Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.
-
Upload
cynthia-webb -
Category
Documents
-
view
216 -
download
0
Transcript of Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.
![Page 1: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/1.jpg)
Coffee shopINDUStry
Isaure Dacre-Wright
Richard HorganAmy Mitchell Tanali Hamlet
![Page 2: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/2.jpg)
Why coffee shop industry?
• Based on an everyday consumer product: coffee
• Typical in the American culture
• Increase in recent years
• Attract an increasing number of consumers
![Page 3: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/3.jpg)
Why coffee shop industry?
• Sell a good and a service at the same time
• Based on a relatively cheap raw materials
• Pricing strategy to maximize profit
![Page 4: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/4.jpg)
overview
1. Industry Structure
2. Pricing Strategies
• Raw Data
• Results and Analysis
3. Analysis and Recommendations
![Page 5: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/5.jpg)
Industry structure
![Page 6: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/6.jpg)
Coffee shop Industry Products
• Drip-coffee products
• Espresso products
• Iced-drink products
• Complimentary items
![Page 7: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/7.jpg)
Product Breakdown by revenue
![Page 8: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/8.jpg)
Technology in the Coffee shop Industry
• Technology is used to reduce labor and costs, reduce waste, and increase sales
• Social Media and Smart Phone integration
• Redesigned kitchen layouts and ordering systems• LED displays• Communication devices
![Page 9: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/9.jpg)
Technology in the coffee shop industry
![Page 10: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/10.jpg)
Demand Determinants
• Sensitive to factors that impact growth in household disposable income
• Baby boomers greatly impact revenue growth
Age% Food Budget Spent Dining
OutDollar Value
18-25 46.4% $ 2,351
25-30 44.8% $ 2,668
35-50 42.3% $ 3,165
50-65 42.8% $ 2,911
65+ 37.0% $ 1,926
![Page 11: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/11.jpg)
Spending by Income Levels
Income/year % of Market Dollar Value
Below $50,000 23.1%
$ 1,626
$50,000-$75,000 12.9%
$ 2,711
$75,000+ 64.0% $ 4,490
Total $27.8 Bln
![Page 12: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/12.jpg)
Macroeconomic Factors
![Page 13: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/13.jpg)
Logistics
• Business locations distributed according to the population size
• Brick and mortar locations• Drive-thrus
![Page 14: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/14.jpg)
Firms in the Industry
• 38,868 businesses in the industry
• HHI: (36.62)+(24.52)+(2.12)+(1.62) = 1945.78 relatively concentrated
![Page 15: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/15.jpg)
FIRMS IN THE INDUSTRY
![Page 16: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/16.jpg)
Barriers to Entry
• Barriers to entry are low
• Medium level of fragmentation
• Entry into the market through signing a franchise agreement
• Competition among franchisees for prime real estate
![Page 17: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/17.jpg)
Business Differentiation
• Complex Products
• Price differentiation
• Target market differentiation
• Service differentiation
![Page 18: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/18.jpg)
The Supply Chain
SUPPLY INDUSTRIESBeef & Pork WholesalingCoffee ProductionDairy WholesalingEgg & Poultry WholesalingFish & Seafood WholesalingFrozen Food WholesalingFruit & Vegetable Wholesaling
DEMAND INDUSTRIESConsumers
Coffee &
SnackShops in the
USRELATED INDUSTRIESSpecialty Food StoresChain RestaurantsSingle Location Full-Service RestaurantsCaterersStreet VendorsBars & NightclubsFast Food Restaurants
RELATED INTERNATIONAL INDUSTRIESGlobal Fast Food RestaurantsFull-Service Restaurants in ChinaFast-Food Restaurants in ChinaFast Food Services in AustraliaCafes and Coffee Shops in Australia
KEY ECONOMIC DRIVERSConsumer SpendingHealthy Eating Index
Consumer Sentiment IndexPer Capita Coffee
Consumption
Source: IBISWorld Industry Report 72221b
![Page 19: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/19.jpg)
Industry structure
Life Cycle Stage MATURE
Regulation Level MEDIUM
Revenue Volatility MEDIUM
Technology Change MEDIUM
Capital Intensity MEDIUM
Barriers to Entry LOW
Industry Assistance NONE
Industry Globalization LOW
Concentration Level MEDIUM
Competition level HIGH
![Page 20: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/20.jpg)
INDUSTRY LIFE CYCLE
• Mature, some argue that it could be on the end of the Growth phase
• High “price based” competition
• Mergers and acquisitions over the past few years have changed the outlook of the industry• Carlyle Group/Bain Capital’s acquired Dunkin’
Brands• Joh. A. Benckiser acquired Peet’s Coffee & Tea
![Page 21: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/21.jpg)
Major Players
![Page 22: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/22.jpg)
Dunkin’ brands GROUP, inc. (1946)
• 16,800 locations in 58 countries
• Subsidiaries: Dunkin’ Donuts & Baskin-Robbins
• Dunkin’ Donuts (1950)• 10,083 stores• Sells over 1 billion cups of coffee annually
• Baskin-Robbins (1946)• 6,000 outlets in 35 countries • Services 3.7 million people weekly
![Page 23: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/23.jpg)
5-Year Financial performance
![Page 24: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/24.jpg)
Starbucks corporation (1971)
• Added 1,063 stores between 2012 and 2011
• Recently acquired Evolution Fresh (2011) and Teavana (2012)
• Main Products• Coffee/Coffee Accessories• Pastries• Extended Breakfast Items• Sandwiches
![Page 25: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/25.jpg)
5-YEAR FINANCIAL PERFORMANCE
![Page 26: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/26.jpg)
KRISPY KREME DOUGHNUTS, INC.
