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Strategic Management & Ethics
April 12th ,2010
Biswajeet (Biswa) Jitendriya Pattnaik Section: B, Cohort 5, MBA 2010, Asian Institute of Management, Manila
Cafe Coffee Day
Cafe Coffee Day
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Outline of the Strategy Analysis and Planning
By the analysis of Internal and External environment of the Industry, strategic planning is done.
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Coffee Industry in India
• India is the 5th largest coffee producers
• Contributes to 3% of the global coffee consumption.
• Exports 80% of the total produce.
• 6% compounded annual growth rate.
• Niche coffee retail format growing at 10-12% annually.
• Organized coffee retail business: Rs. 25 bn.
• Coffee consumption has increased from 50,000 tons to 94,400 tons in last 5 years.
• Second most preferred drink after tea, in India. Wide acceptability in spite of
heterogeneous demographics
• Cafe bars like Cafe Coffee Day (CCD), Barista, Mocha, Qwirky‟s have flocked.
Increasing Middle class serves as a potential untapped customer for the Indian Coffee Industry.
Source: Coffee Board of India
Industry Background
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Cafe Coffee Day
• Was started in 1996, as a division of India‟s largest coffee conglomerate, the
Amalgamated Bean Coffee Trading Company Limited (ABCTCL). Popularly known
as Coffee Day, it‟s a Rs. 7.50 bn ISO 9002 certified company. With Asia‟s second-
largest network of coffee estates (10,500 acres) and 11,000 small growers, Coffee
Day has a rich and abundant source of coffee.
• Café Coffee Day (CCD) pioneered the café concept in India in 1996 by opening its
first café at Brigade Road in Bangalore.
• Today, more than a decade later, Café Coffee Day is the largest organized retail
café chain in India with cafes functioning in every nook and corner of the country.
• Café Coffee Day today has cafes in Vienna, Austria and Karachi. New cafes are
planned across Middle East, Eastern Europe, Eurasia, Egypt and South East Asia
in the near future.
• In FY06-07, Cafe Coffee Day's turnover was Rs. 4 bn, in FY08-09, its turnover
increased to Rs. 7.5 bn.
• Meeting place for 15-29 year olds.
Due to increase in consumption of Coffee in India, CCD’s target market is youth.
Company Background
Source: www.cafecoffeeday.com
Who am I ?
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Red Square
Leadership & passion
White Swirl
Purity of purpose,
invigorating properties of coffee
Green Stroke
125 years of coffee
growing heritage of thisvertically integrated Group
The font used for “Café” is
called SLURRY. The font looksas though the letters have
congealed(coagulated) out of a
liquid
Source: http://cafecoffeedayblog.com/
Company Background
Mission: To be the best Cafe chain by offering a world class coffee experience at affordable prices.
Company Logo giving a clear alignment to the Company’s mission, values and Leadership.
Who am I ?
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Target Market
• Research shows that 37% of the customers are between 20 and 24years.
• 27% of the customers are between the age group of 25-29 years.
• 60% of the customers who visit the café are male and 40% are female.
•52% of customers who visit the cafes are students.
• 18% of the customers visit the cafes daily while another 44% visit weekly.
• Each café, depending upon its size attracts between 500 and 800 customers daily,
mainly between 4pm and 7 pm.
• Customers describe Café Coffee Day as the place they frequent most after “home
and workplace/college”. It is a place where they meet friends and colleagues, ingroups of 3 or more.
Whom do I serve ? Customer Profile
Market Research shows that age group of 20 – 29 years are CCD’s primary target market.
Source: Industry data, Barista Vs Café Coffee Day – A Comparative Study, IIPM
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Macro & Micro Market Analysis
The Market Analysis shows that CCD & Barista own roughly 80% of the Café outlets in India.
Competition & Strategic Group data
Tea (52%)
Filter and
Instant
Coffee (14%)
Plain Milk
(14%)
Butter Milk &
Lassi (3%)
CSD &
Beverages
(3%)
Share of the Thirst1 Market Share of Coffee2
Branded Coffee
Unbranded Coffee
Cafe
Market Share of Cafe3
Cafe Coffee Day
Barista
Others:Mocha (20%),
Qwiky's (4%),
Georgia (2%)
Source: 1Report on Coffee Consumption in India, 2 & 3Cafe Coffee Day website
Where am I ?
