Cataracts strategy has been one of growth. They have demonstrated all dimensions of a growth strategy: Internationalization in expanding into new countries and the global market. It has shown concentration in being creative and relying on it’s core competency of making high quality coffee and coffee equipment to develop new products and markets.
Horizontal Integration has been evident In the many strategic calculations, partnerships, and joint ventures. Vertical Integration has been another key success factor as Cataracts Corporation has integrated backwards in opening coffee roasting plants, and forwards in controlling the distribution of it’s many products. This growth has taken it from a single store in Pikes Place Market in Seattle, to a worldwide company with sales of over $2. 1 Billion and operations in almost thirty countries, In Just 21 short years.
Time line 1971 – First Cataracts coffee shop opens in Cattle’s Pike Place Market – coffee bean roasting company 1985 – Howard Schultz becomes CEO and founds II Georgian Coffee Company – espresso beverages using Cataracts coffee beans 987 – Changes name to Cataracts Corporation 1992 – PIP under the trading symbol “SUBS” 1995 – Cataracts Coffee International opens in Japan 1996 – Begins selling bottled Production drinks 1999 – Acquires Taco Tea company and Hear Music company 2003 – Acquires Cattle’s Best Coffee 2005 – Introduces Cataracts Coffee Liqueur; Acquires Ethos Water Analysis Product price Place (Location) Promotion products (In store) Cataracts sells brewed coffees, espresso beverages, cold blended beverages, food items, teas, branded coffee drinks, a line of ice creams, and a line of compact discs through its retail stores Also offers pastries, sodas, Juices, games, seasonal novelty items, and coffee-related accessories and equipment Cataracts also engages in purchasing, roasting, and selling whole bean coffees worldwide to grocery stores and large hotels Price Prices range from $1. 00-$4. 0 for drinks Surprisingly, this is lower than its rivals, although Cataracts regular coffee was 4% less expensive not by much and its iced blended drinks were as much as 30% less expensive when compared with specialty competition When compared to quick-service restaurants, however, Cataracts was more expensive. Dunking’ Donuts’ 16-ounce latte is an average f 17% cheaper Cataracts is planning to raise prices this year because of an increase in milk and green coffee bean prices This could also be due to the fact that specialty competition has been charging more Place Operates in all 50 states plus the District of Columbia and Puerco Rice. They also operates in 34 countries outside the United States such as Australia, Canada, China, Germany, Singapore, Thailand, and the United Kingdom to name a few. Cataracts retail stores are typically located in high-traffic, high-visibility locations.
Because the Company can vary the size and format, its stores are coated in or near a variety of settings, including downtown and suburban retail centers, office buildings and university campuses. The Company can also locate retail stores in select rural and off-highway locations to serve a broader array of customers outside major metropolitan markets and further expand brand awareness. While the Company selectively locates stores in shopping malls, it focuses on locations that provide convenient access for pedestrians and drivers. To provide a greater degree of access and convenience for non-pedestrian customers, the Company has increased focus on drive-thru retail stores.
At the end of fiscal 2004, the Company had approximately 700 Company-operated drive- thru locations Promotions Cataracts has been able to use a standardized advertisement theme around the world in order to incorporate different cultures. Currently they are promoting their new Taco green tea Production Blended cry©me. (Inspired by Japanese tradition) Strengths Weaknesses Opportunities Threats Strengths generating revenue of $5 billion in 2004. Ad Week Magazine recognized the Company as one of the “Most Trusted Brands” in 2003. “The Cataracts logo is recognized by most, which also helps to retain customers that travel internationally, allowing them to get the same Cataracts coffee in the same Cataracts cup that they enjoy back home. ” It is a global coffee brand built upon a reputation for fine products and services. It has about 8500 stores in over 30 countries.
Cataracts was one of the Fortune Top 100 Companies to Work For in 2005. The company is a respected employer that values its workforce. They have strong ethical values and an ethical mission statement as follows, “Cataracts is committed to a role of environmental leadership in all facets of our business. ” Weaknesses Cataracts has a reputation for new product development and creativity. However, they are dependent on a main competitive advantage, the retail of coffee. Overcrowding the Market: If Cataracts has two stores close to each other, they potentially take business away from each other. They have a strong presence in the United States with more than three quarters of their cafes located in the home market.
Many have said that they need to look for a portfolio of countries, in order to spread business risk. They have been facing certain difficulties in some of its international operations. In 2003 Cataracts ended its Joint venture in Shalom in Israel and closed six stores in Tell Aviva. There was the infamous situation after September 1 1, when the Cataracts in Manhattan charged firefighters outrageous prices for water, $130 for three cases. Threats Distribution Marketing Advertising Gob. Regulation Minimum Wage? New Entrants Crispy Creme? Opportunities Innovation Red’s & Ice-cream Breakfast Snack Bar? Market Expansion China & Europe Menu Expansion? Full Service Breakfast & Lunch Eatery?
