Вы находитесь на странице: 1из 58

Coffee shop


Isaure Dacre-Wright
Richard Horgan
Amy Mitchell
Tanali Hamlet
Why coffee shop
• Based on an everyday consumer product: coffee

• Typical in the American culture

• Increase in recent years

• Attract an increasing number of consumers

Why coffee shop

• Sell a good and a service at the same time

• Based on a relatively cheap raw materials

• Pricing strategy to maximize profit


1. Industry Structure

2. Pricing Strategies

• Raw Data

• Results and Analysis

3. Analysis and Recommendations

Industry structure
Coffee shop Industry
• Drip-coffee products

• Espresso products

• Iced-drink products

• Complimentary items
Product Breakdown by
Technology in the
Coffee shop Industry
• Technology is used to reduce labor and costs, reduce
waste, and increase sales

• Social Media and Smart Phone integration

• Redesigned kitchen layouts and ordering systems

• LED displays
• Communication devices
Technology in the
coffee shop industry
• Sensitive to factors that impact growth in household
disposable income
• Baby boomers greatly impact revenue growth

Age % Food Budget Spent Dining Out Dollar Value

18-25 46.4% 2,351
25-30 44.8% 2,668
35-50 42.3% 3,165
50-65 42.8% 2,911
65+ 37.0% 1,926
Spending by Income

Income/year % of Market Dollar Value

Below $50,000 23.1% $ 1,626

$50,000-$75,000 12.9% $ 2,711

$75,000+ 64.0% $ 4,490

Total $27.8 Bln


• Business locations distributed according to the population


• Brick and mortar locations

• Drive-thrus
Firms in the Industry
• 38,868 businesses in the industry

• HHI: (36.62)+(24.52)+(2.12)+(1.62) = 1945.78 relatively

Barriers to Entry

• Barriers to entry are low

• Medium level of fragmentation

• Entry into the market through signing a franchise


• Competition among franchisees for prime real estate

Business Differentiation

• Complex Products

• Price differentiation

• Target market differentiation

• Service differentiation
The Supply Chain
Consumer Spending
Healthy Eating Index
Consumer Sentiment Index
Per Capita Coffee Consumption


Beef & Pork Wholesaling
Coffee Production
Coffee Consumers

Dairy Wholesaling & Snack

Egg & Poultry Wholesaling
Fish & Seafood Wholesaling Shops in
Frozen Food Wholesaling
Fruit & Vegetable Wholesaling
the US
Specialty Food Stores INDUSTRIES
Chain Restaurants Global Fast Food Restaurants
Single Location Full-Service Restaurants Full-Service Restaurants in China
Caterers Fast-Food Restaurants in China
Street Vendors Fast Food Services in Australia
Bars & Nightclubs Cafes and Coffee Shops in Australia
Fast Food Restaurants Source: IBISWorld Industry Report 72221b
Industry structure

Life Cycle Stage MATURE Regulation Level MEDIUM

Revenue Volatility MEDIUM Technology Change MEDIUM
Capital Intensity MEDIUM Barriers to Entry LOW
Industry Assistance NONE Industry Globalization LOW
Concentration Level MEDIUM Competition level HIGH

• Mature, some argue that it could be on the end of the

Growth phase

• High “price based” competition

• Mergers and acquisitions over the past few years have

changed the outlook of the industry
• Carlyle Group/Bain Capital’s acquired Dunkin’ Brands
• Joh. A. Benckiser acquired Peet’s Coffee & Tea
Major Players
Dunkin’ brands
GROUP, inc. (1946)
• 16,800 locations in 58 countries

• Subsidiaries: Dunkin’ Donuts & Baskin-Robbins

• Dunkin’ Donuts (1950)

• 10,083 stores
• Sells over 1 billion cups of coffee annually

• Baskin-Robbins (1946)
• 6,000 outlets in 35 countries
• Services 3.7 million people weekly
5-Year Financial
corporation (1971)
• Added 1,063 stores between 2012 and 2011

