STUDENT NAME: PHAMGIA HUY TRAN
1.1 Threat of Substitutes: High
- Although coffee market is a growing rapidly, tea continues to be the leader of the hot beverage products. There are other beverages which are used, enjoyed and supported by many people instead of coffee such as: fruit juices, water, soda, energy drinks etc.
- Consumers do not have to pay any cost when they switch from coffee to substitutes, which may increase the threat.
- Since coffee and coffee bean are the only products of Halo, their target customer market is really limited. Nowadays people have more choices of their beverage, especially the hot one like tea or milk, which are much healthier than coffee. In the research of the share of hot beverages consumed most often by individuals in the United Kingdom (UK) in 2015, evidence has showed that 44 percent drink tea most often, followed by 21 percent who drink instant coffee (Statista, 2015).
1.2 Intensity of Competitive Rivalry: High
- The industry has a monopolistic competition and Nestlé Group is dominating the largest market share especially by their two brands Nespresso and Nescafé. Other competitors also have a remarkable markets share.
- Consumers do not have to pay any cost for switching to other brands, which creates high rate in rivalry.
- Because the industry is mature with low growth rate, there is the predictable retaliation from well companies against each others for brand equity, resources, important locations and price competition due to all of them looking for increasing their market share from established firms.
- Since B2B is the maily target market of Halo, their market is too narrow and it is possible to lost their market share easily to others brands which are more popular. Nespresso and Nescafé have been widening the market share to B2B market. According to Nestlé Nespresso S.A (2016), Nespresso has formed partnerships with prestigious culinary organizations and chefs around the world to interact and share viewpoints with key players in the industry such as: Served by over 780 star-rated chefs or equivalent, served by 15 major airlines including: Cathay Pacific Airways, Qatar Airways and Emirates Airlines, Swiss International Air Lines, Etihad Airways. Halo is now facing the threat of losing their business partners to bigger brands like Nespresso.
1.3 Difficulty in supplying
- Purchasing coffee is not a straight forward process and often purchasing direct from a grower can create problems further down the supply chain. This can be a serious problem because Halo cannot have a stable coffee resource with high requirements from the local famers and growers.
- Climate change- Less suitable land for coffee: Droughts in a long period of time, increased temperatures and heavy rains are the main factors that make harvest seasons suddenly change without any reason and therefore not able to be predicted. It is estimated that the areas suitable for coffee cultivation will decrease substantially by 2020 (CBI, 2016). The underlying drastic changes in the suitability of land for coffee production are having adverse effects (Coffee Barometer, 2014). This will effect highly and directly to the resources of Halo from their suppliers.
2.1 Assumptions and assumption reversal
- Assumptions about Halo:
- Halo sells only coffee and coffee beans
- Halo has 2 ranges of products available only online: Halo Signature and Halo Speciality and target customers: B2B, home-coffee drinkers.
- Halo’s suppliers are from South America
- Reverse each assumptions:
- Halo has other products
- Halo coffee products are various and sold in coffee shops or retailers, customers are diversified
- Halo supplies itself
- How to accomplish those reversals:
- Halo has other products
- According to the identified issues mentioned above, people now have a huge number of choices for their beverage. It is considerable for Halo to produce and develop other kind of drinks than coffee such as soft drinks or energy drinks, especially tea due to the taste of consumers. Nespresso and Nescafé are just two of different brands from Nestle beside others drink brands like Milo, Nestea and Nesquik. With this strategy, Halo can get benefits from the non-coffee drinkers, which is a very wide and profitable market. However, this is also a mature market with big brands dominating like Pepsi, Coca-cola, Monster, Red bull. If Halo decides to be a new entrant into a new market with different products than coffee, Halo need to start over again from the market research as well as marketing research. This is not recommendable for Halo to spend their resource into a mature market like soft drinks because Halo is still facing difficulties in remaining and increasing their own coffee market share.
- Halo has other products
- Halo coffee products are various and sold in coffee shops or retailers
- Currently, Halo has served only their coffee with 2 ranges of products available only online: Halo Signature and Halo Speciality. This may creates a limit of choice for customers who want to enjoy a new taste or their personal one. Instead of providing only 2 ranges of products which are Halo Signature and Halo Speciality, Halo should create more different tastes of coffee, or especially let the customers choose and mix the ingredients to create their own personal taste. This special service will make Halo unique and will satisfy a number of customers who do not like the 2 old ranges of products in the past. To make this service possible, Halo should open their coffee shops chains or retailers because this will make Halo more accessible to everybody than the online business way. Customers will find it more convenient and interested to create and have a cup of coffee with their personal taste rather than the old online way. About the old online way, Halo should develop their website to make it more attractive and home-coffee drinkers can also choose and mix the ingredients to create and order coffee as well. This option is highly suggested because it not only solves the limit of target customers, but also makes Halo become famous for the special service. To follow this way, Halo needs to carry out more research and test to produce new coffee products or new ingredients so that customers will have a variety of choices.
