According to BPP (2008), The Porter Five Forces framework is an important tool in determining the industry structure and attractiveness of an industry with respect to taking strategic business decisions (P. 87). The model is applied as follows on the Broadway Caf case.
Degree of Rivalry Between Existing FirmsThe degree of rivalry amongst existing firms in the coffee shop and baked goods industry is very high due to the large number of sellers and buyers which lead to lower industry concentration ratios and higher consumer choice respectively. SynthesisHighThreat of New EntryThe threat of new entry in the coffee shop bakery retail industry is quite high as a result of the low barriers to entry. It is relatively easy to open a coffee shop as the financial input is low while the intellectual and human capital required for running a successful coffee shop bakery is abundantly available. The existence of large chains of coffee shops like Dunkin Donuts and the brand building techniques they employ do present a significant barrier to luring in customers but nevertheless, small independent coffee shops can build a niche for themselves. The only major impediment is finding a suitable location for the expensive nature of high street shop space keeps many new entrants and existing small competitors out. SynthesisHighBuyer PowerBuyer power in this industry is high due to the mass availabity of consumer choice. Customers can choose from a vast majority of suppliers and hence are very conscious of quality of service, price, taste, environment and additional utilities such as WI FI availability. SynthesisHighSupplier PowerSupplier power in this industry is low as a result of the low concentration at the back end in the value chain of activities. The key raw materials required in a coffee and bakery shop include cocoa, flour, eggs, baking powder etc. All these things are readily available and are sold by a large number of sellers in direct competition with each other. Product margins for food stuffs are generally low and hence sellers play on volume which keeps prices down and pressure on buyers low. SynthesisLowThreat of Substitute ProductsLately, fast food chains have come up with their own offerings of traditional coffee shop items like tea, coffee, brownies, cake offerings etc in a bid to capitalize on their brand values and hence capture this market also. Hence, the idea of the coffee shop is slowly disappearing as fast food chains today provide the same environment and a wider product offering. This represents significant risks as the marketing equities enjoyed by the likes of KFC and McDonalds are too large for small scale coffee shops to emulate.
Building on the above, it seems reasonable to believe that the industry for coffee shops bakeries has gone into cut throat competition from existing and prospective competitors coupled with the invasion of the fast food chains into this segment making matters worse. The large scale power of buyers means that making an impression is necessary.
In this respect, it will be appropriate for the Broadway Caf to adopt a strategy based on product differentiation. This is necessitated as attracting volumes leads to low margin sales and tight cost controls which the firm cannot afford given the cut throat competition and its lack of equities in taste and recipes. However, a strategy based on product differentiation based on environment, utility provision and quality of service could allow the company to obtain high margins while keeping volumes at a moderate level.
Degree of Rivalry Between Existing FirmsThe degree of rivalry amongst existing firms in the coffee shop and baked goods industry is very high due to the large number of sellers and buyers which lead to lower industry concentration ratios and higher consumer choice respectively. SynthesisHighThreat of New EntryThe threat of new entry in the coffee shop bakery retail industry is quite high as a result of the low barriers to entry. It is relatively easy to open a coffee shop as the financial input is low while the intellectual and human capital required for running a successful coffee shop bakery is abundantly available. The existence of large chains of coffee shops like Dunkin Donuts and the brand building techniques they employ do present a significant barrier to luring in customers but nevertheless, small independent coffee shops can build a niche for themselves. The only major impediment is finding a suitable location for the expensive nature of high street shop space keeps many new entrants and existing small competitors out. SynthesisHighBuyer PowerBuyer power in this industry is high due to the mass availabity of consumer choice. Customers can choose from a vast majority of suppliers and hence are very conscious of quality of service, price, taste, environment and additional utilities such as WI FI availability. SynthesisHighSupplier PowerSupplier power in this industry is low as a result of the low concentration at the back end in the value chain of activities. The key raw materials required in a coffee and bakery shop include cocoa, flour, eggs, baking powder etc. All these things are readily available and are sold by a large number of sellers in direct competition with each other. Product margins for food stuffs are generally low and hence sellers play on volume which keeps prices down and pressure on buyers low. SynthesisLowThreat of Substitute ProductsLately, fast food chains have come up with their own offerings of traditional coffee shop items like tea, coffee, brownies, cake offerings etc in a bid to capitalize on their brand values and hence capture this market also. Hence, the idea of the coffee shop is slowly disappearing as fast food chains today provide the same environment and a wider product offering. This represents significant risks as the marketing equities enjoyed by the likes of KFC and McDonalds are too large for small scale coffee shops to emulate.
Building on the above, it seems reasonable to believe that the industry for coffee shops bakeries has gone into cut throat competition from existing and prospective competitors coupled with the invasion of the fast food chains into this segment making matters worse. The large scale power of buyers means that making an impression is necessary.
In this respect, it will be appropriate for the Broadway Caf to adopt a strategy based on product differentiation. This is necessitated as attracting volumes leads to low margin sales and tight cost controls which the firm cannot afford given the cut throat competition and its lack of equities in taste and recipes. However, a strategy based on product differentiation based on environment, utility provision and quality of service could allow the company to obtain high margins while keeping volumes at a moderate level.
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