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PEST factors that affect Industry/ Strategic group
Key deciding external factors are Taxation, Trade policies, Health consciousness, Age distribn and Pricing.
External Environment Analysis
Political Economic Social Technology
• Taxation policy: High
taxation imposed on
farmers will usually mean
a higher price for thecoffee .
• Deregulation of Intl
trade policy: Depending
on export policies, the
pricing of the domestic
coffee prices are set.• Government stability:
Changes in governmentcan lead to changes in
taxation and legislation.
• International stability
• Employment law
•Interest rates: Increase
means halting investment
and expansion plans, falling
sales for CCD and their suppliers, lesser disposable
income to spend on luxury
products such as coffee.
• Inflation rates: An
increase will decrease the
profitability which will force
to increase prices.
• Competitors pricing - Aprice war for CCD that can
drive down profits.
• Globalization , FOREX
risks
•Population demographics:
Youth brand, majority of its
customers falling in the 15-29
year age bracket.
•Income distribn: Should be
targeted and marketed to
those people with the most
amount of disposable income.
• Location: Easy access for
staff and customers.
• Working conditions/safety
Superior ambience, healthand safety issues are fully
addressed, quick service.
• Age distribution
• Health consciousness
• IT development: Use of
IT infrastructure in Market
Research to exploreopportunities.
• R & D activity
• Rate of technological
change - Much of the
technological change is
down to the Internet and
the speed with which
information can be
communicated around theglobe. CCD will need to
invest heavily just to stand
still in the ever expanding
and developing market.
Source: Starbucks – A Strategy report, James Heavey
How am I affected ?
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Porter‟s forces for Coffee Retail Industry attractiveness
Porter’s framework suggests that the Coffee Retail Industry is very unattractive due to heavy threats from all forces.
Internal Environment Analysis
Source: Home grown Coffee Chains - Prakhar Singh, IMI New Delhi
How am I affected ?
Bargaining Power of the Suppliers• The market is dominated by few large suppliers
rather than numerous fragmented sources.
• Establishment of independent chains by the
Suppliers.
Bargaining Power of the Buyers
• Unsustainable Customer Loyalty• Preference merely on factors like easier
accessibility and price
• Switching cost is low
Threat of the New Entrants
• Economies of scale, high cost of entry• Uneasiness of access to distribution channels
• Cost advantages related to the size of the
company,
Threat of the Substitutes
• Most Indians‟ preference for tea over coffeegives them a natural advantage
• Heavy influence of Western culture, could lead to
more Alcohol consumption.
• More emphasis on Quick Service Restaurants
like Pizza Hut, KFC, McDonalds.
Internal rivalry of the
CompetitorsThe major players in coffee
retail are Barista, Mocha,
Java Green. Qwiky's & Java
city.
High High
High High
High
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CCD attracts more market share due to its better market penetration by offering it at convenient locations at reasonable price.
Strategic Maps
Source: Industry data, Barista Vs Café Coffee Day – A Comparative Study, IIPM
Where am I?
Low High
Low
Low
Low
Low
Low
Low
Low
High
HighHigh
HighHigh
High
HighNo. of retail outlets
Vertical Integration
C u s t o m
e r S e r v i c e
Price
Mocha (12 outlets)
A m b i e n c
e & D e c o r
Cafe Coffee
Day
Barista
Qwiky's (11 outlets)
Cafe Coffee
Day (430
outlets)
Barista
(160
outlets)
Mocha
Qwiky„s
Accessible & Convenient Location
N o .
o f r e t a i l o u t l e t s
Cafe Coffee
Day
Barista
Mocha
Qwiky„s
BaristaCafe Coffee
Day
Mocha
Qwiky„s
T a s t e
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List of KSFs and Threshold factors
In a hyper-competitive Coffee retail Industry , lower pricing by vertical integration and higher availability at accessible
& convenient locations will enable them to be leaders
Strategic Maps Analysis & Interpretation
Threshold CompetenciesKey Success Factors
• Accessible & Convenient Location
• Number of Retail outlets
• Price
• Vertical Integration
• Ambience & Décor
• Customer Service
• Product Mix
• Taste
• Advertising & Promotion
Picture, graph, … Picture, graph, …
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As long as CCD could maintain the taste at comparable reasonable prices by vertically integrating and intensely
penetrate in existing markets, it will continue to be the Leader in Coffee retail .