(1937)• Responsible for 2.1% of the market share
• Presence:• 92 Company Stores• 142 Domestic Franchise Stores• 460 International Franchise Stores (in 20 countries)
![Page 27: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/27.jpg)
Einstein noah restaurant group, inc.
• Responsible for 1.6% of the market share
• Subsidiaries: Noah’s New York Bagels, Einstein Bros., and Manhattan Bagel
![Page 28: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/28.jpg)
Pricing Strategies & raw data
![Page 29: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/29.jpg)
Raw Data
• Conducted two surveys asking age range, reasons for visiting, and products purchased
• Surveys differed in the size options
• Used to test our reference pricing hypothesis
• Collected prices from 6 different coffee shops in the Ithaca market
• N=62
![Page 30: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/30.jpg)
Pricing strategies• Nonlinear Pricing
• Second Degree Price Discrimination
• Complementary Pricing
• Price Bundling
• Reference Pricing
• Flexible Pricing
• Customer Loyalty Discounts
• Charm Pricing
• The Perception Gap
• Quality and Quantity Pricing
• Competition Pricing
![Page 31: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/31.jpg)
Nonlinear pricing
• Characterized by marginal prices that vary with coffee size and quality
• Appear in markets where marginal or average costs change with product size
• Most common nonlinear prices are quantity discounts
• Nonlinear pricing is also used with second degree price discrimination when consumers hold private information about their tastes
![Page 32: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/32.jpg)
Nonlinear pricing (cont.)
• Use nonlinear pricing as a screening mechanism to induce different types of consumers to buy different products
• Generally coupled with product design decisions that determine how much of a product the consumer will receive
• Screening incentives cause firms to make the small version of their product “too small”
• Allows them to collect more profit from consumers who purchase the larger version
![Page 33: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/33.jpg)
Second degree price discrimination
• There are different groups and classes of consumers
• The seller is aware of this but cannot distinguish
• Set high, mid, and low prices and the different classes self select
• Use consumer preferences to distinguish classes of consumer
![Page 34: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/34.jpg)
Second degree price discrimination
# Age Response Percentage%
1 18-25 20 65%
2 25-40 7 23%
3 40-65 4 12%
Total 31 100%
a.
b.
# Age Response Percentage%
1 18-25 27 87%
2 25-40 3 10%
3 40-65 1 3%
Total 31 100%
![Page 35: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/35.jpg)
Second degree price discrimination
• Most of the coffee buyers in the Ithaca market were between the ages of 18 and 25
• Most likely undergrad and grad students who may not have as much income as a professor or working adult
• Sellers are aware of this and as such assess their coffee prices
• Prices would be relatively lower than the prices in the market in NYC
![Page 36: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/36.jpg)
Complementary Pricing
• Common items are priced low (coffee)
• Prices of other items are higher (sandwich or baked good)
• Attract customers to store with low priced coffee
• Customers unintentionally buy the more expensive item
![Page 37: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/37.jpg)
Price Bundling
• Bundle together a cup of coffee and a sandwich
• Large cappuccino-$3
• Sandwich-$5
• Cappuccino and sandwich-$7
![Page 38: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/38.jpg)
Price bundling (cont.)
• Sellers must consider willingness to pay
• Must charge a price similar too or lower than consumer willingness to pay
• When competition offers similar items
![Page 39: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/39.jpg)
Reference pricing
• To adapt to each consumer segment, different sizes for beverages are proposed
• Let consumer choose between different sizes
• More people choose the middle option when there are 3 options rather than when there are 2
• Consumer buy more coffee than they wanted
• Charged a higher price
![Page 40: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/40.jpg)
Reference pricing (cont.)
• If your beverage of choice is only offered in two sizes, 8oz. and 12oz., which would you buy?
# Size Response Percentage %
1 8oz. 25 81%
2 12oz. 6 19%
Total 31 100%
![Page 41: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/41.jpg)
Reference Pricing (cont.)
• If your beverage of choice is offered in 3 sizes, 8oz., 12oz., and 16oz., which would you purchase?
