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Conceptual Framework in Strategy Development for Coffee Business

Paper Type: Free Assignment Study Level: University / Undergraduate
Wordcount: 5297 words Published: 19th Oct 2020

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In recent years, with the enhanced worldwide competition, many organizations have recognized the need to become more customer-centric and many organizational policies have been placed on the agenda as a conceptual framework for strategic growth. The hospitality industry is continually increasing in Phillip Island and Melbourne and the industry needs to concentrate on developing conceptual frameworks in strategy development approaches aimed at searching, collecting, storing and sharing guest data across the organization to create personalized and distinctive guest experiences to improve guest loyalty (Baumgartner, 2014). The Phillip Island Coffee is a family run business which is the only one coffee roasting house on Phillip Island with an espresso bar, quality coffee, drinks, snacks and retail products (Phillip Island Coffee Co, 2019). Market Lane Coffee is a boutique coffee roastery and retailer in Melbourne to ignite positive change in the coffee industry (Market Lane Coffee, 2019). The purpose of this article is to critique each business cases to conclude which case is more successful through the perspective of the strategic concept. To provide a better understanding of the topic for the reader, this essay firstly analyses current strategy and internal situation and then the current state of the industry and external environment are described through the analysis of PESTEL DI and Porter’s five forces to conduct SWOT analysis to conclude that Market Lane Coffee is more successful than Phillip Island Coffee as there are more potential growth for the future of Market Lane Coffee.

Firstly, the current strategy of the Phillip Island Coffee and the Market Lane Coffee are analysed from their mission, vision and generic strategy perspectives.

According to David (1989), a mission defines as a declaration what an organisation is and why it exists and the fundamental part of both businesses’ mission is quite similar which is to make a good coffee through great services and products and source organic ingredients from the trusted farmers (Phillip Island Coffee Co, 2019; Market Lane Coffee, 2019). However, Market Lane Coffee sources broader farmers as its coffee beans from overseas such as Guatemala and Kenya compared to the Phillip Island Coffee which only focuses on its local farmers on the island (Phillip Island Coffee Co, 2019; Market Lane Coffee, 2019).

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The vision is defined a sentence describing a company's function, markets and competitive advantages (Kantabutra, 2010) and the Market Lane Coffee has a clear vision which  is “ to ignite positive change in the coffee industry by redefining what coffee is and can be, and to build a market for, and appreciation of, specialty coffee (Market Lane Coffee, 2019, para. 3) ”. However, on the other hand, the Phillip Island Coffee does not have a clear statement of its vision.

According to Porter (1985),  there are four generic strategies which are cost leadership, differentiation, and focus strategy which is further subdivided into cost focus and differentiation focus. The cost leadership strategy means being the cost leader in your sector or market and it is not good enough simply to be among the lowest-cost producers since you are left open for other low-cost producers to attack and thus prevent your efforts to boost your market share (Hunjra, 2018). The differentiation strategy involves making products and services distinct from those offered by your rivals to make them more appealing and how one does this relies on the precise nature, functionality, durability, support, and brand image the clients' value which will depend on the product and service itself (Hoberg, 2016). These two strategies are used when the business targets a broad market and the Market Lane Coffee utilize these strategies as its approach as it has several shops in Melbourne and focus on broader market with unique features of its products and services through good research, development, innovation, capacity to provide high quality services, effective sales and marketing (Market Lane Coffee, 2019).

On the other hand, the focus strategy is utilized when the business targets a niche market such as little competition and ‘focused market’. Focus strategies, either differentiation focus or cost focus, concentrate all their attention upon certain markets they strive in and they perform in-depth studies of dynamics in such markets, focus on special needs presented by customers in them, develop unique low-cost or well-specified products for the market (Noe, Raymond A., et al, 2017).  Since such companies provide unique products for their chosen markets, the brands they create tend to win strong loyalty amongst the customer base and reduce the attractiveness of their chosen market segments to the competition. Phillip Island Coffee utilizes the differentiation focus strategy to approach the business which focuses its business only on the Phillip Island to create strong loyalty with locals through its unique local products (Phillip Island Coffee Co, 2019).