Future Competitive Matrix
Source: Industry estimates, Cafe Coffee Day website
Key Success Factors Weights CCD Barista Mocha Qwiky's Others
Price 30% 10 8 7 3 2
Vertical Integration 30% 10 7 7 7 7
No. of Outlets 20% 10 9 4 0.1 0.05
Location 10% 9 9 6 0.1 0.05
Weighted average 16.045 5.9 5.1 3.5 0.93 0.615
Percentage share 100% 37% 32% 22% 6% 4%
Market Share (Actual) 100% 40% 34% 20% 4% 2%
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Since Coffee drinking will become fad, number of outlets and Location convenience will be the future key success factors.
Projected Matrix
Key Success Factors Weights CCD Barista Mocha Qwiky's Others
Price 25% 10 8 7 3 2
Vertical Integration 25% 10 7 7 7 7
No. of Outlets 25% 10 9 4 0.1 0.05
Location 25% 9.5 9 6 0.1 0.05
Weighted average 19.45 7.375 6.5 4.25 0.8 0.525
Percentage share 100% 38% 33% 22% 4% 3%
Market Share (Actual) 100% 40% 34% 20% 4% 2%
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The Ladder Model clearly shows that low pricing and Market penetration strategy will give CCD a
sustainable competitive advantage
Company Competencies
What we are?
Competitive Advantage
• Vertical Integration
• Accessible & Convenient
Location
• Ambience & Décor
• Customer Service
• Product Mix
• Taste
• Advertising & Promotion
• Accessible & Convenient
Location
• Number of Retail outlets• Price
• Vertical Integration
• Distribution System
• Functional Organization
• Distribution Network
Resources• Ambience & Décor
• Customer Service
• Product Mix
• Taste
•Advertising & Promotion
• Accessible & Convenient
Location
• Number of Retail outlets
• Price
• Vertical Integration
• Distribution System
• Functional Organization
•Distribution Network
• Capital Requirement
Competencies
StrategicCompetencies
DistinctiveCompetencies
Sustainable Competitive Advantage
Threshold Competencies
• Distribution System
• Functional Organization
• Distribution Network
• Number of Retail outlets
• Price
• Accessible & Convenient
Location
• Number of Retail outlets
• Price
• Vertical Integration
Incompetencies
Capital requirements
Peripheral Competencies
• Ambience & Décor
• Customer Service
• Product Mix
• Taste
• Advertising & Promotion
• Ambience & Décor
• Customer Service
• Product Mix
• Taste
• Advertising & Promotion
• Accessible & Convenient
Location
• Number of Retail outlets• Price
• Vertical Integration
Ladder
Model
L bj i
h d b ?
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Extensive penetration by maintaining quality and by customer delightment will lead to achieve the Long term objectives
Long term objectives
Increase in
• Sales
• Market Share
• Market Value
Financial
Objectives
20202010 ACTION PLAN
Rs. 18 bn
40%
Rs. 20 bnxxx
xxx
Strategic
Objectives
• Increased ability to compete in Global
markets
•Increased visibility in Tier 2 & 3 cities.
• Total Customer delightment
FROM TO
• India‟s Leader in Coffee Retail
• Strong reputation with Customers
•Total Customer satisfaction
Where do I want to be?
Reverse and Dream
Rs. 7.5 bn
40%
Rs. 7.5 bn
T i l M d l
h ill b ?