# Size Response Percentage %
1 8oz. 12 39%
2 12oz. 14 45%
3 16oz. 5 16%
Total 31 100%
![Page 42: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/42.jpg)
Flexible pricing
• Sellers must determine what prices to charge in order to breakeven
• Raise or lower the prices of certain items to achieve desired profit
• Menu format makes it easy to change, and reflect costs
• Change prices in small increments
• Feature high profit items as daily specials
• Can design prices to help increase sales of certain items
![Page 43: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/43.jpg)
Customer loyalty discounts
• Offering customers something for free or discount
• May decide to charge a discount on coffee to customers who bring their own cups
• Grow customer loyalty by offering membership discount cards or by using “buy nine get one free” cards
• Builds loyalty and repeat business
![Page 44: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/44.jpg)
My starbucks reward
• Earn 1 star every time you pay with a registered Starbucks card or Starbucks mobile app
• Welcome Level• One use of card earns first reward; free drink or food
on birthday
• Green Level• 5 stars; free birthday drink and free refills in store
• Gold Level• 30 stars in 12 months; get all the benefits from
welcome and green level plus: personalized gold card, special offers
![Page 45: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/45.jpg)
Charm pricing
• Sellers back off the rounded number by a few cents or a few dollars
• Makes item look less expensive, first number of price is lower
• Pushes product into lower price bracket, so it appears to cost much less
![Page 46: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/46.jpg)
Charm Pricing (cont.)
Starbucks Ithaca Bakery
Bear Necessities
Cappuccino(12oz.) $2.85 $2.99 $2.75
Latte (12oz.) $3.35 $2.99 $2.95
Mocha (12oz.) $3.35 $3.49 $3.35
![Page 47: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/47.jpg)
Perception Gap
• People are fine with the price of fountain soda or draft beer
• Upset with the price of coffee
• High coffee prices exist as a result of perception• At a bar you are not walking away with the glass• At a coffee shop you walk away with the cup
• Coffee drink composed of multiple ingredients and freshly prepared in front of you
• The cup, heat sleeve, the chocolate, the espresso and the milk
![Page 48: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/48.jpg)
Quality and quantity pricing
• Starbucks• Lowering cost of standard drinks and raising prices of
specialty drinks• Maintain both sales volumes and premium brand values
• Goal: continue to find ways to balance the value they provide for customers
• Challenge: not losing customers to lower-price coffee outlets, and maintaining the brand’s premium value
• Customers still value the premium Starbucks offering, especially in specialty coffees
![Page 49: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/49.jpg)
QUALITY AND QUANTITY PRICING
• Customers are willing to pay more to maintain an everyday luxury
• Helped the brand keep its high-earning coffee connoisseurs
• Same time attract mid-market consumers who will appreciate the added value of the lower-end coffees on the menu
![Page 50: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/50.jpg)
Competition based pricing
• The control coffee shops have over prices is far from 100 %
• Sellers have to find a compromise between a price too low-where no money will be made and a price too high- where no one will buy products
• Prices are based on the competition, looking at what prices they set and trying to set a price similar to it or less
![Page 51: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/51.jpg)
Analysis & RecommEndations
![Page 52: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/52.jpg)
High margins
• Competition : Price of coffee < Price of latte
• High profit per size
• Insignificant cost for providing a higher quantity
• Illustration of reference pricing
Hot coffee Latte
Price
Profit/size
Cost/oz. Price
Profit/size
Cost/oz.
12oz. $ 1.65 $1.26 $
0.033 $ 3.35 $1.75 $
0.092
16oz. $ 1.95 $1.48 $
0.029 $ 4.05 $2.21 $
0.084
20oz. $ 2.25 $1.70 $
0.028 $ 4.45 $2.37 $
0.079
![Page 53: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/53.jpg)
High margins
• Profit goes up
• Price per oz. goes down
• Prices are set in order to make customers choose the bigger item.
12oz. 16oz. 20oz. $0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
$1.80
$0.025
$0.026
$0.027
$0.028
$0.029
$0.030
$0.031
$0.032
$0.033
$0.034
Hot coffee Profit/size Hot coffee Cost/oz.
Profi
t/size
Cost per oz.
12oz. 16oz. 20oz. $0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$0.070
$0.075
$0.080
$0.085
$0.090
$0.095
Profit/size Cost/oz.
Profi
t/size
Cost per oz.
Hot Coffee Latte
![Page 54: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/54.jpg)
Trends for the future
• Mature industry
• Increase of the sales after a recession period
• New consumers
• Increase of the profit• Over the four years to 2017, consumer
spending is expected to increase at an
average annual rate of 2.8%
• International extention for the main actors
![Page 55: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/55.jpg)
Starbucks in the world
![Page 56: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/56.jpg)
Recommendations
• External competition: • Positioning as a specialist• Advertising: Brand and corporate communication
• Internal competition: • Variety and diversity • Level of service provided• Price level• Loyalty programs
![Page 57: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/57.jpg)
Recommendations (cont.)
• Adapt product to current consumers concerns
• Extract the highest willigness to pay
• Attract new segments of consumers• Children• Coffee experts
• Low-cost/High profit
• Track sales to reduce the Perception Gap
![Page 58: Coffee shop INDUStry Isaure Dacre-Wright Richard Horgan Amy Mitchell Tanali Hamlet.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649da15503460f94a8cc04/html5/thumbnails/58.jpg)
Questions?