The Specialty Coffee Industry

The specialty coffee industry is well established, as everyone from college students to urban professionals to soccer moms stop by their favorite caffeine distributor every morning to get their daily fix. Rivalry between established firms is high, with Starbucks, McDonalds, anDunkin Donuts being among the frontrunners, but convenience stores like 7-11 and WaWa also put up a fight. Small, independent coffee shops are also gaining popularity, especially in urban college towns, as risk of entry is moderate. However, new firms have a difficult time competing in such an established industry. Nearly 60% of the coffee market is controlled between Starbucks and Dunkin’ Donuts alone (Champagne, 2014). Currently, there are several brands trying to push their way into the ready-to-drink bottled coffee market, but the Starbucks Frappuccino will likely remain the frontrunner there as well (Madrigal, 2014).

Consumers have a moderate to high degree of buying power based on many coffee options whether they go to Dunkin Donuts or brew it themselves. Switching costs are low, as coffee tends to be a minimal investment, and there is a high availability of other options, but individual consumers don’t have a massive impact on the company overall. Suppliers have low bargaining power in the industry. There are not a lot of suppliers to begin with and they are at the mercy of the buyers.

Complement power in the coffee industry is moderate. Most large coffee shops offer specials as well as point-based reward programs. They have also begun mobile on-the-go ordering, giving consumers the freedom to order from their mobile device and skip the line to pick up their drink at their specified location. There is nothing stopping a consumer from being enrolled in multiple rewards programs, so it is not doing much to encourage brand loyalty. Free WiFi was once a big crowd pleaser, but now it is just as expected as a parking lot and bathrooms.

The threat of substitutes is high. Energy drinks are widely available at every convenience store, grocery store, pharmacy, and gas station. Over-the-counter energy supplements are quite

popular with the more health conscious crowd, and fast-acting shots like 5 Hour Energy are displayed at checkout counters like candy. Most caffeine sources are similarly priced, making them attractive to consumers.

Macroeconomic forces affect the specialty coffee cafe industry greatly, as consumers are more conscientious about their spending based on the state of the economy. The industry is also affected by demographic and social forces. For example, millennials are interested in healthier options and will patronize companies with respectable values. Starbucks is an example of a company who is concerned with the ethical processes used regarding purchasing and producing coffee, tea, and cocoa (Starbucks Ethical Sourcing, 2018). They