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Future Value Proposition
Reasonably priced high quality coffee and other related products, any time anywhere with
superior Customer service and youthful ambience
Triangular Model
Accessible & Convenient Location
Price Vertical Integration
Number of Retail outlets
Key Success Factors
Ambience & Décor
Customer Service
Product Mix
Taste Advertising & Promotion
Strategic Competencies
What we will be tomorrow?
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The SWOT analysis gives the Strategic Options which arise due to External and Internal factors.
SWOT Analysis
Growing western cultureinfluence (O1)
Increasing spending patternsof Youth (O2)
Tie-ups with other companiesfor promotion (O3)
Opportunities
Wider coverage in cities (S1O1)
Reasonably priced near Colleges,
Schools, Coaching Centers, SportsComplex (S2S3O2)
For wider brand awareness, tie upwith Youth centric brands (S1O2O3)
Strengths - Opportunities
More Youth centric menu (W1O2)
Include more premium products
(W2O2)
More brand awareness in 2nd and 3rd tier cities, tie-ups with youth centricbands (W1W2O2O3)
Weakness - Opportunities
Wider coverage (S1)
Reasonably priced (S2)
Accessible & Convenient location(S3)
Strengths
Intense Industry rivalry (W1)
Low profit margins (W2)
Heavy CAPEX due to expansion(W3)
Weakness
Introduce High quality exotic Coffeeflavors at low prices (S3T1)
Vertical Integration of Dairy Products(S2T6)
More smaller stores to avoidcannibalization (S1T5)
Strengths - Threats
Target new Market segments suchas Baby Boomers, and Mid-agepeople (W2T3)
Merger & Acquisitions / Joint
venture with Dairy Industry (W1W2T6)
Introduce franchise (W2W3T1)
Weakness - Threats
Entry of Foreign players: Starbucks(T1)
Large unorganized market (T3)
Substitutes for coffee (T4)
Cannibalization (T5)
Rising cost of coffee and dairyproducts (T6)
Threat
O ti Filt
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By using Weighed average of options against key factors, options are filtered according to urgency and growth
Options Filter
Short term and Long term recommendations Wh t ill d t ?
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Short term and Long-term recommendations What we will do tomorrow?
Execution of Short term and Long term recommendations will help CCD to sustain itself as Market Leader in India.
Target new Market segments suchas Baby Boomers, and Mid-agepeople (W2T3) 1W2T6)
Introduce franchise (W2W3T1)
Merger & Acquisitions / Joint venturewith Dairy Industry (W1W2T6)
More Youth centric menu (W1O2)
Short term recommendations Long term recommendations
Wider coverage in cities (S1O1)
Reasonably priced near Colleges,Schools, Coaching Centres, SportsComplex (S2S3O2)
More smaller stores to avoidcannibalization (S1T5)
Business Model canvas
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Business Model canvas
Source: Business Model Generation: Alexander Osterwalder & Yves Pigneur
Key partners Customer
segmentsCustomer
relationships
Value Proposition
Key Resources
Revenue StreamsCost Structure
Key activities
Channels
• Small Fragmented
11,000 farmers
• Dairy products
Providers
• Merchandise
providers
• Youth brand like
Levi, Himalaya
Natural Drugs &
Book stores
• IT companies like
Wipro, Infosys,
Accenture, etc.
• Selling coffee
through Retail
cafe.
• Expansion
• 10,500 acres of
Coffee Plantation
• Vertically integrated,
efficient supply chain
management
• 80% of the revenue is Coffee beans
products.
• 10% of the revenue is generated by
selling merchandises.
• 10% revenue is due to sale of eatables.
• 8 – 10% Profit Margin in Coffee products with
higher margin in merchandises & eatables.
• High costs due to Leasing / renting and initial
investments.
• Customer Loyalty
Programme
• Smart Card promotion
• Movie & Programs
advertisements
37% of the customers
are between 20 and
24years. 27% of thecustomers are between
the age group of 25-29
years. 60% of the
customers who visit the
café are male and 40%
are female. 52% of
customers who visit the
cafes are students
• Superior
Customer service
Reasonably priced
high quality coffee
and other related
products, any time
anywhere with
superior Customer service and
youthful ambience