Competitive Forces In The Coffee Retail Industry In Singapore | Caffe Bene’s Marketing Strategy | CRM Strategy

Threat of new entrants

Competitive Forces in The Coffee Retail Industry in Singapore

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The competitive forces in the Coffee retail industry in Singapore can be understood through Michael Porter’s five competitive forces:

Threat of new entrants

Any industry’s competitive structure is shaped by the threat of the new entrants. In Singapore, the threat of new entrants in coffee retail industry is high (Wagner, 2017). This is because the cost of starting a coffee shop in Singapore is relatively low. For one to open up a coffee shop in Singapore, the only major cost is the cost of acquiring space and coffee equipment. As a result, there is low entry barriers.

Threat of substitute products or services

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Substitute products refers to items or products that can be used to perform same function. Alternative products to coffee include tea, soft drinks and energy drinks (Park et al., 2015). These alternative products are very many in Singapore. These substitutes have reasonably low prices as compared to coffee. Therefore, based on the consumers’ sensitivity to coffee prices, the threat of substitute product is high in Singapore.

Bargaining power of suppliers

In Singapore, coffee is supplied from different parts of the world. However, most of the coffee is sourced from Africa or South America (Park et al., 2015). The coffee retail industry in Singapore’s main hedging position is diversification of coffee suppliers. Therefore, the bargaining power of suppliers is medium because of existence of many coffee bean suppliers.

Bargaining power of buyers

The buyers bargaining power refers to the impact of the buyer to a given business, with an impact of forcing that business to provide higher quality services and products at a reduced price. The buyers’ bargaining power shapes the competitive framework of a given industry (Wagner, 2017). In Singapore, the number of coffee shop customers is high. Most of these consumers are middle income earners, and the cost of a cup of coffee does not have a significant effect on their expenditure. Hence, the bargaining power of coffee buyers is low in Singapore.

Rivalry among existing firms in the industry

There are many coffee shops in Singapore. Caffe Bene, Starbuck, One Shop and Dutch Colony Coffee are some of the big coffee shops operating in Singapore (Chong, 2015). The existence of several coffee shops in Singapore can be credited to the moderate pricing of coffee shops. However, the competition landscape among coffee shops in the country is healthy. This is true because, despite the coffee industry’s annual growth rate of 15%, there is no advertisement and price wars within the industry (Wagner, 2017). Based on these, the rivalry among existing firms in the industry can be said to be medium.

Threat of substitute products or services

The Distinctive Capabilities of Caffe Bene Outside of Korea

Healthiness and Freshness are the major priorities of Caffe Bene. The company believes in the provision of the best quality of services to its clients (“Caffebene Singapore”, 2017). Caffe Bene also, ensures that each of its clients witnesses the unique setting of its outlet when they enter into their coffee shops. The interior designs of Caffe Bene derived from European design, brings comfort to the customers, making it a better choice for many people. (“Caffebene Singapore”, 2017) The first Caffe Bene was launched by Kim in May 2008 in Korea, thereafter the company has opened more than1,500 locations globally. Kim’s coffee chain has been popularized by celebrity signings and popular TV programs hence gaining huge global exposure.

The Korean chain has a progressive project of expanding to the U.S with over 600 locations and 10,000 locations across the world by end of 2020 (“Caffebene”, 2014). The founder and CEO Kim Sun-kwon of Caffe Bene, launched the first world station in Manhattan’s Time Square in 2012 February which is the flagship warehouse of New York. There will be 13 opening of warehouses in Chicago, Dallas, Los Angeles, and New York City before the end of 2014 in the U.S (““Life is Bene” with Unique Coffee Franchise Opportunity – Total Food Service”, 2017). Caffe Bene believes in competing with the giant of coffee such as Dunkin Donuts and Starbucks (Tang, 2016). The Korean coffee hopes to be the best service-provider business chain and in the world.