Current Events Struck hear music Cataracts card Wireless Internet Brewing equipment Choir Card Ethos Water Giving Voices Porters SIX Forces Current Competitive Force Porter’s first force that Porter describes is current rivalry among existing firms. In the specialty eateries industry, Cataracts’ current and direct U. S competitors are Dietrich Coffee, Cattle’s Best Coffee, and Einstein/Noah Bagel Corporation. The competition, however, is not equally balanced. Dietrich Coffee operates 370 coffeehouses in 37 states and 1 1 countries. Cattle’s Best Coffee operates 160 coffee cafes and 20 Italian coffee cafes in 17 states and 8 countries. Einstein/Noah Bagel Corporation operates 460 bagel cafes in the U. S. Cataracts has 4,709 locations in over 0 countries.
It is clear that Cataracts has few major competitors, and the competition has nowhere Cataracts’ volume of operations. Cataracts is the leading retailer, roaster and brand of specialty coffee in the world. Smaller competitors, however, pose potential threats to the company. For example, the average Cataracts location draws on a population base of 200,000. In San Francisco and Seattle, Cataracts draws on population bases between 17,000 and 19,000. In cities where Cataracts does not draw on small population bases, smaller competitors can attract some of Cataracts’ 200,000 person population base. A slowing industry market growth is another threat facing Cataracts.
According to the market research firm Allegro, compound market growth between 1997 and 2001 was 57%. From 2002 to December 2004, the market it estimated to grow 14%.. Competitors are selling similar market, competition is high. Threat of Potential Entrants Porter’s next force is the threat of Potential Entrants. Cataracts, being the world leader in its industry, has controlled access to distribution channels. Cataracts has exhibited this control over distribution channels by setting guidelines for their suppliers to follow. These guidelines will be discussed in more detail in the discussion of the industry bargaining power of suppliers. Cataracts is Fortune’s number one most admired company in the food industry.
One of their key attributes to success is innovation, where Fortune ranks Cataracts number one in the industry. Cataracts is constantly innovating and showing strong product differentiation in their industry. The industry, following Cataracts’ lead, is becoming more differentiated. For example, five months after Cataracts introduced a prepaid Cataracts debit card, Cattle’s Best launched its version of the marketing product. This industry differentiation is an opportunity for Cataracts, and a threat to potential entrants. Statistics have shown the industry to be slowing down, therefore making competition high and the threat of new entrants low. Some believe, however, that there is a different kind of potential entry threat. Ted R.
Lining, executive director of the Specialty Coffee Association of America, believes that national food servers like McDonald’s and Dyne’s could create strong coffee menus and become “the strongest competitor for Cataracts’ business. “. Bargaining Power of Buyers Porter’s next force is Bargaining Power of Buyers. Cataracts’ customers are the buyers. The Preferred Office Coffee Provider is a plan developed by Cataracts in which companies can buy the ingredients and tools necessary to brew “the perfect cup of Cataracts Coffee,” in large quantities for their offices. This is the only opportunity found in Cataracts. Com for a customer to buy large quantities of their products.
Cataracts’ typical customer buys small quantities of their products. Products purchased at Cataracts are highly differentiated and unique. From personal experience, we know that there is an enormous selection of coffees at a Cataracts’ fee shop. At Cataracts. Com, it is possible to buy a large number of products, from coffees, ice cream and Fraction , to music and coffee mugs. This is an opportunity for Cataracts. Customers will face no switching costs in switching premium coffee suppliers from Cataracts, to, for example, Cattle’s Best. This is a threat to Cataracts. Another threat to Cataracts is that their customers have the ability to brew their own coffee.
Cataracts has tried to offset this threat by offering Preferred Office Coffee Providers as well as directions on how to make the perfect cup of Cataracts Coffee at mom, called the “Four Fundamentals of Coffee”. The perfect cup of Cataracts Coffee includes, of course, Cataracts’ ingredients! It is clear that Cataracts customers have some bargaining power in the industry. Porter’s fourth industry force is bargaining power of suppliers. Coffee is the world’s second largest traded commodity (Bruce). South and Central America produce the majority of coffee traded in the world. Cataracts depends upon both outside brokers and direct contact with exporters for the supply of green coffee (Bruce). The supply of coffee is affected by weather conditions, and the health of coffee trees.
According to the article “Coffee Industry to Adopt New Pricing Plans,” the major players in the coffee industry have seen profits decline because of over-crowding of the market (Brains Trust). An over-crowded market will give the coffee suppliers bargaining power. According to a 1996 Cataracts Case Profile, the price of the coffee bean could rise in the future due to lower supply, and heightened demand. For the industry, these are alarming threats. The quality of coffee sought by Cataracts is very high, and Cataracts has traditionally paid premium prices for its green coffee, at least $1. 0 per pound. There are no substitute products for the coffee beans Cataracts must buy. This is a potential threat to the company.
