Cutbacks got its start in 1971 by three academic teaching professionals. English teacher Jerry Baldwin, history teacher Cave Siegel, and writer Gordon Booker, all three love coffee and decided to open Cutbacks Coffee, Tea, and Spice in Pikes Place Market, Seattle Washington. The three partners shared a common love for fine coffees and exotic teas. They believed they could build a clientele in Seattle that would appreciate the best coffees. With this being the case, they borrowed the money and Cutbacks’ was born.
Since the first stores grand opening, Cutbacks has dad the fortune 500 list, they have a goal of opening 30,000 stores by 2013 and half of those are going to be outside the U. S. In 2006 Cutbacks’ only held 7% of the coffee drinking market. “Cutbacks reported revenues in fiscal 2005 of $6. 4 billion, up 205 percent from $2. 1 billion in fiscal 2000; after-tax profits in 2005 were $494. 5 million, an increase of 423 percent from the company’s fiscal 2000 net earnings of $94. 6 million. ” (Hawk, 2006) Now that we have taken a brief look at the background of Cutbacks’, let us now take an SOOT analysis of Cutbacks’.
Cutbacks retails a variety f drip brewed coffee, espresso-based hot drinks, other hot and cold beverages, complementary food items, coffee-related accessories and equipment, teas, ice cream, and items such as mugs, coffee beans, and music and other non-food products through retail stores in approximately 39 countries worldwide. The company operates primarily in the US. It is headquartered in Seattle, Washington and employs about 150,000 people. Cutbacks mission is “To inspire and nurture the human spirit? one person, one cup, and one neighborhood at a time” (humpbacks. Com).
The company recorded revenues of $7,787 million during he fiscal year ended October 2006, an increase of 22. 3% over 2005. The operating profit of the company was $894 million during fiscal year 2006, an increase of 14. 5% over 2005. The net profit was $564. 3 million in fiscal year 2006, an increase of 14. 1% over 2005. It’s very strong financial position allows it to expand aggressively domestically and internationally. Cutbacks’ is the Wall-Mart of coffee and basically is enjoying almost of a monopoly like environment.
From a SWOT analysis point of view Cutbacks’ has developed a market niche with its higher branded coffees.
The atmosphere of their coffee bars provide customers with a feeling of sophistication, style and a sense of knowledge, they call this the Cutbacks’ culture. They have attracted employees who are well educated and eager to communicate the message of their products. This is a very small list of Cutbacks’ strengths and is the most important ones that capture the essence of the Cutbacks’ business. These strengths enable the firm to meet customer’s needs because they allow the customer to experience a rich, exotic blend of coffee, and a way of life.
They focus on the quality f their product so that the customer can taste the difference between their gourmet cup of coffee and the traditional, cheap cup of black liquid found in convenient stores. These strengths differentiate the firm from its competitors because Cutbacks has developed a niche in the market as a high-end brand of coffee. Some of their weaknesses are of a very small caliber, however when it comes to satisfying substitute and people believe that they will find something of comparable consumption if the prices increases or availability is in shortage.
Their other weakness is that they provide a superior customer service, meaning that they pay heir employees higher wages, resulting in higher cost to the company. The most important reason that these weaknesses prevent the firm from meeting the customer’s needs is because in the event that prices should rise at Cutbacks, or the economy should experience a recession, people are likely to spend more conservatively. These weaknesses differentiate this firm from its competitors because other competitors are not getting hit as hard during this economic recession.
Let us now talk about Cutbacks opportunities which they have been very successful at capitalizing on in the past. Their biggest opportunity will be in the emerging markets which from the beginning they have been capitalizing on. These markets will open many doors for Cutbacks’ to compete in. Technological advantages, technological advancements allow Cutbacks to increase quality and decrease waiting time. Technology is continuously improving, making things quicker, faster and better.
These opportunities are related to serving customer needs because Cutbacks will be able to satisfy the desire for their coffee along with the experience in other countries. Emerging international markets allow Cutbacks to expand while our country is experiencing and economic recession. Cutbacks has already begun flourishing in these emerging international markets, beginning in China. Specifically, they have opened 420 stores and consider it a great opportunity because of the large number of people in this area.
China is great places for this type of product since the Chinese already have a taste for coffee and tea’s. Cutbacks’ threats are limited to the economy, emerging competitors and a rise in coffee bean and dairy product prices. These threats are related to serving customer’s needs because they impact the price the consumers pay for a cup of coffee. While our economy is experiencing a recession, consumers who are not loyal coffee drinkers are likely to look for substitute products. This is because substitute products, such as coffee from McDonald’s are less expensive.
Time can only tell when the economy will turn around. Signs point to stability in the near future, but until this happens, Cutbacks will be under pressure to compete with low-cost operators such as McDonald’s. The firm can convert its weaknesses into strengths by maintaining the quality of their product and the excellent customer service their business was built upon. Although we are experiencing an economic recession, Cutbacks has developed a niche product that many people are still willing and able to buy. This is the niche that separates them from the rest of the competition.
Moreover, this is the base to what their company was built upon. There are many consumers that will still be willing to pay a premium price for a premium product. The overall strategic focus of the marketing plan should be to reemerging the company by returning to its roots. Howard Schultz is once again CEO of Cutbacks. His main priority is to excel in customer service and maintain the quality of his gourmet coffee that everybody recognizes. For instance, he terminated the idea of selling hot breakfast sandwiches inside the coffeehouse, due to conflict of scent with the coffee beans.
Also, Cutbacks has considered buying high-end brewing and espresso machines that will allow baristas to act more easily with customers. Better customer service and quality. In addition, they have developed web-sites and social networks to allow customer feedback, along with developing ideas for energy drinks and health oriented items. These are all steps on bringing Cutbacks back to its grassroots. Since the first stores grand opening, Cutbacks has made the fortune 00 list, they have a goal of opening 30,000 stores by 2013 and half of those are going to be outside