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Background of the Case
Expresso Espresso is a coffee store that prides itself in serving high quality coffee at an affordable price. It does this by utilizing premium blends and not taking the route of utilizing drip coffee (i.e. pouring hot water over ground coffee beans and letting the pot warm in a corner) and instead brews each coffee cup when it is ordered. Not only that, the coffee chain charges 10% less than its competitors as a means of creating a competitive advantage. However, there are current threats to the business that Todd (the business owner) has chosen to setup.
The first of these challenges come in the form of commercialized coffee being sold by places such as McDonald’s, Starbucks, Krispy Kreme, etc. These massive restaurant chains are able to leverage their superior supply chain in order to sell gourmet coffee blends at a lower price as compared to Expresso Espresso. It should also be noted that in terms of brand awareness, Starbucks is more well known as compared to Expresso Espresso and, as such, this influences the capacity of small gourmet coffee houses to actively compete against these large coffee retailers.
Problem/Issue
The main crux of the problem is that Todd must devise a way to leverage his current coffee business in such a way that his able to overcome the issues brought about by the competitive environment that he currently finds himself in. Todd is willing to change some aspects of the business such as moving to a different location, however, he is hesitant to implement methods of increasing customer patronage such as using the loyalty cards that are often seen in use by Starbucks. It is due to this that a new method must be devised that conforms to the general attitude of Todd that focuses on the quality of the product and service being provided as the means by which customers will patronize their establishment.
Situation Analysis
The primary issue when it comes to Expresso Espresso is that it is fighting against the concept of “economies of scale”. Simply put, large retailers such as McDonald’s, Starbucks, Krispy Kreme, etc. are able to leverage their larger size in order to sell coffee at lower prices. While Todd is able to compete based on the quality of the coffee that he provides and the time in which his employees are able to provide it (45 seconds), he also has to compete with other local gourmet coffee houses that utilize similar tactics. It should be noted that Todd has thought of using a “gimmick” in order to draw more people to the coffee house. This comes in the form of hiring live entertainment on certain days in order to draw more people in. However, other local chains have also thought of this and, as such, it cannot really be stated that this would create a proper competitive advantage.
Analysis of Alternatives
Based on an analysis of the current business model espoused by Todd, one facet that immediately stands out is that he neglects to focus on food as a primary drawing point for consumers. It is even stated in the case that he does not expect much in the way of profit when selling the muffins or sandwiches in the store and merely stocks them as a means of making things more convenient for consumers that are hungry. It is in the opinion of this paper that this behavior is actually a crucial mistake. Evidence of this can be seen in restaurant chains such as Krispy Kreme and McDonalds wherein people often order a donut/burger/sandwich to go along with the coffee that they order. This particular predilection can be used by Todd to increase the amount of customers that go to his store.
Recommendations and Implementation
It is the recommendation of this paper that Todd create “combo” products in his coffee shop that sells a certain type of food with a cup of coffee. Since it was stated in the case that the market already decided the price of muffins, this does not mean that the market similarly set the price for a combination of food and coffee. This type of product can be leveraged by Todd by merely breaking even on the price of the food yet gaining a profit on every cup of coffee that is sold in the combo. As a result, this would create the perception of value on behalf of the clients of the Todd since they would perceive the combo deal as something where they can maximize the value of the money that they exchange for food.
This type of deal would help to create a competitive advantage for Todd since, along with his ideas of creating in store entertainment; consumers would perceive his coffee as the ideal place to get a great cup of coffee along with a nice snack to go with it at an affordable price. One way in which Todd could further leverage this strategy would be to buy in bulk all the snacks, muffins, etc. that he would include in the combo. The wholesale price would definitely result in higher savings in the long term.
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