Chatime and Street Beverage industry - Case Study Example

INDUSTRY ANALYSIS BUSINESS REPORT Name: Course: Instructor: Institution: City: Date: Executive Summary The Street Beverage industry has been one of the most booming industries in Australia despite the high staff turnover issues in the industry. In order to adequately analyse this industry, this report uses the Porter’s Five-Forces Model which encompasses Buyer Effect, Supplier Effect, Extent of Rivalry, Impact of Substitutes, and Restrictions to New Entrants. A case of Chatime is also used and its competitive strategy in Australia discussed and its suitability thereof commented upon. Table of Contents Executive Summary 2 A Description of CHATIME and the Street Beverage Industry 4 Industry’s Competitiveness Analysis – The Porter’s Five-Forces Model 5 Restrictions to New Entrants 5 The Buyer Effect 6 The Supplier Effect 6 The Extent of Rivalry 7 Impact of Substitutes 8 CHATIME’S Strategy 8 Current Competitive Strategy 8 The Target Market 9 Suitability of CHATIME’s Competitive Strategy 9 References 9 A Description of CHATIME and the Street Beverage Industry Australia is generally known to be a top market in as far as quality gourmet coffee and tea is concerned. As a matter of fact, Australians have a food culture in which they must routinely take quality gourmet coffee or tea at least every day. For that reason, the Street Beverage industry in Australia has thrived for the longest time even in the worst of economic turmoil. With players such as Gongcha, Gloria Jean’s Coffees, Starbucks Coffee, McDonald’s McCafe, Boost, and Top Juice, the Australian Street Beverage industry has remained stronger even in such economic crunches as the 2007/2008 economic meltdown (Euromonitor International 2014). In fact, according to IBISWord, in comparison to its competitors such as the restaurant and catering industries, this industry experienced growth of up to 2.3% in annual revenue even as most of the industries in Australia and the world over experienced massive losses during the 2007/2008 economic crunch. Datamonitor (1998) explains that despite the industry’s growth, it has the highest staff turnover. This is attributed to the fact that most workers in this industry work part time as they study, and after completion of their studies, they then resign. According to IBISWorld (1987), 79% of the industry players are multinational businesses such as the McCafe and Starbucks Coffee, with the remaining 21% being indigenous businesses who are majorly smaller sized. In terms of revenue, the Street Beverage industry in Australia contributed $5 billion worth of revenue to the government in the 2011/2012 financial year. Being a Taiwanese global franchise teahouse chain, Chatime is one of the 79% foreign players in the Australian Street Beverage industry. With a global presence of over 1000 outlets in over 20 countries, Chatime is known for its “pearl” milk tea (Chatime 2015). Specifically, some its products include milk tea, flavoured milk tea, fruity milk tea, tea espresso, among many other products. Industry’s Competitiveness Analysis – The Porter’s Five-Forces Model In order to comprehensively describe the competitive environment of a particular industry, Michael Porter proposed five fundamental parameters which he named “Porter’s Five Forces”. According to Porter (2000), the five forces are restriction to new entrants, the buyer effect, the supplier effect, the extent of rivalry, and the impact of substitutes. This paper utilizes these five forces to perform an in-depth analysis of the Australian Street Beverage industry, with a key focus on Chatime – a Taiwanese franchise chain as follows. Restrictions to New Entrants Of the five Porter’s five forces, restriction to new entrants is founded on the fact that if the industry has not implemented stringent measures to curb free and easy entry of competitors into the market, the industry is likely to weaken its position (Porter 2000). Generally, the street beverage industry in the world over is relatively easier to enter mainly due to the little capital required to set up such businesses. IBISWorld report reveals that the Australian gourmet coffee and tea culture is so strong that the market demand can never be fully exploited. Consequently, there is no much restriction to new interested players who would wish to share in the vast Australian market. Additionally, the market share is generally evenly shared among the existing industry players (Euromonitor International 1985). As a result, therefore, there is no one major industry player who is likely to intimidate new entrants, hence making entry into the industry somewhat unrestricted per se. The Buyer Effect In any industry, the buyers have some stake in price variations by the industry players. In most cases, depending on the financial muscle of the buyers, it is possible for them to either pull prices down or push them up accordingly. In the event that the industry serves just a handful of buyers who are influential, it is quite easy for these buyers to bring prices down. On the contrary, if the industry serves a vast number of consumers many of who have average power, they will generally have low impact in driving prices down (Porter 2000). In the Australian Street Beverage industry scenario, the industry players target a bigger percentage of Australian population who culturally like beverages. According to Porter’s Buyer Effect, it is evident that the vulnerability of these players to drastic price declines arising from buyer power is quite low. Datamonitor (1998) defends this by