Cataracts, however, has exhibited how little control its suppliers might actually have. In 2001, Cataracts announced new coffee purchasing guidelines, developed in partnership with The Center for Environmental Leadership in Business. These guidelines are based on the following four criteria: Quality baselines, social conditions, environmental concerns, and economic issues. Only suppliers who can meet Cataracts’ coffee standards will be able to supply the giant company. The supplying industry to Cataracts, therefore, has few companies. This is a potential threat. Cataracts will offset this threat by paying a premium of up to ten cents per pound of coffee to vendors based on how well their coffee meets Cataracts’ standards.
Glenn Pricket, executive director of the Center for Environmental Leadership in Business, said, “With these guidelines, Cataracts is taking a leadership role in addressing the environmental and social issues surrounding the global coffee industry. ” Cataracts has a degree of control over its suppliers in an industry where it is possible for suppliers of premium coffees o have an enormous amount of bargaining power. Threat of Substitute Products In the premium foods and coffees industry, there are substitute products. According to Mary Coulter, the best way to evaluate this threat is to ask whether other industries can satisfy the customer need that this industry is satisfying (Coulter). Other beverage industries can satisfy the customer’s need for a drink, and other food industries can satisfy the customer’s need to eat.
There are obviously good substitutes to Cataracts’ products. This is why image is very important for Cataracts, as well as the company’s ability to innovate and differentiate. Cataracts has added a line of tea, Tag teas, to their menus, and will be adding beer to their menus in the future. The article “Hot Prospects,” notes Cataracts fashionable image. “Franciscans are a kind of badge; People like to be seen with them,” said the author. There is a large threat of substitute products in a food and drink industry. Cataracts has are part of the company. At a Cataracts coffee shop, a customer can eat ice cream, and drink a Pepsi, while his friend drinks tea while eating a pastry.
Economic Environment A sixth force included in Porters’ five forces model and referring to Cataracts’ task environment is the relative power of stakeholders. Governments, trade associations, unions, shareholders, complementary, and special interest groups have a strong influence on overall performance. In addition, the volatile economic environment challenges Cataracts’ ability to manage effectively its international operations. Moreover, the unstable political environment in the Middle East creates severe problems for the company Stock Prices Chart One: Cataracts vs.. Industry This Chart compares Stardust’s stock to the Special Eateries Industry average.
As depicted by the graph, Stardust’s has been a defining force in the industry, as the industry average follows the exact same pattern/line, Just slightly below Cataracts, for the past five years. I [pick] Chart Two: Cataracts vs.. Competition I I (Source: Hoovers. Com) . This Chart Compares Cataracts with three major competitors in the market. NICE – New World Coffee Inc. DRY – Dietrich Coffee, Inc. GAMER – Green Manhattan Coffee Inc. Because of the diversity of Cataracts competition, in the past three years the stocks do not seem to be a parallel population to each other. In specific, Green Manhattan stock peaked the highest of the four around one year ago. Cataracts Corporation tock has been on a steady and consistent rise for the past five years, and Dietrich Coffee, Inc. Possibly because of the increased market share competition put on by Cataracts Corporation and Green Manhattan Inc, has seen a steady drop in stock prices over the past two years. Chart Three: Cataracts vs.. DOD Jones This graph charts Cataracts Corporation versus the DOD Jones Industrial Average over the past five years. We chose this average because we feel it best represents the restaurant industry that Cataracts is a member. This is reflected by some of the similar upward and downward movements of both lines in the graph. Overall Cataracts Corporation stock has been consistently higher than the DOD Jones, and has grown in price at a higher rate than the average. McDonald’s I Chart Four: Cataracts vs.. The evidence of this is compelling.
People are clearly attracted to the cheaper alternatives right now, which is why McDonald’s stock has been so strong and the stock of Cataracts has been so weak. How weak? Since September 14th, 2007, Cataracts is down a whopping 62%. McDonald’s, on the other hand, is up 1 1. 51%. McDonald’s Just announced very strong third quarter earnings, and also said that their business is looking very strong over he short-term. Cataracts, on the other hand, is pretty much the exact opposite, announcing store closures and layoffs to cut costs. When the economy was doing well, people didn’t have any problem with shelling out hundreds of dollars per month for their lattes and mochas.
They also turned their noses up at McDonald’s and hit some of the higher-price alternatives. Now that the economy is reeling and people are watching where they spend their money, McDonald’s has re-established its dominance and Cataracts is facing a very real crisis. Issues and Recommendations Facing Cataracts Corporate Strategy:- What measures can Cataracts take to ensure that their brand image and reputation for quality is not tarnished while implementing a growth strategy? Cataracts has, and will continue to have, a major corporate growth strategy. As corporations grow there can be a tendency to focus too heavily on increasing output and locations, and less focus on quality and brand image.
