The market analysis

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Industry analysis

The first step of the market analysis is the analysis of the industry, and as mentioned before the chosen model for the analysis is Porters Six Forces, which gives overview of new entrants, suppliers, end users/buyers/customers, substitutes, competitors and complementary products/the government/the public.

When analysing the industry, then I find it important to separate the cafe concept and chocolate products, in order to get the total picture of the industry.

Threat of New Entrants

Based on the Statistics Norway, the number of enterprises categorized as bars/canteens/catering has increased within the last 10 years 32% and respectively the restaurant and cafe expenditure per household from 2000-2000 until 2006-2008 have increased in whole Norway 8.7 %.[1] Meaning that there is increasing demand for cafes and other similar service places, which is attractive for possible foreign entrants like Starbucks, Peter Beier Chokolade, Baresso, Double Coffee; local players who currently aren't offering similar service (like Deli De Luca); or new comers.

Expenditure for chocolate and other sweets have increased 23% in period of 2000-2008, which makes the chocolate market definitely attractive for new entrants. (see graph)

Like every other industry, so have cafe and chocolate products industry barrier for entry, which have/will prevent mentioned entrants to enter the market.

Economy of scale

Currently the biggest cafe chains have gained relatively large market share, covering most of the areas in Oslo and having most of the potential customer base. By offering the same service and products in every cafe, offers the customers the security of the service and locks them in. This might be considered as a threat to new entrants, as customers are loyal to certain chain and can find preferred cafe in most of the areas.

As there isn't any company which produces hand-made chocolates in Norway, then first indirect competitor would be Freia, which is owned by Kraft Foods and produces various confectionary products. Due to the huge economies of scale, the other players have difficulties to compete with Freia.

Product differentiation

Cafes and its services are relatively heterogeneous, meaning that there much options for differentiation. Having unique interior and atmosphere, also special menu, events, offers, etc; makes the cafe special and differs from the others and attracts more potential customers.

Having special recipes and ingredients can make a huge difference between a chocolate and chocolate.

Having those two examples in mind, we can definitely say that product differentiation is possible, can give competitive advantage and create entry barriers.

Capital requirements

Both opening a cafe and producing chocolate products is very costly. The new entrants need to invest in real estate (good location, very expensive), inventory, furniture, renovations, beverages, food, staff, training, promotion, telecommunication, etc. In addition when starting up a new company 100000 nok is needed to register the company. I would consider capital requirements as the main obstacle for new entrants and it will serious barrier for entry.

Access to supplier channels

A good relationship with various suppliers is crucial in order to have competitive advantage. Having access to high-end raw material in order to produce the best products (cakes, chocolates, etc) or having best selected coffee beans/tea, can make a difference. Therefore a lack of contact and network can be one of the entry barriers.

Legislations

The government have created certain regulations, which needs to be followed when opening new cafe. The new entrants need to have various licences in order to sell/make food, have passed the hygiene test, have fire alarms and equipment, etc. Although I would consider mentioned legislations as threat, the level of impact is quite low and probably wouldn't stop a new entrant to enter the market.

Conclusion

Base of mentioned various factors, we can say that threat of entry is not so high. In order to enter to the market extensive investments are required, good network with distributors is necessary and current companies operating in this industry have big market shares. For a future cafe owner this means many obstacles which need to overcome.

Suppliers Bragging Power

One of the main things needed to operate a cafe is raw material, which is provided by different suppliers. Therefore as mentioned previously, then a good relationship with suppliers is crucial. When there aren't many suppliers offering the same products, then they have the power to influence the whole industry and "making the rules" by limiting the product selection, increasing prices, etc. If we look at the service industry in Norway, then there are many companies offering the products needed by the cafes. This means that suppliers bragging power is relatively weak and cafe owners have possibility to negotiate good deals. When looking at the raw material needed for production of chocolate, then suppliers bragging power might be quite strong, as if the potential owner starts importing cocoa powder for example from Colombia, then he/she will compete with other international confectionary companies, which have many times bigger order. Therefore a small Chocolate Cafe in Norway is too small customer for big cocoa plantations to have any influence during the negotiations.

Conclusion Buyers Bragging Power

The buyers for a cafe can be divided into two different groups: private customers and other companies/businesses.

Starting with private customers, then we can say that the bragging power is quite small, due to the fact that there is no option for private person to go to cafe and start negotiation about one cup of coffee. They either accept the price or choose another place. When ordering special chocolate products, then there might be the option for discount, but still the cafe owner is the one who is making the decision. The way how private person can influence the cafe business is by spreading around positive/negative word (word-of-mouth) about the place and thereby trying to influence the price level and/or quality. Another thing is that buyers just have many cafes to choose from and by having many options they can impact the concrete cafe (for example force the cafe to reduce the prices, as the other places have lower prices).

Other companies/businesses on the other hand have higher bragging power, as usually their orders are bigger and therefore some discount is expected. If we take for example a corporate which orders 3000 chocolates with its logo, then some special prices is realistic. On the other hand, as there are no other companies producing hand-made chocolates, then potential Chocolate Cafe owner would have more power and thereby buyers bragging power is reduced.

Conclusion

Generally I can conclude that bragging power of daily private customers is low, due to the fact that they have freedom to choose which service place to use and having decided beforehand that the price and quality is acceptable. As other companies usually place big orders compared to private customers, then they moderate bragging power.

Substitutes

As mentioned, then substitutes are products/services that are not in the same industry/direct competitor, but still are alternative to the companies' services/products. In case of cafe industry the substitutes would be other leisure time activities and dinging places. If analysing the St. Hanshaugen area, then there are many other options, like restaurants, fast-food places, shopping street, cinema, park, training centres, swimming hall and many more. All those alternatives might become actual choice if a cafe doesn't manage to offer products for reasonable price and acceptable service quality.

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