Pestel Analysis in Coffee Shop Industry

The coffee shop industry in Hong Kong is an oligopoly. It is dominated by a few corporations, such as Starbucks (Maxim’s Group), Pacific Coffee (China Resources Enterprise) and Caffe Habitu. Everyone has its own target segment(s), for instance, civilian coffee shop as McCafe with affordable price by the majority, Starbucks and Pacific Coffee for middle-class. According to the Openrice.com, there are about 1,600 coffee shops. Around one-third of these are located in financial districts and popular tourist areas.

We will use PESTEL framework to analyze macro-environment of coffee shop industry in Hong Kong to identify opportunities and threats that derived from the major driving forces in the industry.

B. PESTEL Analysis

1. Political Factors

The concept of “one country, two systems" firstly proposed by Deng Xiaoping in year 1982 which return the sovereignty to China yet retain its advantages and characteristics as much as possible so as to maintain a sustainable prosperity of Hong Kong (Zhang, 2016, online). Therefore, HK competitive advantages strengths with the international business, financial, shipping and aviation centre can be sustained by applying “one country, two systems" after the Hong Kong reunification with China on 1st July 1997.

Moreover, Hong Kong is a free trade port, i.e. no import duty or tax, except 4 types of dutiable commodities based on various foreign trade agreements and its policies. For instance, if coffee shop imports coffee beans from Columbia to Hong Kong, there is no customs duty imposed on that importation. It attracts foreign capital develop its business in Hong Kong.

However, a number of HK political activities become more serious, which are the umbrella revolution, anti-parallel trading protest and Mong Kok riot in 2014, 2015 and 2016 Lunar New Year separately. These incidents reflect the instability of political environment in Hong Kong.

2. Economic Factors

In the first quarter of 2016, the HK consumer confidence index dropped 11 points from 99 in the fourth quarter of 2015 (Trading Economics, online). The index is a biggest drop since the fourth quarter of 2008 (Hung, 2016). It means HK people may become cautious about their expenses.

According to the report of Rating and Valuation Department (2016, online), an average monthly rent of private retail in HK Island and Kowloon decreased 6.38% and 3.29% compared with the previous quarter. It shows the rents go down under present economic condition.

Furthermore, the HK interest rate is steady when the Federal Reserve held its benchmark interest rate at a range between 0.25% and 0.5% in June and expect no more than two increases in the rate this year (Appelbaum, 2016, online) as the interest rate environment in Hong Kong is largely influenced by the Fed (Zhuo, 2015, online).

3. Social Factors

Having a cup of coffee in cafe was not popular in Chinese community decade ago; however, a trend of traditional culture was significantly changed among young generation (Lee, 2008, online). Moreover, they would like to share their personal feelings and experiences with peers in their free times. It is where coffee shop they do believe can provide privacy leisure spaces with freedom atmosphere to chat with friends.