Quality product: Cutbacks purchase the recognized world leading quality coffee beans, Including the Normal Supreme coffee bean, the growing of which Cutbacks controls outright. The company also roast the beans differently, condemning any poor batches not thought to be perfect. Labor/management relations: company’s policy of mutual respect, health care, training and the profit sharing plans results in high morale, loyalty and greater output.
Employees are empowered working in a ‘laid-back’ atmosphere. Slow-growth policy: Cutbacks rigorously researches a market before entering it, and goes not move Into another location until the current area Is fully dominated. ( This can also be a weakness ). Although Cutbacks have this policy it was one of the fastest growing companies In the U. S. In 1999 as sales grew 63 percent. Market selection: Cutbacks uses direct mall marketing and only opens stores In areas where this is shown to be strong.
A store will typically be opened after tracking e-mail order customers which determines the highest concentration of existing buyers in a city, then opens a store in that area, building on an existing customer base. International partnerships: To allow Cutbacks to expand into Asia, the company has entered into a Joint venture with a Japanese company ( Tokyo based ). Marketing approaches: Cutbacks have gained access to additional markets through diverse marketing. Examples Include: cafes and carts In hospitals, airlines, office buildings, supermarkets, banks, and shopping malls.
They also have a loyalty bonus for frequent coffee buyers in which the customer receives a free quantity of coffee Weaknesses: Slow growth policy: normally a good policy for relatively new companies, his may badly affect Cutbacks, particularly in the East coast market. Analysts suggest the growth does not equal the company’s potential. High capital needs: above average capital is needed to open each Cutbacks coffee house ( Cutbacks do not deal in franchise ). None of the four most threatening competitors sell exclusively through cafes, and competitors do offer franchises.
Attrition: Cutbacks has one of the lowest turnover rates in retail, their turnover is 50 percent compared to the normal three figure rate, the turnover is costly because of the quantity and standard of training allotted to each new employee. Cutbacks is engaged in educating the public about coffee which requires each of their employees to participate in 24 hours of training. Other competitors train their staff mostly on the job, but Cutbacks use a training setting. Maturing market: the maturing market base leads to a slow down in the growth per unit volume and consequently, profitability.
Cutbacks was built on the loyalty customer base of younger patrons. The population is ageing and as they age they drink less coffee, and the newer younger customers do not have the same loyalty, which reduces the individual store profit. Opportunities: Private labels: Cutbacks entered the private labels market when retail merchants were looking for a private label coffee bean, they produced a label for Cost. Though there are lower returns, it increased consumer awareness International market: The Japanese have an established coffee culture that revolves around a formal coffee house.
Cutbacks has begun expanding into the Asia-Pacific region with Cutbacks coffee International Inc. There is an increasing interest in western coffee and coffee houses in this region. Customers want to be able to purchase food: many customers want the convenience f purchasing a light lunch or other food with their coffee. Cutbacks has begun to meet this demand in only a few coffee bars. While they do not want to become a restaurant, including light lunch food items, is likely to add to the number of customers during the lunch period, and light snacking during the day.
Expanding to include tea: there is a strong demand for tea in this country. Cutbacks began to meet this demand in 1995 when they introduced a line of packed and prepared teas. This avenue offers an opportunity to expand further, however. As their customer base changes, this product would offer an even greater opportunity to detain profitability. Not been met completely. Cutbacks does offer decaffeinated coffee but again, this demand represents an opportunity the company could exploit to better advantage.
Threats: Primary competitors: four other gourmet coffee producers are Cutbacks’ major competitors. Pet’s Coffee and Tea in San Francisco; Barney’s Coffee and Teas in Orlando; and Gloria Jean’s Coffee Bean; and Cattle’s Best Coffee. Each has a stronghold in part of the market although each markets differently. Given the demand for gourmet coffee, each of these companies represents a definite threat to Cutbacks, especially with the changing market base. Cattle’s Best Coffee waits for Cutbacks to educate the public about gourmet coffee then opens a store in that market.
Secondary competitors: long standing coffee manufacturers, such as Maxwell House, have begun selling instant cappuccino and bottled chilled coffee drinks. Grocery stores have introduced gourmet coffee beans sold in bulk. Gloria Jean’s is a gourmet coffee company that is capturing the East Coast market. Increased prices: coffee bean farmers switching to more profitable fruits and vegetable crops which will drive up prices for coffee beans. The best coffee beans were traditionally purchased by European markets until Cutbacks entered the market.
Still there are not enough Colombian farmers who want to grow premium coffee beans. There is less profit than in other crops. The supply for coffee beans may not meet the demand. Saturation: some analysts believe the coffee bar/cafe market may be reaching a saturation point which is evidenced by some smaller bar competitors being consolidated with larger companies. International expansion could lead to loss of culture: the Cutbacks culture is built on quality and long-term customers. As they continue to expand into international markets, analysts question their ability to retain the culture of the company.
If they cannot monitor the quality as well, international expansion would represent a definite threat to the company’s overall health due to the enormous outlay of capital in establishing stores. Five Forces ( Environment ) The threat to entry Economies of scale: Struck? s gained a competitive advantage by negotiating with the suppliers of the Marino Supreme coffee beans so that they would be the sole buyer. Because Cutbacks are bulk purchasing the whole crop, a reduction in price was inevitably achieved.
