees, of milder roast, as occasional special treats.

Consumer Trends: Fair-Trade, Organic, and Shade-Tree Coffees
Consumers perceive organic coffee as environmentally friendly and "natural," since it's grown without pesticides, herbicides and fungicides. Shade-tree coffee is grown under a canopy of trees and thus protects wildlife. Fair-trade coffee includes all those coffee beans that are grown using sustainable practices that protect the environment and strives to give growers in developing nations a living wage. Although the figures are still small, these types of coffees--and particularly organic coffee--are seen as an emerging trend, purchased primarily by upscale, educated consumers. Research has found that consumers will pay a premium for products they perceive are produced responsibly.

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<< Questions >>

Unit 1 Scenario
(The following scenario is based on the original Project Scenario and is specifically applicable to this assignment.)
Lisha stops by your office cubicle. She is in the process of drafting a situation analysis, an important first step in developing a marketing plan, and would like your input. Lisha has provided you with information that was collected by a marketing research company that provides specific information about the Caballero Coffee Company, Caballero's competitors, and potential target market consumers. Lisha has asked you to look at this information and help her identify the key issues she should consider as she drafts her situation analysis.

Your Assignment
For this assignment, you will participate in a discussion about the key issues Lisha should consider as she develops Caballero's situation analysis. You have the choice of posting one of three options: (1) a unique strength or weakness of Caballero, (2) an opportunity or threat associated with consumers and competitors, or (3) an evaluation of someone else's posting of a strength, weakness, opportunity, or threat. You should select Option 3 only if you feel that all unique strengths, weaknesses, opportunities, or threats are already posted.

Consider the following before posting your response:
? Your post should describe a single strength, weakness, opportunity, or threat found in one of the items in Materials below. Be sure to include whether your post is a strength, weakness, opportunity, or threat.
? Your post should be as brief as possible.
? Do not post mere opinions; all posts should include a rationale using specific examples found in the materials and readings.
? If no additional strengths, weaknesses, opportunities, or threats can be identified, your post should evaluate a fellow student's post.
? Be sure to provide a clear and specific rationale as to why you agree or disagree with someone else's strength, weakness, opportunity, or threat.
? Here is an example of a post: "I agree that Caballero roasting its own coffee is a strength because its allows Caballero to sustain its position in its regional coffee market as stated in the Company Overview."
Steps
1. Read the overviews provided in Materials to find specific information about the company, the competitor, and the consumer that you will need to prepare your discussion post.
3. Look for a strength or weakness of Caballero or an opportunity or threat associated with its competitors and consumers.
4. List one strength, weakness, opportunity, or threat. Check the discussion before posting your answer. You will be asked to redo your post if your answer is already on the board.