Envisioning is being witnessed in the West Coast and the expansion strategy of Caffe Bene is working in New York. The costs of starting a franchise are in between$348,000 and $460,000 (Heo, 2015). Based on the existence of Massachusetts’ Dunkin Donuts and Starbucks in California, California is being viewed as a vast market for coffee by coffee chains which are expanding tremendously. Currently, Massachusetts’ Dunkin Donuts and Starbucks also declared their plans of expanding their chain to the West Coast (Heo, 2015). For decades, the economy of Korea has been driven by coffee, since taking a product that is already in the market, then copy it and develop the product to fit the consumers’ needs is a very huge process that requires vigilance.

Caffe Bene is usually driven by the market changes (“Korean coffee, Gangnam style | Global Coffee Report”, 2013). Sun-kwon Kim the CEO of Caffe Bene, realized the market potential and took advantage of Caffe Bene story of success and made it to fit consumers taste in South Korea hence overtaking Starbucks in two years. The Korean coffee shop has internet connections, comfy surrounding and power outlets. The menu includes alcoholic beverages, pretzels and ice cream (TSS, 2015). This makes Caffe Bene a competitor to not only Starbucks, but also to other food stores and bars.

Bargaining power of suppliers

Caffe Bene’s Marketing Strategy in The Retail Coffee Market in Singapore

Products

Caffé Bene chose to differentiate its menu from the other common coffee shops in Singapore. It also differentiated its coffee from the other competitors. Caffé Bene always sources its coffee beans carefully in designated locations like Columbia, Brazil and Kenya which enables its coffee to have high quality (Park et al., 2015). Also, Caffé Bene is in charge of blending and roasting the coffee beans directly at its roasting factory.

Promotions

The late entry of Caffé Bene in Singapore coffee market, aimed at getting the attention of coffee-drinking population. To do that, the company had to increase its awareness level effectively and quickly. In order to achieve this Kim used communication as one of its promotional strategy (Kidde-Hansen, 2017). Product placement and celebrity marketing assisted in pushing Caffé Bene into being the league key player in the industry of coffee (Park et al., 2015). Caffé Bene was able to achieve the status of the number one coffee franchiser through various cultural events. In addition, the firm gained the attention of consumers of coffee in Korea. The strategies used by Caffe Bene became so influential in terms of marketing, to the extent that other coffee shops begun copying Caffe Bene strategies.

Store Environment

In Singapore, most of the brands of coffee shops copied Starbucks in most of their marketing aspect especially in terms of interior design. The store was well-constructed in manner that was efficient in terms of space to enhance the crowding feel (Park et al., 2015). Caffe Bene’s client prefer to order coffee through the menus via take away than sitting and staying in stores for a long period of time (Wagner, 2017). With this disparity in the market, Caffé Bene decided to take care of the unseen desires of the Korean consumers. Caffé Bene store were designed as stations meant for people to enjoy coffee and have fun with family, business associates and friends for a longer period.

Caffe Bene’s CRM Strategy and Its Contribution

CRM refers to Customer Relationship Management. In the modern marketing strategies, CRM has become a crucial part (Ingram, 2017). In most cases, the performance of CRM is achieved through the use of loyalty programs. The definition of CRM is based on its three main objectives. The first objective is based on acquisition of customers, the second one is increased purchasing, and the third is based on the customer profitability. Therefore, CRM can be defined as the strategies, practices, and technologies that are used by companies to analyze and manage data and clients’ interactions, with an aim of improving the relationship between the customers and the business, to assist in increasing sales and customer retention (Ingram, 2017). Coffee Bene adopts two major CRM strategies in their operations in Singapore. The first strategy is based on collection of services and the second one is based on loyalty programs.