Resources and Capabilities form the basis of any company's competitive advantage and the primary source of its profitability and resources, and capabilities enable the company to advance its business and make its products and offer competitive to the customers which have a crucial role in the business (Ravichandran & Lertwongsatien, 2005). Resources can be divided into tangible, intangible and human resources. Tangible includes physical and financial assets such as location, facility, equipment, cash, retained and earnings. Intangible contains such as reputation and brand image, a human resource means such as knowledgeable/skilful employees (Ravichandran & Lertwongsatien, 2005). Organizational capabilities refer to the company routines, procedures and culture of the organization and it may be helpful to identify core competencies or capacities to identify what contributes more to client value and which market segments to target (Helfat, 2017).

Table 1 .Current Resources and Capabilities (Internal Situation)

 

Phillip Island Coffee Co.

Market Lane Coffee

Resources

-          Location with bayside views

-          Friendly, efficient and fun 8 employees with a top notch customer experience

-          The house rostering with local beans

-          Strong relationship with locals/customers with loyalty

-          Organic and sustainable products from local sources

-          Local brand image

-          Six shops across Melbourne with convenience

-          Over 50 local and international employees

-          Coffee brewing & roasting classes for home baristas

-          Organic and sustainable products from broader sources

-          Meaningful and ongoing relationships with customers

-          Broader brand image

Capabilities

-          Management experience to have the long running family business since the early 1990's

-          Management experience to have broader business since 2009


Above table 1 indicates the current resources and capabilities of both businesses which are both unique but the Market Lane Coffee has broader resources than the Phillip Island Coffee which focuses on only locals and small market even though it has longer management experience than Market Lane Coffee.

PESTEL analysis is “ a marketer's instrument or structure used to analyse and monitor the variables that affect an organization of macro-environmental (Espinoza, Proaño, Villavicencio & Villegas, 2019, p. 228 )” and this results in the identification of threats and weaknesses used in a SWOT analysis (refers to Table 5 and 6). PESTEL analysis stands for Political, Economic, Social, Technology, Environmental and Legal factors and Demographics and International factors are also discussed to address the main threats and opportunities of each business with likely impacts.

Political factors cover the methods and frequency of government intervene in the economy such as government policy and political stability or instability in overseas markets (Espinoza, et al., 2019). Economic factors have a major effect on how profitable an organization is doing which are composed of economic growth, interest rates, exchange rates, and more (Espinoza, et al., 2019). Social factors include common beliefs and attitudes of the population are also regarded as socio-cultural variables such as awareness of health, career attitudes, and more. These variables are particularly interesting because they directly influence the way marketers comprehend and guide clients (Espinoza, et al., 2019). Technological factors influence marketing and its governance in three respects which are new ways of generating products and services, new methods of distributing products and services and new means of interacting with the target markets as the technological landscape is changing quickly and the way our products are marketed impacts on us (Espinoza, et al., 2019).  The importance of Environmental Factors has become crucial as raw materials are growing scarcity, the pursuit of objectives, businesses as ethical and sustainable companies, and the objectives of carbon footprint set by governments are some of the problems that marketers face (Espinoza, et al., 2019). Legal Factors include health and safety, equal opportunities, publicity norms, the rights and legislation of consumers, product labelling and product safety and thus companies have to understand clearly what is and what is not legal to effectively trade and if an organization trades worldwide, that is very challenging, as there are rules and regulations in each nation (Espinoza, et al., 2019).
 

Table 2. PESTEL DI Analysis (External Environment)

Political

 

Phillip Island Coffee Co.

Market Lane Coffee

Threat

-          The China-America trade dispute (Long, 2019)

-          Political instability (conflicts or rampant competition between various political parties)

-          The China-America trade dispute (Long, 2019)

-          Political instability (conflicts or rampant competition between various political parties)

Opportunity

-          State government reviews the Visitor Economy and Regional Service delivery

-          State government reviews the Visitor Economy and Regional Service delivery

The likely impact/ explanation

-          Remarkable decrease of tourists

-          Reduction in tourist spending

-          These reviews have direct impact on future funding for regional tourism, major events, Tourism Victoria and key infrastructure projects

-          Remarkable decrease of tourists

-          Reduction in tourist spending

-          These reviews have direct impact on future funding for regional tourism, major events, Tourism Victoria and key infrastructure projects

Economic

 

Phillip Island Coffee Co.

