KEY COMPETITORS As of December 2011, the specialty coffee shop industry in Davao City consists of over 100 players
both foreign and local brands. However, the study is focused on the 7 key players which include Starbucks, Chicco di Caff, Bos Coffee Club, Bastis Brew, Coffee Cat, Caff Firenzo and Figaro Coffee Company. The outlets are owned and operated by other companies through sub-franchising offered by their master franchise holders. Below is a list of the key players with the companies by which they were managed, the year they have established and the number of outlets they have around Davao City. This would determine the manner by which Blugr would preserve its outstanding reputation to the Davaoeos in spite of all the existing key players in the specialty coffee shop industry. Table 1. List of Key Players in the Specialty Coffee Shop Industry in Davao City, 2011
Brand
Company
Year Established in Davao City
Number of Outlets in Davao City
How does Blugr compare?
Starbucks
Rustan Coffee Corporation
2011
One major factor that prevents Starbucks from opening a shop in Davao City is the existing homegrown specialty coffee shops like Blugr.
Chicco di Caff
Kreios Corporation
2009
Blugr has already been industry years in for but the 13 they
limited outlets here
their in
Davao City to only 3.
Bos Coffee Club
Coffee
Centrale
2007
Blugr has already been in the industry for 13 years and they have more outlets.
The Bean Co, Inc. / Bos Coffee
Franchise Corporation
Bastis Brew
n/a
2000
Blugr was established just 2 years ahead but unlike Bastis, they have been able to expand two more outlets in General Santos.
Coffee Cat
Coffee Corporation
Cat
2008
Blugr has already been industry years in for and the 13 they
have more outlets.
Caff Firenzo
Firenzo Properties Development Inc.
2008
Blugr has already been industry in for the 13
years
and
they
have more outlets.
Figaro Company
Coffee Figaro Coffee Co. and companies various
2008
Blugr has already been industry years. in for the 13
Source: Interviews with Key Players, November 2011 Among the other key players in the industry, Blugr is the first to be established in Davao City in 1998. It has already established the reputation as Davaos very own and has specialized its menu by offering items that are distinctly Davaoeo such as Durian Gatchpuccino, which is a hot cappuccino concoction that blends espresso and durian, and Durian Larcepuccino, which is the cold version of Durian Gatchpuccino and dubbed as the king of all coffees (durian being the king of all fruits). Another homegrown coffee shop is Chicco Di Caff which has 6 outlets operating around Davao City. They also offer items that are peculiar to the Filipino taste like their very own Coffee Halo-Halo, which is an exciting mix of regular halo-halo ingredients incorporated with coffee, and their Yogurt Smoothie products. Although Starbucks just opened its first outlet this year, the impact it brought to the Davaoeos should not be neglected. Leaving the impression of something fresh, new and word-class, Starbucks will open more shops in the major economic districts of Davao City in the near future. SUPPLIERS The main raw materials used are coffee beans, espresso machines, fresh milk, whipped cream and packaging materials. Table 2 Sources of Main Inputs
Brand
Coffee Beans
Espresso Machines Brand
Fresh Milk
Whipped Cream
Packaging Materials
Starbucks
100% from Starbucks Coffee (USA)
Granarcoso (Italy) from local distributor
One farm in Bukidnon province
Imported brand from local distributors
Local suppliers
Chicco Caff
Di 100% local (1 supplier only)
Elektra (Italy) from Australia
Local supplier
Imported brand from local distributors
Local suppliers
Bos Club
Coffee 100% local (1 supplier only)
San Marino Expresso (Italy) from local distributor
One farm in Bukidnon province
Imported brand from local distributors
Local suppliers
Bastis Brew
100% local (1 supplier only)
Unic (France) from local distributor
Local supplier
Imported brand from local distributors
Local suppliers
Coffee Cat
100% local (1 supplier only)
Astoria (Italy) from local distributor
Local supplier
Imported brand from local distributors
Local suppliers
Caff Firenzo
100% local (1 supplier only)
Elektra (Italy) from local distributor
Local supplier
Imported brand from local distributors
Local suppliers
Figaro Coffee 100% local (1 Company supplier only)
Astoria (Italy) from local distributor
One farm in Bukidnon province
Imported brand from local distributors
Local suppliers
