Global Strategic Management Plan Caribou Coffee Company Marketing Essay

Strategic management of an organization entails three ongoing processes: analyses, decision, and actions. It concerned with “the analysis of strategic goals (vision, mission, and strategic objectives) along with the internal and external environment of the organization (Dess, Lumpkin & Eisner, 2009, pg8)”. Every business has a vision and a mission and strategic management takes into consideration both of these. In addition, strategic management also helps in achieving the organizational goals in an effective and efficient manner.

Strategic management helps us to identify the direction in which an organization is moving. There in lies the continued importance of strategic management towards business success. There is an old saying that “if you fail to plan, you are planning to fail.” Therefore, managers must set a long-term strategies and hope for the best. They first must understand the nature of global industries and dynamics of global competition. A good manager will always ask how to obtain advantages that are sustainable over a lengthy period in the marketplace. The question they always ask is “how can we create our products that are not only unique and valuable but also difficult for rivals to copy or substitute?” (Dess, Lumpkin & Eisner, 2009)

This report will use Caribou Coffee as a case study. The purpose of the report is to develop a strategic plan that help the company to fit into specialty coffee industry.

In order to have a better understanding of the company current situation, the report will provides an analysis of internal and external environmental, as well as the financial situation of the company.

2. Background of Caribou Coffee

Caribou Coffee Company, Inc. (NASDAQ: CBOU) founded in 1992 and headquartered in Minneapolis. It is a company-owned premium coffeehouse operator and the second largest in the United States after Starbucks. As of January 3, 2010, Caribou had 534 retail coffeehouses, including 121 franchised locations in 16 states and the District of Columbia, and 71 franchised coffeehouses in international market (Caribou Coffee 2009 annual report).

Caribou sells gourmet coffees, teas, chocolates drinks, bakery goods, and handcrafted oatmeal. Their products are also sold to grocery stores, club stores, office coffee and foodservice providers, mass merchandisers, hotels, e-commerce channels airlines, sports and entertainment venues, on-line customers, college campuses, and other commercial customers. Third parties are licensed to use the Caribou Coffee brand on quality food and merchandise items.

The specialty coffee industry’s annual sales were about $780 million in 1993. The two founders of Caribou Coffee, Kimberly and John Puckett created a successful and profitable coffee business after the second shop was opened in 1993. Location is the key ingredient for the success of their coffeehouses. They were determined to lock in good sites before their local based competitor, Starbucks, arrived on the scene. In a short period of time, the company established itself as a top player in the Twin Cities market.

Caribou’s mission statement is to create “an experience that makes the day better” by providing high quality and differentiated product, excellent customer service and a distinctive coffeehouse environment. Unlike other competitors, Caribou purchased rather than roasted its own beans. They strived for product and customer service consistency from store to store. One technique used to ensure good customer service was “the mystery shopper”. In addition, customers were trained to give their comments on their Caribou experience regularly visited the shops.

In order to strengthen Caribou’s position in the market, the Pucketts have developed new products and strategic partnerships. Caribou and Coca-Cola North America launched a new line of premium ready-to-drink iced coffees in the United States during the summer of 2007 and the company revenue was up 24% due to this new product. (Caribou Coffee Company, Inc., 2010)

2.1 Specialty Coffee Industry Overview

Specialty coffee is coffee roasted using only premium coffee beans such as the arabica bean, which is widely considered superior to robusta bean. In 1990s, the gourmet coffee business was on an upswing. While overall U.S. coffee consumption had fallen during the 1960s, 1970s, and 1980s, the decline took the biggest bite out of the mass-produced ground variety of coffee sold in supermarkets.

According to the Specialty Coffee Association of America (SCAA), the growth of U.S. coffeehouses, which grew from 15,400 in 2002 to 18,600 in 2004, has aided the growth of the U.S. specialty coffee market, which was approximately $9.6 billion in 2004, up from $8.4 billion in 2002. The growth in the specialty coffee market also has been aided by several other factors, including the introduction of new gourmet coffee products, the popularity of the gourmet foods market, strong consumer demands, as well as broader distribution of gourmet coffees through supermarkets, convenience stores and restaurants

(SCAA, 2004).

