Kraft

Student number 001-19-4757

Easy Café

It’s your coffee, have it your way!!

Nature of the situation

Geoff Herog had about a month to decide if he should recommend Kraft Foods Canada to jump into the single- serve coffee pod arena. Kraft currently owned a 32 % share of the coffee sales business in Canada.

The Canadian coffee market was becoming very competitive. Grocery stores offered several brands of ground coffee and coffee beans. Restaurants and cafes were also a major factor in the market. Sales topped $600 million in 2003, however $425 million came from grocery stores, mass retail, and club stores. While sales of coffee increased per volume, dollar volume on these sales decreased due to lower prices.

The home prepared coffee category was very competitive between premium and mainstream brands. This competition also led to price wars and lower margins between manufacturers. Higher priced premium coffee was a smaller business that was growing tremendously. Some estimates showed a 15 to 20 percent of sales volume, and double digit sales growth. This data showed an opportunity to offer higher end products and capture a larger portion of the category with higher priced items and greater profitability.

63% of Canadians consumed coffee on a typical day. They consume around 3.5 million cups of coffee on a daily basis in 2003. This number has continuously rose over the last 5 years due to the growing popularity of coffee consumption. Half of all Canadians drank at least some specialty coffee. Two-thirds of the coffee consumption in Canada was prepared at home. With over 12.5 million households in Canada, there was a tremendous amount of opportunity. Enter the single serve coffee pod (Exhibit 1).

Kraft had already seen encouraging numbers after introducing the SSP pods in 10 European countries in 2003 after its initial introduction of the home version to Switzerland in 1982.

Based on results in the European market, the SSP arena was a highly productive...