Market Lane Coffee

Threat

-          Global economic uncertainty (China-US tension, Brexit)

-          Global economic uncertainty (China-US tension, Brexit)

Opportunity

-          Australia’s GDP is expected to be higher in 2020 (Reserve Bank of Australia, 2019)

-          Australia’s GDP is expected to be higher in 2020 (Reserve Bank of Australia, 2019)

The likely impact/ explanation

-          Higher policy uncertainty
→ Reduce business investment → Disrupt supply chain
→ Slow productivity growth

-          Increase in consumer purchasing power → Increase in consumer demand

-          Higher policy uncertainty
→ Reduce business investment → Disrupt supply chain
→ Slow productivity growth

-          Increase in consumer purchasing power → Increase in consumer demand

Social-Cultural

 

Phillip Island Coffee Co.

Market Lane Coffee

Threat

-          Seasonal visitor fluctuations due to tourists demand changes

-          Seasonal visitor fluctuations due to tourists demand changes

Opportunity

-          Growing importance of environmental sustainability to the consumer

-          Strong localism

-          Growing importance of environmental sustainability to the consumer

-          Great cultural diversity

The likely impact/ explanation

-          Eliminate any single use plastics and to increase the composting of organic waste

-          More economical profits from the tourists

-          Eliminate any single use plastics and to increase the composting of organic waste

Technology

 

Phillip Island Coffee Co.

Market Lane Coffee

Threat

-          Popularity of mobile, internet, social media challenging F&B businesses to control over the customer-issues, which can spread over the internet quickly

-          Popularity of mobile, internet, social media challenging F&B businesses to control over the customer-issues, which can spread over the internet quickly

Opportunity

-          The continous growth of OTA supports marketing for specific F&B businesses such as tripadvisor, or websites specialize in F&B reviews

-          The continous growth of OTA supports marketing for specific F&B businesses such as tripadvisor, or websites specialize in F&B reviews.

The likely impact/ explanation

-          Customers have more power to express negativity to the public leading to faster spreading of negative-publicity about the business

-          Customers have more power to express negativity to the public leading to faster spreading of negative-publicity about the business

Environmental

 

Phillip Island Coffee Co.

Market Lane Coffee

Threat

-          Increasing environmental pressures including climate change

-          Cold and windy winter

-          Drought → higher supplier pricing

-          High day trip visitation = damage the environment

-          Increasing environmental pressures including climate change

-          Unpredictable weather

Opportunity

-          Seasonality in visitation if left unaddressed will generate negative social, economic and environmental consequences

-          Growing importance of environmental sustainability to the consumer

-          Tourists want to see wildlife in natural environment rather than in captive wildlife tourism (Bass Coast Shire Council, 2018)

-          Seasonality in visitation if left unaddressed will generate negative social, economic and environmental consequences

-          Growing importance of environmental sustainability to the consumer

The likely impact/ explanation

-          Increase the number of tourists who are conscious of environment (Eco-Tourism)

-          Increase the number of tourists who are conscious of environment (Eco-Tourism)

Legal

 

Phillip Island Coffee Co.

Market Lane Coffee

Threat

-          The local council may expand the policies of acquiring permits on the island (Bass Coast Shire Council, 2018)

-          Minimum wages increased by 3% (Chalmers, 2019)

-          Minimum wages increased by 3% (Chalmers, 2019)

-          Immigration intake has been lowered (Dalzell, 2019)

Opportunity

-          Footpath trading permit fees are reduced 50% pro rata and a further 25% discount for businesses on the island  (Bass Coast Shire Council, 2018)

-           

The likely impact/ explanation

-          Increase the business’ income, additional visitors (due to low price permit fee)

-          Congestion leads to consumer frustrations → Higher labour cost → Labour shortage

-          Congestion leads to consumer frustrations → Higher labour cost → Labour shortage

Demographic

 

Phillip Island Coffee Co.