- Halo supplies itself
- Although the bargaining power of the suppliers has been limited, Halo cannot control the negative effect from climate changes on the crops as well as the resource. It is predictable that the areas suitable for coffee cultivation will decrease substantially by 2020 (CBI, 2016). In order to have a stable resources, Halo can supply itself by creating an area in the UK that have a same condition to South America to grow coffee beans. By modern technology, it is possible to build a technical farm with modern equipments can make the same weather conditions and import the soil from South America. In addition, Halo can apply some technique skills in growing coffee beans to make sure that they can harvest coffee beans all around the years. This option prevents Halo from the risks of supplies from South America, which is too far and cannot be control well, provides a stable resource for Halo to sell 12 months a year. However, it will cost a lot of money to set up a modern farm like this and it will usually take 4-5 years for a coffee tree to start producing coffee which is a long time. This option is not recommendable because it costs a lot of time and money and it is not suitable for a small company like Halo for now.
- o To compete with other beverage brands, Halo can develop more different types of products like tea, soft drinks, mineral water, which are all substitutes. However, these products are in mature markets so it will be hard for a new entrant like Halo to have market share. Halo can choose and take coffee beans from suppliers in closer areas instead of South America to reduce the shipping cost, but the quality of coffee beans may be reduced as well because the soil and the weather in closer areas are not the best to grow coffee. It is possible to build a modern farm in the UK with the same climate and soil condition to South America to grow, harvest and supply for itself, but it will cost Halo a huge number of money and time to carry out this plan.
o Halo should run the business both online and offline as the same time. Opening coffee shops chains to introduce product directly will help Halo become more recognizable and increase image of the company. Doing just-in-time system service, especially online to reduce flow times within production system as well as response times from suppliers and to customers. Making more ranges of coffee to give more choices to the customers, or providing them a special service that let customers create their personal coffee taste. This can increase Halo’s brand and the company will be more popular to everyone. It will take time and money to carry out researches for new coffee or ingredients.
o To reduce the threats from substitutes and rivalry, Halo needs to diversify their coffee products to attract more customers and key partnerships. This will help Halo to gain market share and compete with other competitors. When this trend nowadays is taking care of the environment, Halo should take advantage of their biodegradable capsules, which is one of their strength to increase the company’s image.
o Halo should widen the ranges of coffee products to be more accessible because customer will have more choices than the 2 old ranges. Halo should increase the use of the biodegradable capsules to gain good impression from the society.
– Put to another use
o Halo can benefit from the used coffee beans by selling the coffee grounds to some organizations that take care about beauty to produce cosmetic or sell coffee grounds to farmers because it is good for the soil. This can save a lot of money for Halo as well as recycle the coffee grounds to protect the environment.
o Halo is lack of target customers as well as diversification of product ranges, so they need to improve more things, not eliminate.
o Currently, Halo has 2 ranges of products available only online: Halo Signature and Halo Speciality and target customers: B2B, home-coffee drinkers. This may creates a limit of choice for customers who want to enjoy a new taste or their personal one. Instead of providing only 2 ranges of products which are Halo Signature and Halo Speciality, Halo should create more different tastes of coffee, or especially let the customers choose and mix the ingredients to create their own personal taste. This special service will make Halo unique and will satisfy a number of customers who do not like the 2 old ranges of products in the past. To make this service possible, Halo should open their coffee shops chains or retailers because this will make Halo more accessible to everybody than the online business way. Customers will find it more convenient and interested to create and have a cup of coffee with their personal taste rather than the old online way.
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In conclusion, the most realistic and effective strategy for Halo to solve their issues and get more market share is to provide more choices of coffee products and provide coffee shops and retailers with special service.
What is the company selling?
Coffee and coffee bean
What is the benefit of using it?
Coffee with your personal taste
Who is the target customer for this product or service?
People who want to have a best cup of coffee with their own favorite taste
Statista. (2015) Hot beverage consumption by type in the United Kingdom (UK) 2015
Nestlé Nespresso S.A., Corporate Communications. (May 2016) Nespresso business to business
Equal exchange. (2016) From bean to cup
CBI- Ministry Of Foreign Affairs. (2016). Which trends offer opportunities on the European coffee market?
CBI- Ministry Of Foreign Affairs. (2016). How to do business with European coffee buyers
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