Source: Interview with Key Competitors, November 2011 According Mr. Gatchalian, owner and CEO of Blugr Corporation, it is easy to get suppliers for their major inputs. It has once led to a situation wherein the suppliers themselves approach the company to offer their products. The critical factor among players is the coffee bean roasting process because it is at this stage where the coffee bean releases its fullest flavor potential. Poorly roasted beans would yield poor-tasting coffee drink. As such, every player treats his proprietary roasting techniques and recipe as highly confidential. The players are known to use mostly local coffee beans including the famous Kapeng Barako (Liberica beans). Because of this practice, the local players are seen as major supporters of the local coffee industry. For espresso machines, majority use Italian brands which they acquire through local distributors. Blugr uses San Marino Expresso from Italy but bought here in the Philippines which is the same equipment Bos Coffee Club is using. For fresh milk, some players purchase from farms in Bukidnon and here in Davao. For whipped cream, mostly all players use imported brands distributed by local companies in the country. Lastly, packaging materials are sourced from local packaging companies. Interestingly, Starbucks Coffee being the industry leader requires exclusivity from its suppliers. In other words, their suppliers are not allowed to cater to other specialty coffee shops. They can, however, still service hotels, restaurants and other foodservice outlets. While the other players do not require their suppliers to be exclusive, they do not encourage them to sell to other specialty coffee shops exactly the same products like breads, cakes, and pastries as some of the recipes are proprietary. MARKET The typical and most committed coffee drinkers are 20 to 40 year old, affluent, educated adults. While baby boomers have driven the success of coffee shops, specialty coffee appeals to a diverse adult demographic, including college students and young adults. PORTERS MODEL
Figure 1 Porter Model Competitive Rivalry in the Industry: HIGH The specialty coffee shop industry is seen to sustain its growth of 10 percent to 20 percent for the next three to five years. Players attribute this to the growing awareness of specialty coffee among consumers, the improving image of coffee in general as something that is good for the health, and the expanding family spending on eating-out. On the growing adoption of coffee by other restaurants, players say their wide list of coffee concoctions make them stand-out among other foodservice outlets. Their unique ambiance is also a big come-on. The offering of customer loyalty programs also helps them push their target sales. Overall, the continuing focus on addressing key success factors such as product development and innovation, brand and product promotion, and outlet expansion would allow the industry to enjoy a brewing business and at the same time, help the development of the domestic coffee growing industry. Bargaining Power of the Suppliers: MEDIUM
Since most of the coffee shops get their coffee beans from local suppliers, price varies along with the economic situation of the coffee farmers. Dairy products, whose retail prices vary a lot, are also being used for specialty drinks. Overall, there is a very limited power for suppliers to bargain as they depend on their producers capacity to sell a commodity. Bargaining Power of Customers: HIGH There is a high dependency of coffee shop chains on frequency of customer purchases depending on the companys ability to secure hot spot locations, drive store traffic, and deliver high quality products. Large companies have advantages in purchasing, finance, and marketing. Small companies can compete effectively by offering specialized products, serving a local market, or providing a personal level of customer service. Most customers appreciate the nice atmosphere in the coffee shops. Their preferences are very likely to switch as they might get tired of the same flavour which construes low brand loyalty. Customers shopping behavior is very likely to be influenced by budget constraints, weather conditions or health concerns in the general public. They are also interested in continuous product innovation or seasonal specialties which drive coffee shops to depend on word of mouth and customer retention. Furthermore a customers opinion, preferences and shopping habits can be influenced easily which creates a big threat for the companies. Threat of New Entrants: MEDIUM While it easy to open a single small caf, rent a place, remodel, install the equipment and get license as needed, there are high entry barriers for the specialty level or big league chain players. High up-front investment needed to grow significantly in terms of its distribution system: shops, equipment, premium locations and its marketing strategies: creation of brand awareness, brand recognition and customer retention. Partnerships with large, international companies also serve as potential entry barrier for new competitors. There are small barriers to entry for small regional chains or cafs, but their expansion is relatively slow due to the increasing speed of the expansion of the major players. On the other hand, there are high barriers to entry into the industry for big players due to high industry concentration on top, huge brand recognition of major brands and high up-front investments are needed. Threat of Substitute Products: HIGH
There is an existing competition with other drinks that are not the main focus of by coffee shop like soda, juice, Water, beer and sports drinks and competition with other products, people are spending their money on like ice cream, cigarettes and sweets. Consumers have limited discretionary budget to spend on consumer goods, such as cigarettes, beer and also coffee thats why coffee shops are therefore fighting for a fraction of this budget.