Market Lane Coffee

Threat

-          Food services industry is not the main industries for workers on the Island (Bass Coast Shire Council, 2018)

-          Immigration intake has been lowered (Dalzell, 2019)

Opportunity

-          Upwards of 235,000 new residents will move into areas to the north and east of the region (Bass Coast Shire Council, 2018)

-          The population rate is very consistent and strong ranging (World Population Review, 2019)

The likely impact/ explanation

-          Difficulties in finding employees →Hard to maintain the business

-          Growing population would impact on the industry to invest in new business

International

 

Phillip Island Coffee Co.

Market Lane Coffee

Threat

-          United Kingdom :Brexit

-          Hongkong : protest demonstration

-          United Kingdom :Brexit

-          Hongkong : protest demonstration

Opportunity

-          International visitors are expected to double in size by 2035 (Bass Coast Shire Council, 2018)

-          International expenditure in Victoria continued to break records to reach $8.3 billion in the year (Visit Victoria, 2019)

The likely impact/ explanation

-          UK’s Brexit and Hong Kong’s protest demonstration would impact on the profit of business directly as the region would get less tourists

-          UK’s Brexit and Hong Kong’s protest demonstration would impact on the profit of business directly as the region would get less tourists

 

According to Table 2, as both businesses are existing in the same state, the same country and the same industry, their main threats and opportunities are mostly similar. However, the Market Lane Coffee would have more serious impacts from each factor as it has broader businesses with a broader market. For instance, both businesses have the same international threats which are Brexit and Hongkong’s protest demonstration and this would impact on the profit of business directly as the region would get fewer tourists. However, as the Phillip Island Coffee focuses on locals as its main market segment, it would not be that huge impact compared to the Market Lane Coffee which tourists are important segment especially its shops in CBD.

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Porter's Five Forces is an easy but strong instrument to understand the competitiveness of the business environment and for identifying future profitability of company setting (Porter, 2008). This helps the company as it enables the company to adjust its approach accordingly if the company knows the forces in its setting or sector that may influence its profitability. For instance, the company could use a powerful stance or enhance a weak stance to prevent mistaken measures in future (Porter, 2008).

The threat of New Entry is to know the capacity of new businesses which enter the same market of the business. For instance, if other businesses can enter the industry easily, above the average profitability is compromised which threats to a market share of the business (Porter, 2008). As the Coffee business of Melbourne has been increasing rapidly and easy to enter the market (Square, 2018), Market Lane Coffee has higher threat of new entry than the Phillip Island Coffee which has the business in a niche market as it is the only one coffee roasting house on the Island and focuses on locals.

The threat of Substitution means that customers are likely to find another substitution such as services and products that appear to be different but can satisfy the same need as another business (Porter, 2008). A simple and inexpensive replacement can weaken the business position and jeopardize its profitability. Uber Eats is one of the threats of substitution for the industry which impact of the business heavily from profit perspective (Wilkie, 2019), and thus Market Lane Coffee has a higher threat of substitution than Phillip Island Coffee which does not deliver their products through the Uber Eat and it is not common on the Island.

Analysing Buyer Power helps the company to know how much bargaining power do customers have and when the company deals with only a few well-informed customers, they have more power, but the power of the company increases if it has many customers (Karagiannopoulos et al, 2005). As the Phillip Island Coffee focuses and depends on locals to manage its businesses, its buyer has strong power. On the other hand, the buyer power of the Market Lane Coffee is weak as its business has six shops with many customers across Melbourne. 

Supplier Power is determined by how suppliers have simple pricing to boost which helps the company to understand how many prospective suppliers does it has, how distinctive is the product or service they offer, and how costly would it be to switch between suppliers (Karagiannopoulos et al, 2005). Supplier power of the Phillip Island Coffee is strong as it focuses and depends on only local supplier to manage its businesses. On the other hand, buyer power of the Market Lane Coffee is weak as it has broader suppliers all over the world.

Competitive Rivalry examines the number and strength of competitors to understand how many competitors does the company has and to compare the quality of products and services with the competitors (Dobbs, 2014). As Melbourne is one of the coffee capital of the world and there are a million of coffee businesses in Melbourne (Square, 2018), the Market Lane Coffee has higher competitive rivalry than the Phillip Island Coffee as it is the only one coffee roasting house on the Island.