• Recently acquired Evolution Fresh (2011) and Teavana


• Main Products
• Coffee/Coffee Accessories
• Pastries
• Extended Breakfast Items
• Sandwiches
• Responsible for 2.1% of the market share

• Presence:
• 92 Company Stores
• 142 Domestic Franchise Stores
• 460 International Franchise Stores (in 20 countries)
Einstein noah
restaurant group, inc.
• Responsible for 1.6% of the
market share

• Subsidiaries: Noah’s New

York Bagels, Einstein Bros.,
and Manhattan Bagel
Pricing Strategies &
raw data
Raw Data

• Conducted two surveys asking age range, reasons for

visiting, and products purchased

• Surveys differed in the size options

• Used to test our reference pricing hypothesis

• Collected prices from 6 different coffee shops in the Ithaca


• N=62
Pricing strategies
• Nonlinear Pricing

• Second Degree Price Discrimination

• Complementary Pricing

• Price Bundling

• Reference Pricing

• Flexible Pricing

• Customer Loyalty Discounts

• Charm Pricing

• The Perception Gap

• Quality and Quantity Pricing

• Competition Pricing
Nonlinear pricing
• Characterized by marginal prices that vary with coffee size and

• Appear in markets where marginal or average costs change with

product size

• Most common nonlinear prices are quantity discounts

• Nonlinear pricing is also used with second degree price

discrimination when consumers hold private information about
their tastes
Nonlinear pricing
• Use nonlinear pricing as a screening mechanism to induce
different types of consumers to buy different products

• Generally coupled with product design decisions that

determine how much of a product the consumer will receive

• Screening incentives cause firms to make the small version of

their product “too small”

• Allows them to collect more profit from consumers who

purchase the larger version
Second degree price
• There are different groups and classes of consumers

• The seller is aware of this but cannot distinguish

• Set high, mid, and low prices and the different classes self

• Use consumer preferences to distinguish classes of

Second degree price
# Age Response Percentage%
1 18-25 20 65%
2 25-40 7 23%
3 40-65 4 12%
Total 31 100%

# Age Response Percentage%
1 18-25 27 87%
2 25-40 3 10%
3 40-65 1 3%
Total 31 100%
Second degree price
• Most of the coffee buyers in the Ithaca market were between the
ages of 18 and 25

• Most likely undergrad and grad students who may not have as
much income as a professor or working adult

• Sellers are aware of this and as such assess their coffee prices

• Prices would be relatively lower than the prices in the market in

• Common items are priced low (coffee)

• Prices of other items are higher (sandwich or baked good)

• Attract customers to store with low priced coffee

• Customers unintentionally buy the more expensive item

Price Bundling

• Bundle together a cup of coffee and a sandwich

• Large cappuccino-$3

• Sandwich-$5

• Cappuccino and sandwich-$7

Price bundling
• Sellers must consider willingness to pay

• Must charge a price similar too or lower than consumer

willingness to pay

• When competition offers similar items

Reference pricing

• To adapt to each consumer segment, different sizes for

beverages are proposed

• Let consumer choose between different sizes

• More people choose the middle option when there are 3

options rather than when there are 2

• Consumer buy more coffee than they wanted

• Charged a higher price

Reference pricing
• If your beverage of choice is only offered in two sizes, 8oz. and
12oz., which would you buy?
# Size Response Percentage %

1 8oz. 25 81%

2 12oz. 6 19%

Total 31 100%
Reference Pricing
• If your beverage of choice is offered in 3 sizes, 8oz.,
12oz., and 16oz., which would you purchase?
# Size Response Percentage %

1 8oz. 12 39%

2 12oz. 14 45%

3 16oz. 5 16%

Total 31 100%
Flexible pricing
• Sellers must determine what prices to charge in order to

• Raise or lower the prices of certain items to achieve desired


• Menu format makes it easy to change, and reflect costs

• Change prices in small increments

• Feature high profit items as daily specials

• Can design prices to help increase sales of certain items

Customer loyalty
• Offering customers something for free or discount

• May decide to charge a discount on coffee to customers

who bring their own cups

• Grow customer loyalty by offering membership discount

cards or by using “buy nine get one free” cards

• Builds loyalty and repeat business

My starbucks reward

• Earn 1 star every time you pay with a registered Starbucks

card or Starbucks mobile app

• Welcome Level
• One use of card earns first reward; free drink or food on birthday