Cataracts needs to stay with its values and ideals that have made it successful. Those ideals are a great place for employees to work, which creates happy, productive employees with low turnover, commitment to quality cannot be sacrificed as Cataracts locations will likely double n the next five years. If Cataracts can keep a consistent atmosphere that combined with consistent, excellent quality coffee products, they can ensure their brand image and reputation. How does Cataracts corporate decision of not franchising affect its business? What would be the advantages and disadvantages of franchising for Cataracts? In general, franchising shifts the financial risk from the corporation to an individual.
So an advantage of Cataracts franchising would be to open hundreds of new stores with less risk to the company, and make profits in doing so. In addition Cataracts loud have less research and development costs because the franchisee would have greater knowledge of the local market in terms of demographics, chirography’s, geographic, and local/state/country regulations. The disadvantages of franchising are that Cataracts would give up a certain amount of control over the store, and the way it operates. Despite the high amount of rules and regulations that Cataracts would hypothetically have in place for a franchisee, the each store would be run slightly different.
If Cataracts franchised, there is the risk of different stores deleting some of he menu to it’s standards, and picking and choosing what products (music, coffee equipment, books) to make available for the customers. By keeping all stores corporately owned Cataracts can control and monitor all location’s operations and ensure a high employee and customer relations through consistent management, store operation, and location environments. What will Cataracts do once the International growth strategy has become saturated, that is, once Cataracts has penetrated all foreseeable worldwide markets? Cataracts has the potential for finding a new type of growth strategy once the International growth strategy is no longer beneficial.
We believe that in this case Cataracts will need to concentrate on its core competency, high quality coffee products, and use a Concentration growth strategy. Cataracts will stay in the same industry, so the two main sub-strategies would be Product Development, and Product-Market Diversification. It is important to understand this in the Product Development phase they would need to focus solely on making their existing products better. The company could demonstrate Product Market Diversification through research and development, and creativity. The company could be extra sensitive to changes in customer tastes, and the external environment. In doing so, Cataracts could quickly react to environmental changes and make sure to entice as many people as possible into their stores.
For example, Cataracts could start a line children’s fruit drinks and “yummy” milkshakes which would help bring families into the store. This way the mothers and fathers could go to Cataracts and get their favorite coffee drink while making their children happy. Competitive Strategy:- such as McDonald’s and Dyne’s could create high quality coffee menus. What could Cataracts do to counter-act this? In order to compete against this possible market threat, Cataracts must push to be the first mover. Cataracts must constantly innovate new products to stay ahead of such competitive tactics. If they have any chance of stopping the companies from being the innovator, it can do so by being the innovator itself.
Cataracts needs to be extremely aware of what is going on in the competitive markets. A way they could fight this type of competition is by entering into agreements, long-term contracts, with the food service companies that they are competing against. This way their fee would be sold at these outlets, rather than competitors, and they would gain access to a new market and increase sales while decreasing competition. This option would have a chance of harming the companies’ brand image and reputation for quality and its coffee drinking atmosphere. This would, of course, take much top management debate that would be a “last resort” in the case of an extreme competitive threat.
If, for example, McDonald’s entered into a coffee agreement with Dietrich Coffee, Cataracts could respond by acquiring Dietrich Coffee. Through acquisition Cataracts would ultimately gain a greater market share, salvage its brand mage and decrease the threat of competition. Another possibility would be for Cataracts to create a subsidiary that specializes in catering to the food service industry. This would be another way for Cataracts to compete without the risk of damaging its reputation and brand image. Could Cataracts gain a significant amount of market share by entering the markets of less populated cities in the United States, contradicting its current strategy of only entering markets with high population and affluence?
We believe that Cataracts would gain a considerable amount of market share if it entered into markets with less population, and affluence. Cataracts has a reputation throughout the United States, and we think that this image will carry through and make certain profitability and increased market share in smaller markets. We will demonstrate this opinion by using Springfield, Missouri as an example. Springfield does not have a Cataracts coffee, yet it the third largest city in Missouri. According to buckminsterfullerene. Com, Springfield has a population of over 300,000 people, a population growth of 2. 3% and a workforce of over 180,000 people.
Most people from Springfield are very much aware of Cataracts, which is located in Kansas City and SST. Louis. In Springfield, Cataracts would be forced to compete against Churchill Coffee, which is well established in the area. Cataracts could use many tactics to overcome this competition and gain the Springfield market share in the high quality coffee industry. Some tactics include building many locations combined with a heavy marketing campaign to draw customers from Churchill. Another option could be to use Cataracts incredible purchasing power to acquire Churchill. This also goes along with its growth strategy and history of acquiring its competition.