Bargaining power of buyers

Collection of Services

For one to develop a marketing strategy there should be service and product development. Coffee shops have the capacity of benefiting from a collection of customer friendly services, because through adverts the spread of information can be effective in converting lots of people into customers who are loyal and trustworthy. Caffe Bene offers free Wi-Fi to its clients and installed power outlets at every table for laptops (Ingram, 2017). To bring in a community feel, Caffe Bene offers live book entertainment regularly and holds poetry readings including other entertainment events. With this provision of extra services Caffe Bene has been able to get a lot of clients with others bringing their friends just to view the different services offered.

Loyalty Programs

It is mandatory for coffee shops to have loyalty programs. This can be done through offering simple items such as punch cards promising everyone that they will receive their 10th cups of coffee freely hence attracting more coffee drinkers. In order, to beat its competitors Caffe Bene decided to take its incentive programs to the next level (Ingram, 2017). For example, they provide free goods when a customer spends a certain amount of money which enhances their profit gain.

Positioning Strategy of Caffe Bene in Korea

In the positioning of Caffé Bene in Korea, it expanded its non-Coffee menu, which was communicated well to the public as a multi-dessert café (Lee, Baek, Kim, & Shim, 2008). Conventional coffee shops provided muffins, small cakes and bagels mostly to reveal the huge influence of an American-style surrounding. (Trieu, 2014). To counter this aspect, Caffé Bene extended its dessert menus and perfected its notion viewing a Coffee shop as a public gathering place for various customers.  

In addition to that, Caffé Bene added Korean foods to their menu for customers who preferred traditional delicacies such as honeyed citron tea and five grain latte. A number of loyal clients who visited Caffé Bene were pleased by the unique traditional non-Coffee menu items. Caffe Bene applies unique roasting approaches to its Coffee beans, as compared to other domestic and foreign Coffee brands found in Korea (Lee, Baek, Kim, & Shim, 2008). The roasting factory was constructed in 2014 at Yang-Ju, Gyeongg, which applies the method called Air roasting which is a vital and complex roasting system. Air roasting provides high qualified Coffee taste to all the Coffee shop both in the local and abroad market.

Rivalry among existing firms in the industry

Caffe Bene offers training programs that are related to Coffee to its employees (Trieu, 2014). Also, people who are interested in knowing more about Coffee are allowed to apply for the programs. Because of this, Caffe Bene is gaining popularity and regular clients. Caffe Bene’s varied menu is also its other strength. Caffe Bene offers several desserts like Korean shaved ice, pastries, and breads, in addition to its Coffee (Lee, Baek, Kim, & Shim, 2008). These varied desserts make Caffe Bene not only a place to enjoy Coffee but also allow people to please their sweet tooth.

The Channel Strategies of Caffe Bene in Korea

The channel strategies refer to the plan of a business for moving a service or product through the channels of distribution to the final consumer. Service providers have several channel options at their disposal. The channel complexity increases with an increase in the number of middlemen. However, the simplest channel is what is known as the direct channel (Ingram, 2017). In this type of the channel, the service or product producer sells the service or the product directly to the final consumer.

Even though coffee is among the highest in volume of world trade, the market for coffee is highly broken. As a result, there has been a process of consolidation, where coffee from farmers is handed over to the coffee collector (Ingram, 2017). The coffee collector hands it to the miller, miller to broker or exporter, and then to importer. The broker or importer then sells it to coffee roasters in a large mass-market.

However, Caffee Bene aims at maintaining its coffee quality by directly dealing with the farmers. To achieve this, the company is working towards attaining good relationship with the coffee farmers (Pange, 2011). As mentioned previously, this has enabled the company to get supply of coffee from the real coffee farmers. By getting supplies from farmers, Caffe Bene is able to bypass the middlemen effectively and reduce their costs.

When it comes to distribution of Caffe Bene products, the company applies hybrid channels. This means that the company uses multiple channels of distribution. Firstly, Caffe Bene sells the its products in company-owned stores through the direct retail system. Caffe Bene imports coffee and process it, and then sell it in their own stores under their brand name (Pange, 2011). The company also sells their products in the shopping centres and supermarkets.  In addition, the company has made distribution agreements with hotels and office coffee suppliers. Through the adoption of multiple distribution channels, the company has been able to access a wider market.

