Specialty Coffee - Porter Five Analysis

I. INTRODUCTION –The specialty coffee industry is categorized as coffee and tea manufacturing as well as full-service restaurants according to the NAICS. This is because our focus is not only the manufacturing and retailing of coffee, but also on the abundance of coffee shops that retail specialty drinks, alternative drinks, pastries, sandwiches, a comfortable environment, and more. The coffee industry as a whole is a huge business, and more specifically, the business of specialty coffee within coffee shops turned into a multibillion dollar industry over the years of 1985-2005. In the United States alone, the specialty coffee as a food-service market brought in $9.6 billion in 2004. The growth of privately owned coffee shops increased to 14,000 in 2005 and the number one retailer of specialty coffee, Starbucks, tripled in size. By 2008, the slowdown in the economy made business difficult in the industry, prompting an increased focus on quality of the product and an enjoyable, relaxing atmosphere in the shops. Major companies that provide specialty coffee include Starbucks, Caribou Coffee, and Peet’s Coffee, with companies like McDonalds and Dunkin Donuts trying to get into the market. The most important metrics to measure the success of a company that operate coffee shops are sales in relation to its net income, growth in the number of stores they operate, and their overall market share.

Key points of the specialty coffee industry are outlined using Porter’s Five Forces model below. In the specialty coffee industry, barriers to entry are moderate, where the barriers are to a lesser degree regionally and to a higher degree internationally. The threat from a substitute product is low to moderate because coffee is in demand for so many different settings, but there are many alternatives available. Buyer power is low to moderate, where bulk purchasers have moderate power that the lower-powered individual consumer does not possess. Supplier power is high...