pointing out that at least 87% of Australians consume tea and/or coffee in a way and it is practically impossible for the percentage to go lower than 65% at any one given time. In any case, the industry as it is can only meet a maximum of 43% of the Australian street beverage demand (Datamonitor 1998). The Supplier Effect Porter (1998) postulated that suppliers have the power to drive prices up especially in instances when there are a few of them literally controlling the market. If the suppliers are many, however, it becomes relatively more difficult for them to control the market since they will be competing against themselves for the market (Porter 2000). According to Manufacturing Advisory Council (S. Austr.) (1987), the suppliers in the Australian Street Beverage industry typically exceed the demand created by the industry players. Specifically in the niche where Chatime plays i.e. tea and coffee, there is stringent competition such that suppliers of tea ingredients to shops such as Chatime’s are many to the extent that failure by one supplier to deliver will lead to an automatic replacement of the supplier rather than push prices up. Owing to this, players in the street beverage industry in Australia is less susceptible to supplier-accelerated price increases (Euromonitor International 1985). The Extent of Rivalry This “Porter’s Force” implies that if competitors in the industry offer exceptionally and distinctively high quality products and services, it is difficult for a player to thrive in the industry (Porter, 2000). In such a case, it is only advisable for the player in question to become as innovative as possible in order to counter competitive rivalry. As was rightly mentioned in prior sections of this report, the Street Beverage industry in Australia is dominated by a number of multinationals as well as local players which include Chatime, McCafe, Starbucks Coffee, Hudson’s Coffee, Gloria Jean’s Coffees, Gongcha, Boost, and Top Juice (IBISWorld report 2014), just to mention but a few. It can be seen that competition is thus strife amongst these players. As a result, one has to be more innovative for them to thrive. A good example is Chatime – a franchise that has specialized in tea (or a mixture of tea and coffee, juice, milk, etc.) even as many of the players either specialise in coffee or deal in all kinds of beverages separately. Euromonitor International, however, disagrees that there is intense competition in the Australian street beverage industry. According to this database, the Australian market is inexhaustible and, therefore, not prone to intense competition. Impact of Substitutes The main source of substitution in the Street Beverage industry is the fact that occasionally, Australians may want to buy their own coffee and tea ingredients and make themselves cups of these beverages from their homes. In that case, the supermarkets and departmental stores would be their shopping destination, in which case the players in the street beverage industry stand to lose. CHATIME’S Strategy Given the number of competitors in this industry, it is not surprising that Chatime has adopted a competitive strategy in order to thrive in the Australian market even as it targets a particular market niche. These are discussed below: Current Competitive Strategy Product differentiation has been Chatime’s competitive advantage over its competitors in the Australian Street Beverage industry. Unlike its competitors, Chatime has implemented two main competitive strategies i.e. unique and convenient ordering system and uniqueness in taste of drinks. At Chatime, one orders and pays at the cashier, then waits for their name to appear on the ‘large screen’ (Chatime 2015). Technically, none of Chatime’s competitors in Australia have adopted this kind of ordering system which customers say is not only convenient, but also time-conscious. Chatime also keeps its ingredients a top secret such that its drinks become unique in Australian Street Beverage industry (Chatime 2015). This equally gives it a competitive edge over its competitors. The Target Market Even though the convenience and electronic system at Chatime may be attractive primarily to the youth, this franchise chain seems to serve a broad customer base. As a matter of fact, convenience is every customer’s wish in the modern day business environment (Porter 1998). Suitability of CHATIME’s Competitive Strategy From the industry analysis above, it is clear that the main source of competition in the Australian Street Beverage industry is quality, and by extension, convenience. This is because the bargaining power of suppliers, buyers, new entrants, and substitutes is quite low. Chatime is doing just that. For that reason, it can be concluded that their competitive strategy is indeed suitable. References Chatime 2015, Cha Menu, Chatime, viewed 29 September, 2015, Manufacturing Advisory Council (S. AUST.)1987, ‘Stocktake of the food and beverage industry in South Australia, , Manufacturing Advisory Council, Food and Beverage Panel, IBISWorld database. Porter, M 2000, ‘What is strategy’, Harvard Business Review, reprint 96608, pp. 2-22, viewed 29 September, 2015, Porter, M 2000, ‘The Five Competitive Forces that shape Strategy’, Harvard Business Review, reprint R0801E, pp. 23-41, viewed 29 September, 2015, Porter, M E 1998, ‘Competitive strategy: techniques for analyzing industries and competitors; with a new introduction’. New York, NY [u.a.], Datamonitor database. 1985, ‘The Australian beverage review, Prahran, Vic, Peter Isaacson Publications, Euromonitor database. Read More