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Coffee Franchises - Swot Analysis, Business Report IV

Strengths: 
 

  • Health Benefits

One of the factors that have deterred people from drinking coffee in the past was the belief that it was in some way harmful. This is no longer the case. In recent years, some 19,000 studies have been done in an attempt to understand the risks or benefits of consuming coffee. While many studies have explored the connection between coffee and certain illnesses such as cancer and high blood pressure, no evidence has been found to link coffee to these health risks. What might be more surprising is that recent studies have shown that coffee can actually be good for you. This is good news for the people of America and for the Coffee Industry. “"Overall, the research shows that coffee is far more healthful than it is harmful," says Tomas DePaulis, PhD, research scientist at Vanderbilt University's Institute for Coffee Studies, which conducts its own medical research and tracks coffee studies from around the world. “For most people, very little bad comes from drinking it, but a lot of good."”   This is good news for the coffee industry.

  • Health Studies

According to a study done by Scientists at UCLA and the University of Southern California and reported on WebMD on February 19, 2009 , the more coffee that you drink the less likely you are to ever being diagnosed with a stroke.

This is not the only study to show that a higher intake of coffee can lead to better health. Another example is a study done by Harvard School of Public Health; and Brigham and Women’s Hospital showed coffee consumption can reduce the risks of type 2 Diabetes. Drinking 6+ cups of coffee a day may reduce the risk of type 2 diabetes by 54% in men and 30% in women. Coffee helps to increase your resting metabolic rate, which could help keep diabetes at bay.

  • Benefits for the Coffee Store Franchisee

Positive health risks are clear drivers of consumption, so this is good news for coffee stores and coffee store franchises, as consumers are happier to drink more caffeinated beverages. Questions posed to consumers about the health benefits of drinking coffee and if they thought that coffee is good for their health are both up significantly since 2005. More people now believe that there are health benefits to coffee and that it is good for their health.

 

  Is there Health Benefits to Coffee? % answered Yes answered Yes Is Coffee good for your health? % answered Yes
 
2005 37% 26%
2008 46% 36%
Total Increase 9% 10%

 

Weakness: 


As with growing any crop there are unpredictable elements that will affect the production of the crop and therefore the cost of coffee for the coffee franchisee. The coffee plant is selective about growing conditions. Coffee trees can't tolerate weather that is too hot or cold, or too wet or dry. Climate change can play a huge role in the amount of coffee that is produced and how much it costs the retailer. For example, in 2005 coffee prices rose. This rise was most likely because of a harvest that was 10% to 20% lower than that in the record years before. An increase in consumption of coffee in Russia and China also played a part.

Because of the recent economic downturn, consumers are less likely to spend $5 for a cup of coffee than a year ago. Consumers are more conscious of spending and are more willing to shop around for the best deal. To remain successful, a coffee house needs to change their business in response to this consumer trend. Starbucks has realized the importance of this consumer trend and in response has begun its first combination discount by selling coffee and breakfast foods together for $3.90. This is a discount of nearly $1.20 in an attempt to lure consumers into its coffee shops during the recession.

Opportunities:

Coffee SignThe coffee industry is well developed and rooted in society with 54% of the overall American adult population drinking coffee, that’s 400 million cups of coffee consumed everyday. The stimulant effect of coffee is one of the reasons that hard working Americans make stopping into a coffee house part of their day. The local coffee house also provides a warm, calm environment in which people come to socialize, relax or even catch up on work. This sustained growth in the industry points toward a solid opportunity within the coffee franchise industry.

Though the coffee industry is highly developed and competitive; the demand for speciality coffee is growing every day. Italy, with a population of 60 million, has over 200,000 coffee bars. In comparison, the U.S. has approximately 21,400 coffee bars with a population of 290 million. This just shows that there are a lot of opportunities for new outlets in the industry.

The growth of the specialty coffee market may not be where it was in the early 90’s when the number doubled every 2 years but that does not mean that there isn’t a growing market. The growth is driven by the demand Americans have shown for up-market and premium-priced coffees. From 2005-2010, coffee sales are expected to grow by a further 125% to reach $18,839 million in 2010. This just shows that there is still a huge amount of opportunity within the specialty coffee market

The coffee industry has changed over the last few years. The old style coffee house is no longer the only place to purchase good specialty coffee. Drive-thru, kiosks and carts are becoming more and more popular as they can offer their products and services to the ‘on-the-go’ American. The start up cost for kiosks, drive-thru or cart franchises are much less than that of a stand alone coffee house. This means there are more opportunities available, for a lower investment, to start up and run a coffee business. Massimo Zanetti Beverage Cafés USA INC offers the opportunity to franchise a Chock Café Kiosk for the low initial investment cost of $20,100. In 2004 Seattle’s Best Coffee and Borders Books and Music announced a licensing agreement to open Seattle’s Best Coffee cafes in existing and new Borders Book stores.

Threats:

 A common threat in any industry is an economic recession, which reduces consumers' consumption. We are currently in a recession and this has reduced revenue in companies, regardless of the sector. It is not only the coffee industry that has felt the effect of a more money-tight consumer base.

Many coffee stores are taking measures to bring customers back to the coffee house. Promotions and special offers are ways of enticing customers. Starbucks closed 7,100 stores nationwide for three hours to retrain about 135,000 in-store employees and people who oversee their stores. This was in a bid to raise sales and to better the over all experience of the customer. Seattle’s Best Coffee LLC has a buy one get one free offer to entice consumers to the coffee store.

A coffee house is exposed to rising costs of coffee and dairy products. This is something that can not be foreseen but may have a big impact on the coffee store industry.

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