According to the National Coffee Association’s (NCA) National Coffee Drinking Trends 2009, daily consumption of coffee beverages among consumers remained consistent in 2009 with 54% of the overall adult population partaking. Daily penetration of coffee among American adults is down from 2008. In 2008, 17% of American adults drink specialty coffee on a daily basis compared with 14% in 2007 (NCA, 2009). Bad economic conditions might cause some to alter their coffee choices, so that a small number of less frequent coffee drinkers might have moved away from the coffee category.  Furthermore, consumers are more likely to shift from out-of-home to in-home consumption and from higher cost products to cheaper brands during the recession. This trend to less expensive products is corroborated by the strong results reported by discount food retailers and by reduced earnings in the specialty coffee sector in the last quarter of 2008. However, we believe the consumption of gourmet coffee will remain steady in the next few years and the business will be supported by broad consumer.

Table 1 presents the selected consolidated financial data as of and for each of Caribou’s fiscal years ended January 3, 2010, December 28, 2008, December 30, 2007, and December 31, 2006. Table below shows that the financial performance of Caribou Coffee has been improved from 2006 until the first quarter of 2010. Total revenue of the company increased $8.6 million, to $262.5 million in the first quarter of 2010, from $253.9 million in fiscal year 2008. Franchised sales are not included in the comparable coffeehouse sales calculations. This increase was largely due to sales to new commercial and existing customers and to product sales as well as franchise fees.

Table below presents the selected consolidated statement of operations financial as of and for each of Caribou’s thirteen weeks ended April 4, 2010 and March 29, 2009. Despite the challenging economic environment, Caribou is profitable. There is an increased in net sales, commercial sales, franchise sales, cost of sales, operating expenses for the first quarter in 2010 as compared to the same period in fiscal 2009. The increase was primarily due to sales growth to existing and new customers, higher product sales and royalties from 123 franchise locations, as well as investment marketing and product initiatives (Caribou’s press release, May 6, 2010).

There is a huge international market for instant coffee. Caribou can steal a slice of pie of global instant coffee market from established player by using micro-grinding technique (patent pending) in order to make a quality instant coffee. Caribou needs put more effort in marketing its brand and expanding into new markets. China and India are the key areas of focused future expansion for Caribou. They are the World’s biggest consumer market and offer a number of opportunities for Caribou Coffee business franchises. Caribou can also sell their roasted coffee and related supplies to grocery stores and foodservice suppliers in these countries. The infrastructure needs to be in place for the expansion. Caribou will ensure the adherence to the most effective site selection. Apart from that, Caribou will develop special marketing techniques and skills to serve each of the various segments which differ in their approach to coffee quality and blends, packaging, equipment, and service which is required.

Caribou will maintain a constantly high customer count by leveraging their appeal to four groups of potential customers. Caribou reach out to them through local marketing, support of local charitable organizations involvement in the Chamber of Commerce, or sponsorship of events and youth sports teams.

Caribou will target tourists with ads in local tourism guides or offer special promotion to them. For business customer, they spending power is higher than other groups of customer. Caribou can also night spots and businesses. They can reach business customers through Chamber of Commerce activities and by personally visiting the shops and businesses to distribute discount coupons and menus. To reach students Caribou can out free coffee coupons at student events, offer special student discount cards or offer entertainment on weekends.

This is due to the strong consumer demands, new premium coffee products and broader distribution of gourmet coffees through coffeehouses, supermarkets and etc. however, consumer may change their taste to other beverage or shift from out-of-home to in-home consumption and from higher cost products to cheaper brands during recession. Caribou should invest in R&D to create instant coffee to gain more market share from industry leader, Starbucks and to satisfy customer needs.

The coffeehouse industry is growing and this growth offers excellent opportunities for new companies to enter this market. Looking at the different forces in the industry, intense competition among rivalry and buyer power limits profit potential. Caribou has achieved a leadership position in specialty coffee market in U.S. based on high quality, differentiated product, excellent customer service and coffeehouse environment. However, there are some risks related to their business. An interruption in the operation of their roasting, warehousing and distribution facility could affect their operation and sales. Caribou Coffee has not been as successful as Starbucks in international market. Hence, Caribou will continue to maintain its quality and service to attain their customer’s loyalty, and expand its business into new markets.

Combining a market segmentation strategy with a product differentiation strategy is an effective way of matching Caribou’s product strategy (supply side) to the characteristics of their target market segments (demand side). Implementing these strategies can strengthen financial outcome, capture some of the extraordinary profits that industry leader enjoy, and grow the business.