Anh T. Nguyen

Professor Lois Shelton

BUS-497 Strategic Management

Exam One

September 27th, 2010

CARIBOU COFFEE: EXTERNAL ENVIRONMENT

Industry Structure:

Caribou Coffee’s business is in the industry of specialty coffee, where high quality of coffee is a main characteristic. Hence, Arabica coffee bean is mainly roasted to produce specialty coffee as it is considered superior to its counterpart, the Robusta, which is usually low-quality bean used in production of non-specialty coffee. High-quality Arabica bean provides a mild aroma and a pleasing flavor which are suitable for specialty coffee.

The specialty coffee industry comprises of two business segments: coffee beverage sales and whole bean coffee sales for home, …show more content…

There is tremendous number of substitutes to specialty coffees, including soft-drinks, bottled water, tea, and sport drinks, liquor, and beer. These substitutes can serve the same purpose of quenching a thirst. Also, many type of foods and nutritional drinks also satisfy one’s hunger, so does coffee. Even though recent studies shows benefits of drinking coffee in preventing getting a stroke and reducing diabetes, specialty coffees still have to compete with tea, bottled water, and sport drinks which consumers consciously see their health benefits.

The next one is buyers’ walk-away power. The buyer power here is very strong because there are many choices out there and the switching costs of going from one coffeehouse to another is low. Nevertheless, specialty coffee companies can reduce this power of buyers by promoting their products and creating brand loyalty among customers. Also, specialty coffee companies are selling an experience rather than specialty coffee, therefore brand loyalty plays a large role in retain existing customers.

The least influential one of these five forces is the bargaining power of coffee bean suppliers. Coffee is a commodity product, and therefore suppliers’ products are not highly differentiated. There are many exporters or suppliers competing for limited number of coffee buyers, particularly specialty coffee companies in this case, and coffee bean products are not differentiated. Also, there