Caffe Nero Group Ltd analysis

The company was founded in 1987 and sold in 1997. As a PLC, the company’s shares were traded on the London Stock Exchange under the symbol CFN. However, in early 2007, the company was the subject of a management buy-out and is currently in private ownership.

The Caffè Nero Group is the leading independent Italian-style coffee bar operator in the UK. Its number of coffee bars, which are all company owned, has grown from 5 stores in 1997, to 30 in 2000 and 310 in May 2007. It now has over 360 stores and nearly 3,000 employees. The outlets tend to be located in UK high streets and shopping centres within 140 cities, city suburbs and market towns, although the Greater London area still accounts for a large proportion of sales. The company hopes to have around 400 – 450 outlets by 2010.

Caffè Nero aim to provide excellent coffee and fresh quality food, in an inviting atmosphere, served by friendly, caring people. Creating a quality neighbourhood gathering spot is seen as key to achieving business excellence. Its product range includes espresso and cold coffees, sandwiches, paninis, focaccia wraps, pastas, soups, salads, pizzas, pastries and cakes. Beverages accounts for two thirds of Caffè Nero’s revenues and the remaining one third comes from food. The proportion of income that Caffè Nero generates from food is higher than for most coffee shops, where food tends to average around a quarter of revenues.

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Turnover for the company has grown considerably and is in the region of £90.7m, with pre-tax profit climbing to £7.3m. This compares with £50.5m turnover and pre-tax profits of £1.7m in 2004. The company has targeted sales of around £150m by 2010.(web 1)

Market Competitive

Competition remains fierce. Caffè Nero, with 10.8% of the market, is well behind Starbucks’ 25% and the 20.7% share held by Costa Coffee, owned by British leisure company Whitbread. But Ford’s outfit is currently beating the market’s average growth into a cocked hat. While Allegra estimates that the sector’s sales will increase 14.4% this year,

This refers to the intensity of competition among existing firms in an industry.

In the traditional economic models, competition among rival firma drivers profit to zero. But competition is not perfect and firms are not unsophisticated passive price takers. Rather, firms strive for a competitive advantage over their rivals. The intensity of rivalry among the firms varies across industries.

Among competitive rivalry is likely to result in low margins and profitability; it is likely to occur when:

There are many firms in an industry, but none is dominant

There is slow market growth, which means companies fight for market share

Fixed cost are high, as this encourages firms to use capacity and over produce

There are high exit costs; specialised assets (which may be hard to sell ) or management loyalty ( for example in long establishment family firms ) can create exit barriers which prolong excess capacity and low profitability

Products are similar, so customers can easily switch to other suppliers.

A highly competitive market will also be one in which the threat of new entrants is high. While Nokia still dominated the mobile phone industry in 2004, it was facing growing pressure from established competitors Motorola, Siemens and Ericsson and from new entrants from Asia.

Boddy, D. Management and Introduction. 3rd Edition

The intensity of competition can be 2 types namely as:

1.Friendly competition

2.Hostile competition

Caffe Nero always doing or facing hostile competition among other competitors.

I give them some suggestion for deal with competitive rivalry in its industry that is given bellow:

Advertise to inform and differentiate the firm’s products from the other Competitors.

Caffè Nero Group Ltd also can acquire or buy out the competitive firm

SWOT Analysis

SWOT analysis a distillation of the findings of the internal and external audits which draws attention to the critical organisational strengths and weaknesses and the opportunities and threats facing the company.

Swot analysis is so useful and logical that may underestimate its value in planning however, this simplicity often leads to unfocused and poorly conducted analyses. The most common criticisms levelled against are that it allows firms to create lists without serious consideration of the issues and it often becomes a sterile academic exercise of classifying data and information. It is important to remember that SWOT analysis by itself is not inherently productive or unproductive. Rather, the way that one uses Swot analysis will determine whether it yields benefits for the firm.

Whether a firm receives that full benefits of swot analysis depends on the way that managers uses the framework. If done correctly and smartly, swot analysis can be a viable mechanism for the development of the marketing plan. If done haphazardly or incorrectly, it can be a great waste of times that other valuable resources to help ensure that the former, not the later, take place. SWOT model analysis factors that are internal to the business and also factors that affect the company from outside. Strengths and Weaknesses in the SWOT matrix are internal factors. Opportunities and Threats are external factors.( Ferrell 2007)

SWOT Analysis of Caffè Nero

1. Strengths

Organizational strengths are skills and capabilities that enable an organization to conceive of and implement its strategies. Every organization has some strength. In some cases this is obvious, for example dominant marketing shares. In other cases, it is a matter of perspectives, for instance a company is very small and hence has the ability to move fast. It is important to note that companies that are in bad position also have strengths. Whatever these strengths are adequate is an issue for analysis.(John 2006)

1. Strong Brand name

Ranked the number one UK consumer choice for the past eight years.(web2)

2. Excellent, fresh & quality food and coffee.

The concept is differentiated from market leader Starbucks (i.e. European versus North American). There is also a high attention to detail to create a truly authentic European coffee house environment that is supported by a high quality coffee and food offering.