The Distinctive Capabilities of Caffe Bene Outside of Korea

Specialty Operations of Caffe Bene are striving to establish the brand outside the retail stores operated by the company.  The company’s strategies are to reach clients at their work place, where they dine, travel, and shop (Ingram, 2017). To attain this the company is establishing partnerships with well-known third parties that shares the company’s values. The relationship with the third parties include making arrangements with the Singapore foodservice companies, direct consumer market channels and international retail stores.

Marketing Communication Strategy for Caffe Bene in Singapore

Marketing helps to connect the company potential clients and influence the consumption habits of the consumer. Marketing communication in an organization has a role of creating the demand of the company product and services (Park et al., 2015). Many organizations allocate substantial funds to the brand management and to the marketing department in charge of creating a sound customer base. This allocation demonstrates how marketing communication is a vital organizational segment.

In order to promote different brands in a target market, brand marketing is required. Caffe Bene uses the word of mouth to promote its products among the targeted consumers. The environment of Caffe Bene’s shops and the taste of their coffee is highly appreciated by the customers. Caffe Bene has comfortable furniture, soothing soft music, and appealing visual art in the coffee shops that gives the customers a unique experience (Park et al., 2015). Caffe Bene is known as the cultural brand since it connects with the Singaporean culture of Asian and European.

However, to reach out to more Singaporean youths, Caffe Bene should maintain its social media marketing.

The company extensively use social media such as Facebook, You Tube, and Twitter. This channels are widely used by the youths in Singapore. Therefore, by marketing their brand on this channels, Caffe Bene is able to attract many youths (Pange, 2011). However, apart from utilizing the already existing social media channels, the company should establish its own channel. In addition, the company should combine different marketing elements to attract millions of users of social media. The social media marketing strategies should be designed in such a way that it will attract low income customers.

a. Two-Dimension Perceptual Map of The Caffe Bene Brand Versus Its Competitors in Korea

A perceptual map is a designed visual technique used to indicate how the targeted average consumer acknowledges the competing products’ positioning in a given market place (Sinha, 2012). It is a diagrammatical tool that tries to explain and map the consumer’s understanding and mapping (“Perceptual Maps/Positioning Maps”, 2017). The term perceptual refers to the consumer’s understanding of two or more competing products in a market place and their characteristics. In Korea, the competitors in Coffee retail industry are the Caffe Bene, Star bucking, Zoo Coffee, Droptop, 7 eleven, Panera bread and Einstein’s. Therefore, this analysis focuses on the mentioned companies.

Caffe Bene’s Marketing Strategy in The Retail Coffee Market in Singapore

There are a number of attributes that has made Caffe Bene in their Coffee segment to continue performing better. When it comes to their menu, Caffe Bene boasts of its many flavors which provides their consumers a variety to chose from. For instance, the company offers on their menu specialty drinks that can be taken during different seasons. The company has also built an environment that is friendly to the majority of Korean citizens. This is because the designing of the interior of the coffee shop is informed by the Korean culture. For instance, the chain’s outlet in Gangnam resonates well with the natives, who highly appreciate anything that looks classy. Majority of people go to Caffe Bene to enjoy the Coffee and also to just hang out. The employees or attendants at Caffe Bene have undergone a training that does not only teach on how to serve customers, but also to understand the whole market dynamics of Coffee. The company continues to hire and retain talented employees who love what they do. All these aspects give the company a competitive edge (Pange, 2011). When the employees are happy they increase the customers level of satisfaction. Furthermore, to increase the customer’s experience, the company has a free Wi-Fi connection for its customers. The following figures shows a perceptual map for Caffe Bene in Korea:

Caffe Bene Perceptual Map in Korea

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