Today Struck has more than 1 8, 000 stores in 62 countries and is the premier roaster and retailer of specialty coffee in the world.
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Struck sells high-quality coffees, tea and other beverages, and fresh food items through company-operated stores. They also license their trademarks though other channels such as licensed stores, grocery, and national foddering accounts. In addition to the Struck brand, the company portfolio includes: T ago Tea, Cattle’s Best Coffee, Struck Via Ready Brew, Struck Refreshers, Evolution Fresh, La Boilable, and the Version System. Struck objective today is to continue o be one of the most recognized brands in the world, by continuing the discipline expansion of their global store base. Industry Porters Five-Force Analysis Competitive Rivalry- Competition within the coffee service industry is high. Since there is little differentiation between competitors products, customers do not sustain high costs by switching from one competitor to another. The coffee shop industry is a mature industry that is not growing at a fast pace.
Brand identity is very important within the industry because it is one way for consumers to differentiate the products of different businesses. The market s dominated by two larger companies that have set themselves apart through brand identity. Threat of New Entrants- The treat of new entrants is medium-low. However, the barriers of entry are relatively low in the coffee industry as well. The only real barrier to entry is the capital. With sufficient capital, any company could enter the market. Once in the market new companies will have to compete with the well known brand identify of Struck and Dunking Donuts. These well established brands will be almost impossible to compete with due to the fact that they have already learned how to keep costs down and quality up.
It would be almost impossible for new companies to steal loyal customers away from these brands that are synonymous with quality. Threat of Substitute Products- The threat of substitute products is high in the coffee shop industry. There is essentially no cost for consumers to switch from coffee to soda, tea, beer, or energy drinks. There is also the threat of customers making coffee at home. Home brewing appliances are continuing to increase in quality, efficiency, and simplicity. There is also the threat of customers switching to lower priced coffee options at fast food restaurants ND gas stations. Bargaining Power of Suppliers- The bargaining power of suppliers in the coffee industry is low.
There are a high number of coffee suppliers for the industry leaders to choose from giving low bargaining power to the supplier. The lack of differentiation between products allows companies the ability to switch between suppliers with little cost. The suppliers are dependent on the large orders placed by the industry leaders, taking bargaining power from the suppliers. Bargaining Power of Buyers- The bargaining power of buyers in the coffee industry is moderate. There are a large number of buyers making small purchases which takes some of the bargaining power away from the buyer. However, on the other hand there are a large number Of coffee shops available for buyers to choose from and the cost of switching from one shop to another is minimal. Industry Life Cycle – The coffee and snack shop industry is in the mature growth stage of its life cycle. As a result the competition in the industry is very aggressive due to the large number of smaller players.
This Mature stage gives an advantage to Struck and Dunking because they are already established . It is very difficult for smaller companies to grow and steal their market share in a mature market. Industry Fundamentals Industry Fragmentation- The coffee shop industry is a very concentrated market. There are around 20, 000 coffee shops in the U. S that combine for around $billion in revenue. The top 50 companies make up about 70 percent of the sales within the industry. The two major companies in the industry are Struck and Dunking’ Brands Group. Struck controls 32.
6 percent of the market and operates around 11 , OHO U. S. Stores.
Dunking’ controls 23 percent of the market and operates 7, 000 stores around the entry. Demand, Growth and Profitability- Consumer taste and personal income drive demand. There is a large demand for coffee shops in foreign markets. China’s coffee shop market is expected to surge 55 percent in 2015 to 4. Billion Yuan from 2. 9 billion Yuan. The industry is forecasted to grow at a moderate rate over the next two years, driven by consumer spending and preferences. The industry growth from 07-12 was 1.
2 percent, but it is projected that the industry growth from 2012-2017 will be 4. 0 percent. The industry is expected to go from 27 billion in revenue to 33. 9 billion over that time. Coffee consumption accounts for 75 percent of the caffeine intake in the U.
S. Coffee shops are growing ATA 7 percent annual growth rate, which is the fastest growing section in the food service industry. The coffee industry can be very profitable. Operating income represents 2.
5 percent of net sales. The average gross margin in the industry is 85 percent. Economic Sensitivity- The specialty coffee service industry is very sensitive to economic factors. During a recession consumers spend less on luxuries like eating out. Nonessential products such as luxury coffee drink sales suffer during downturns in the economy. When consumers need to reduce their spending, the first things they stop buying are luxury or nonessential items such as coffee service. Consumers will resort to lower priced options such as brewing coffee at home for a fraction of the price, or inexpensive coffee from convenient stores or fast food restaurants.
The coffee and snack shop industry sales tend to follow consumer spending trends. When things like unemployment rise, sales in the coffee market will decrease. On the other hand, when consumer spending is high, consumers are more likely to spend money on coffee and snacks. Company Competitive Strengths and Strategies Product Supply- One Of Struck major competitive strengths lies in its product supply. They are committed to selling only the finest whole bean coffees and coffee beverages. In order to ensure that they meet their strict coffee standards, Struck purchases green coffee beans from multiple regions around the world and custom roasts them to their standards. Struck is also able to maintain a consistent price on supply, by buying their green beans using fixed-price and price-to-be-fixed commitments.
Struck also ensures sustainability and future supply of high-quality beans by establishing good standing relationships with their suppliers. Struck operates Farmer Support Centers in six countries. These centers are staffed with agronomists and sustainability experts who work with the farming communities to improve practices and increase quality and yield.
Accessibility- Struck stores are generally located in high-traffic, highly visible areas. They have the ability to vary the size and layout of their stores, which helps them locate stores in a high variety of settings. Struck is able to locate stores in downtown and rural retail centers, office buildings, university campuses, and select rural and off-highway locations. They are also able to accommodate non-pedestrian customer with drive-thru locations.
Global Expansion- Struck strategy for expanding their global business is to increase their market share in a disciplined manner. Struck will do this by selectively opening additional stores in new and existing markets. Struck currently has 6, 866 U. S stores and 2, 539 stores outside the U. S. Struck has plans to greatly expand their business in China. By the end of 201 5 they plan on having 1, 500 stores in more than 70 Chinese cities.
Brand Identity- One major competitive advantage that Struck has over their competition is a well established brand name. In a market where there are so many options for consumers to choose from, having a well known brand with a great reputation is a major advantage. Struck has been successful at making quality and consistency synonymous with their logo. Due to this, they have a very loyal customer base, which is nearly impossible for the completion to tap into. Company Financial As less Analysis Struck sales have shown growth faster than the growth of the industry. They have increased revenues by 1 1. 3% over the last year, while the industry showed growth of 3. 5% during that same time.
These sales have helped to boost earnings per share as well. Their earnings per share have increased by 27. 5% in a year and the company has shown positive growth in earnings per share over the last two years.
This growth in revenue is expected to continue to increase in the future. Profitability Gross 56. 29% BIT Margin: $1 15. 01 % Net Margin= $1 10. 4% Struck profit margin of 10.
4% is well above the specialty eateries margin of -66. 05% and above the services margin of -2. 3%. This is an indication that Struck is very efficiently using its materials and labor in the production process.