3. Business model and the high quality management

5. Broad product range.

Despite the success of the Caffé Nero concept management have remained focused on the core product. Numerous opportunities have arisen to accelerate the roll-out both in the UK and internationally but management are unwilling to sacrifice the core brand values.

6. Doing business in very good location (high street, shopping centre).

7. Strong financial capability to acquisition another competitor.

8. Good reputation among customer.

9. Continuing making profit.

10. Sales turnover is growing up (pre-tax profit £7.3m).

2. Weaknesses

Weakness is a limitation deficiency in one or more resources or a competency relative to competitors that impedes a firm’s effective. Weaknesses are aspects of the firm’s operations or activities that it does not do very well. For example, Primark Sales the low quality product and so many British Airways passengers have lost their baggage frequently. So, here low quality product and lost baggage of the example of weaknesses for the both company. As a customer I find out some weaknesses of Caffè Nero those are given bellow:

Weak food sector than other competitors.

Practice only Italian style.

Most brand names are little known.

3. Opportunities

Opportunities are aspects of the environment that the firm can take advantages of or capitalise upon. The firm’s success probability depends on whether its business strengths not only match the key success requirements for operating in the target market but also exceed those of its competitors. For example Tesco have an opportunity to open a new store in China.

To analysis the external business environment, some opportunities for Caffè Nero. If Caffè Nero Group LTD. will take following opportunity, their profit will be maximising in future:

1. Selling the brand name can earn more profit i.e. can start franchising business.

2. Give the competitive price if directly contract or invest in the developing countries those are cultivated and produce tea, coffee and any other food.

3. More capital invests in UK because coffee and sandwich shop market is growing rapidly.

4. Removal of international trade barriers by open new outlets in Middle East as well as East Asia.

4. Threats

Threats are aspects in the environment than can hinder a firm from achieving its objective and goals.

An environmental threat is a challenge posed by an unfavourable trend or development that would lead in the absence of defensive marketing action, to deterioration in sales or profit.

Threat should be classified according to seriousness and probability of occurrence.

Examples of Threats are:

Competitors

Government new policies, taxation

Political instability- wars etc.

There are so many threats for Caffè Nero are given bellow:

Huge competitors such as Starbucks, Costa, BB’s Coffee, Subway, McDonalds

Economic crisis, financial hardship for example present situation in UK.

 Always wars with other competitors based on price, quality, environment etc.

4. Political instability for example if Caffè Nero start the business in Bangladesh, they must be face this threat. Because in Bangladesh political condition is not stable.

Always doing business in pressure because of potential competitors i.e. threat of new entrants

SMART objective

SMART objectives should be planned in order to make the organization profitable. The objectives of the SMART are: To make the organization or the company create and control its marketing plan by focusing on the market. Everything should be done accordingly which suits the environment of the market. The second objective is to put an energy and motivation in the employees or the groups in such a way that they bound their selves to achieve the particular target or goal which is set as the first priority. The third objective is to provide the efficient service which enables to focus more on the functions of the organization.

S.M.A.R.T:-

S= Specific,

M = Measurable

A = Achievable

R = Realistic

T = Timed

Specific:-

Cafe Nero have set to achieve the market share of 20% by 2012

Measureable:-

As Cafe Nero have opened new in UK so it wants to increase the sale by 10% by the mid of 2011

Achievable:-

Every business when opened new requires time to become stable. Cafe new aims to become stable by the end of the 9th month of this year.

Realistic:-

Cafe Nero has set an objective to grow 14% in a year for the next 6 years.

Timed:-

Cafe Nero wants to increase the brand name all over UK in the next 8 months. One of the most important objectives is to develop a brand image.

Segmentation strategy

The theory underlying market segmentation is People with different characteristics may want the same product in somewhat different forms and for different reasons. Therefore, marketers divide people into groups based on certain relevant characteristics, and then adjust elements of their marketing mix to meet the specific needs of each group.

Bases of segmentation

Geographic

Demographic

psychological

Cultural

Use related

Region

Age

Needs motivation

religion

Usage rate

City size

Sex

Personalities

Social class

Awareness stability

Density of area

Marital status

Perception

life cycle

Brand loyalty

Climate

Income

attitude

culture

Education

Occupation

We examine a process for effectively dividing people who may want a our product into groups then deciding whether and how to market to those groups.