Table 3. Porter’s Five Forces

 

Phillip Island Coffee Co.

Market Lane Coffee

1. Threats of new entrants

Low

High

2. Threats of substitute

Low

High

3. Buyer Power

Strong

Weak

4. Supplier Power

Strong

Weak

5. Competitive Rivalry

Low

High

 

Table 4. SWOT Analysis of Phillip Island Coffee Co.

 

Strengths

Weaknesses

Internal Resources & Capability

-          Differentiation focus strategy

-          Strong loyalty

-          Niche market

-          Strong relationship with locals/customers with loyalty

-          Organic and sustainable products from local sources

-          Local brand image

-          Management experience to have the long running family business since the early 1990's

-          Unclear vision

-          Focuses on only small market

→ Strong buyer power

→ Strong supplier power

 

Opportunities

Threats

External Opportunity & Threat

-          Growing importance of environmental sustainability to the consumer (Social-cultural, environmental)

-          Increase the number of tourists who are conscious of environment (Eco-Tourism)

-          Increasing environmental pressures (climate change, drought and cold winter)

-          Food services industry is not the main industries for workers on the Island (Bass Coast Shire Council, 2018)

Table 5. SWOT Analysis of the Market Lane Coffee.

 

Strengths

Weaknesses

Internal Resources & Capability

-          Brother mission with clear vision

-          The cost leadership and differentiation strategy

-          Broader market

-          Convenience location

-          Organic and sustainable products from broader sources

-          Broader brand image

-          Broader market

→ High threats of new entrants

→ High threats of substitute

→ High competitive rivalry

 

Opportunities

Threats

External Opportunity & Threat

-          Australia’s GDP is expected to be higher in 2020 (Reserve Bank of Australia, 2019)

-          The population rate is very consistent and strong ranging (World Population Review, 2019) → invest new business

-          International expenditure in Victoria continued to break records to reach $8.3 billion in the year (Visit Victoria, 2019)

-          Minimum wages increased by 3% (Chalmers, 2019)
→ Higher labour cost
→ Labour shortage

-          Global economic uncertainty (China-US tension, Brexit)

-          Customers have more power to express negativity to the public leading to faster spreading of negative-publicity about the business

-          Remarkable decrease of tourists

-          Reduction in tourist spending

Above the table 4 and 5 indicates main weaknesses, strengths, opportunities and threats of both businesses based on findings from the analyses of the current strategy, resources and capabilities, PESTEL DI and the five forces ( refers to the table 1, 2 and 3).

Each business has unique strengths as both businesses have opposite market and strategy, which are broader/niche market and differentiation and cost leadership/differentiation focus strategy, and their different strategy works on different market and thus it is hard to declare that which is more successful from this perspective. However, the Market Lane Coffee would have more future potential to be successful due to its clear and decent vision compared to the Phillip Island Coffee which does not have a clear vision for its future and this difference would bring different future for each business. Moreover, having the strong buyer power and supplier power would impact on the future business of the Phillip Island Coffee hugely as it is hard to find the alternatives due to its Island-based business in the niche market.

On the other hand, the Market Lane Coffee has more threats broadly than the Phillip Island Coffee which mainly has the only environmental threats and opportunities due to its location and its business only focuses on the narrow market on the Island with locals which prevent the business from broader threats. However, at the same time, the business loses opportunities compared to the Market Lane Coffee which has broader opportunities and if the business enables to take the opportunities wisely, the Market Lane Coffee would become more successful in the future.

In conclusion, as the above discussion proves that it is hard to declare that which business is more successful at this moment due to both businesses utilizes different strategies for different markets which creates different types of strengths. However, the Market Lane Coffee has more potential to be successful in the future even though there are broader threats for the business as it has the decent and clear vision for its future and there are broader opportunities to take to prosper its business in the future compared to the Phillip Island Coffee. Therefore, it is concluded that Market Lane Coffee is more successful than Phillip Island Coffee as there is more potential growth for the future

 

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