• Green Level
• 5 stars; free birthday drink and free refills in store

• Gold Level
• 30 stars in 12 months; get all the benefits from welcome and
green level plus: personalized gold card, special offers
Charm pricing

• Sellers back off the rounded number by a few cents or a

few dollars

• Makes item look less expensive, first number of price is


• Pushes product into lower price bracket, so it appears to

cost much less
Charm Pricing

Starbucks Ithaca Bakery Bear Necessities

$2.85 $2.99 $2.75

Latte (12oz.) $3.35 $2.99 $2.95

Mocha (12oz.) $3.35 $3.49 $3.35

Perception Gap

• People are fine with the price of fountain soda or draft beer

• Upset with the price of coffee

• High coffee prices exist as a result of perception

• At a bar you are not walking away with the glass
• At a coffee shop you walk away with the cup

• Coffee drink composed of multiple ingredients and freshly

prepared in front of you
• The cup, heat sleeve, the chocolate, the espresso and the milk
Quality and
quantity pricing
• Starbucks
• Lowering cost of standard drinks and raising prices of specialty
• Maintain both sales volumes and premium brand values

• Goal: continue to find ways to balance the value they

provide for customers

• Challenge: not losing customers to lower-price coffee

outlets, and maintaining the brand’s premium value

• Customers still value the premium Starbucks offering,

especially in specialty coffees
• Customers are willing to pay more to maintain an
everyday luxury

• Helped the brand keep its high-earning coffee connoisseurs

• Same time attract mid-market consumers who will

appreciate the added value of the lower-end coffees on the
Competition based
• The control coffee shops have over prices is far from 100 %

• Sellers have to find a compromise between a price too low-

where no money will be made and a price too high- where no
one will buy products

• Prices are based on the competition, looking at what prices

they set and trying to set a price similar to it or less
Analysis &
High margins
Hot coffee Latte
Price Profit/size Cost/oz. Price Profit/size Cost/oz.
12oz. $ 1.65 $1.26 $ 0.033 $ 3.35 $1.75 $ 0.092
16oz. $ 1.95 $1.48 $ 0.029 $ 4.05 $2.21 $ 0.084
20oz. $ 2.25 $1.70 $ 0.028 $ 4.45 $2.37 $ 0.079

• Competition : Price of coffee < Price of latte

• High profit per size

• Insignificant cost for providing a higher quantity

• Illustration of reference pricing

High margins
$1.80 $0.034 $2.50 $0.095
$1.60 $0.033
$1.40 $0.032 $2.00 $0.090
$1.20 $0.031

Cost per oz.

Cost per oz.


$1.50 $0.085
$1.00 $0.030
$0.80 $0.029
$1.00 $0.080
$0.60 $0.028
$0.40 $0.027 $0.50 $0.075
$0.20 $0.026
$0.00 $0.025 $0.00 $0.070
12oz. 16oz. 20oz. 12oz. 16oz. 20oz.
Hot coffee Profit/size Hot coffee Cost/oz. Profit/size Cost/oz.

Hot Coffee Latte

• Profit goes up

• Price per oz. goes down

• Prices are set in order to make customers choose the bigger item.
Trends for the
• Mature industry

• Increase of the sales after a recession period

• New consumers

• Increase of the profit

• Over the four years to 2017, consumer
spending is expected to increase at an
average annual rate of 2.8%

• International extention for the main actors

Starbucks in the world

• External competition:
• Positioning as a specialist
• Advertising: Brand and corporate communication

• Internal competition:
• Variety and diversity
• Level of service provided
• Price level
• Loyalty programs
• Adapt product to current consumers concerns

• Extract the highest willigness to pay

• Attract new segments of consumers

• Children
• Coffee experts

• Low-cost/High profit

• Track sales to reduce the Perception Gap