Age group- Coffee for kids

The National Institute of Health says “a child’s caffeine consumption should be closely monitored. Although caffeine is safe to consume in moderation, it may negatively affect a child’s nutrition. Caffeinated beverages may be replacing nutrient-dense foods such as milk. A child may also eat less because caffeine acts as an appetite suppressant. Caffeine can be completely restricted in a child’s diet since there is no nutritional requirement for it. This may be necessary for a hyperactive child as caffeine is a stimulant.”(web 3)

We choose the segment that’s Childers because there is a believe that coffee not good for children because they giving some resinous such as the caffeine level, it’s auditable. So we going to introduce a special coffee that helps improve the nutrition of kids.

If we impress the children market segment automatically we can got the other age groups

Coffee for diabetes

A recent National Institutes of Health (NIH) funded study by Harvard researchers suggested that those who drank something like six cups of coffee a day had a much reduced risk of developing Type II diabetes compared to those who consumed no coffee each day-up to 50% less for men and 30% less for women. (web 4)

In the UK, diabetes affects approximately 2.3 million people, and it’s thought there are at least half a million more people who have the condition but are not aware of it.(web 5)

There is high number of people affects by diabetes, so we going to target in this segment of people, for that we introduce sugar free sweetness and hot chocolate, and some other deserts.

Proposals for each of the 7ps..

7Ps are (1) Product

(2) Price

(3) Place

(4) Promotion

(5) People

(6) Process

(7) Physical (evidence)

Product -Caffe Nero’s main product is coffee, for this everyone knows caffe Nero as a coffee house and also caffe Nero served fresh, deli style food and also pastries, Panini, sandwiches and pasta in every store. In Britain caffe Nero have lots of branch and nearly 3000 employers are working for this company. So in this report to growth the marketing strategy for the future this company should have to launch new product such as -different types of product which are only available in caffe Nero. If the company produced different types of product then it will be possible to get a good ranking position.

Price-Caffe Nero served high quality coffee at reasonable prices which acts as a major incentive for growers to maintain the standards. Generally caffe Nero buy their high quality stuff from farmers and pay them fair money to improve their social condition and farm in which coffee is grown. AND the price of their products is not too high but they served quality food. To growth the marketing strategy caffe Nero should follow the pricing strategy such as– Pricing must be competitive and must entail profit.

Place- Place is really important for every single business. Caffe Nero refers to the place where the customers can buy the products from the store, for this caffe Nero choose business area in Britain .They have lots of branch in business area then other local area. All over the Britain caffe Nero branch are situated in well named area and in the future they will open a branch in local area as well.

Promotion–LAW Creative has worked alongside Caffè Nero to create a ‘look’ specifically for their seasonal product launches. The recent summer frappe promotion was highly visible, topical and successful! A new muffin range required a campaign to drive footfall from street to store. Once in place the activity resulted in 28% increase in sales. Caffe Nero promotion plays a very important role for the company. Sometimes they provide free coffee to the customer as a promotion it really helps to create the customer attraction. In this report the promotion of a company plays a valuable role in sales, it increases sales for this the company make lots of revenue recent years.

(http://www.lawcreative.co.uk/portfolio/caffe-nero)

People- Caffe Nero is one of the Britain’s dynamic and stylist coffee retailer and now it has over 400 stores. Caffe Nero have more than 3000 employers and all of them are highly trained .Caffe Nero recruiting the perfect stuff and training them appropriately in the deliver of their customer service is essential if the organisation wants to obtain form of competitive advantage. And this company recruit people from all over the world as baristas, trainee manager and store manager. In this report

Shows caffe Nero are successful because of their employers and now they are trying to improve to fulfil their customers expectations.

Process-Caffe Nero try to keep their menu exciting and innovative .Caffe Nero’s coffee making process begins with their dedicated coffee team .Caffe Nero try to use methodology to improve their process of making coffee.

Physical (evidence)-Physical evidence plays a crucial role in service sector of every companies. Caffe Nero are really conscious about their customers physical evidence, now they try to use more comfortable table and chair to sit the customers properly and all the time in the stores playing nice music ,for this customers are really satisfied and gathered caffe Nero at least once in a day. In this report shows in the future for this step will help for the company.

Reference

Web 1, About caffe nero, caffe nero web site, available from, http://www.caffenero.com/CompanyInfo.asp?Section=History

Web 2, consumer ranking, caffe nero website, available from

http://www.caffenero.com/CompanyInfo.asp?Section=ConsumerRanking

Web 2, Can coffee hurt children, food and healty web site, available from http://www.chineseop.com/non-alcoholic-drinks/Can-coffee-hurt-children-.html

Web 3 Is Coffee Good for Children, chevroncars web site available from

http://www.chevroncars.com/learn/food-recipes/coffee-children

Web 4, Diabetes type 1, NHS web site, Available from, http://www.nhs.uk/conditions/Diabetes/Pages/Introduction.aspx

Ferrell and Michael D. Hartline (2007), Marketing Strategy,4th edition, Thomson South-Western, uk

Williams and Tony Curtis (2006), Marketing Management in Practice,1 edition, Butterworth-Heinemann Ltd, UK