Cost of entry into market: Relative to the other main competitors, Cutbacks entry is more costly in terms of capital and training. Competition keeping prices competitive. Will competitors retaliate: This is a highly competitive market with Cutbacks as a major threat and competitors will retaliate with, advertising, special offers, etc. Government action: ( new laws that will weaken competitive position ) ? With the market maturing there are in some cases complaint of late night noise and disturbance outside coffee houses. Local government may instigate licensing which may limit future expansion into new areas.
How important is differentiation: Cutbacks are quality positive, price negative, with first class training, and ambiance and location a priority. The Power Of Buyers: Buying an entire crop to supply the chain of coffee houses gives a great deal of buyer power and control. There is also power in the comfortable relationship which gives certainty, agreed prices, and a single point of contact for the supplier. The Power of Suppliers: Supplier power is a possibility as the growers could turn to growing more profitable fruit and vegetable crops ? Tangentially increasing the coffee mean price. Forward Integration ? There seems no signs of suppliers wanting to buying coffee outlets / chains The Threat Of Substitutes: Product for product substitution ? Always a possibility due to lifestyle changes such as simply drinking mineral water / soft drinks instead of coffee ? ?It only takes a fad? Generic substitution: Very possible, Healthier lifestyles ? Visit the gym at lunchtime instead of coffee shop, egg. , computer games, film etc. All competing for the money in customers pocket. Competitive Rivalry: The ? Copy cat? Wreath is real, along with competitors moving in to rarest on the back on Cutbacks advertisement, investment and education of the customer. Supply of Marino Supreme coffee bean not under threat from competitors Political environment: The political environment throughout the world has changed since ? September 1 lath.? , and uncertainty is felt by most people. The fact that people travel less than they used to may encourage people to spend more in their country spending more time in coffee houses and their own country. Economic Factors: Cutbacks feel that they have not lost trade through the economy doing as well as it could.
Where people can no longer afford the new luxury item, of ay a car, the consumer will buy into the 2$ cup of coffee experience, and other similarly expensive small luxuries. There is a ? Feel good factor? About spending on small quality items. Coloratura Factors: In America, multi racial, mute cultural, multi religious, and multi the same. Although the Japanese have not greatly changed their ethnic mix, they do embrace new ideas, new technology, enjoying many western like football, the battles, the mint, western dress and western foods.
The Japanese are the worlds third biggest coffee drinkers and have an existing culture of formal and informal coffee houses, ND to merge this existing culture with a new style is a likely success. Technological Factors: The internet has opened up a new market in which sales can be made without leaving home, and deliveries made direct to the home / business premises, across county boundaries, with products reaching customers that they could not normally reach.
Information technology, e-commerce has surged forward as a major force in trading, offering new ways of communicating bringing with it new opportunities. Conclusions: It is difficult to recommend changes to a company apparently succeeding as well as ? Cutbacks? , but based on the SOOT, PEST, and Porter? s five forces analysis: The Performance / Importance matrix, ( table one ), shows that leadership, product quality, staff relations, market selection, fast growth, diverse marketing and the Asian partnership are all performing well for Cutbacks, and little should change.
The ? Loyalty gifts? Shown in the P/’ matrix could be a waste of resources, but could equally work as a loss leader, and also retain the loyalty that has built. The ? Probability of occurrence / success matrix? , ( table 2 ), indicates that the factors tit a high probability of success are, the sale of De-caffeinated coffee, product diversity, and the international marketing. The private labels, although producing less profit, increase consumer awareness, but success should subject to ongoing monitoring. Major threats to ? Cutbacks? Re the primary and secondary competitors, market saturation and international competitors, but there is also a threat from the growers / suppliers of the Marino Supreme coffee beans on which the reputation is stood. Recommendations: Slow capital growth has restricted expansion which leaves / gives mime for primary competitors to seize the opportunity and take market share on the back of ? Cutbacks? Advertising and customer education. The company could begin a two pronged attack and gain a foothold in a new location with the ?
Cutbacks? Capital, while offering a small number of franchises in that same area to saturate the market and stop ? Copy cats? From taking advantage of an opportunity left open by ? Cutbacks?. The threat from coffee grower / suppliers is that they may switch from growing Marino Supreme coffee to the more profitable fruit and vegetable crops. This would be very damaging to ? Cutbacks? s it would drive bean prices up, and remove one of the major differentials.
To remove this threat I would recommend backward securing Howard Schultz vision of? Cutbacks being the premier purveyor of the finest coffee in the world? Bibliography: Bowman C. ‘Strategy in Practice’ Prentice Hall Europe 1998. Grant r. M. And Newport K. E. ‘Cases in Contemporary Strategy Analysis’ Second Edition Blackwell 2001 Johnson G. And Schools K. ‘Exploring Corporate Strategy’ Fifth Edition Prentice Hall Europe 1999 Maybe C. And Mayo-White B. ?Managing Change? Sec. Eden. Paul Chapman Publishing 1993 Websites: Cutbacks. Com Website
