The Broadway Caf 1

Running head: THE BROADWAY CAF

The Broadway Caf: Business Analysis

Parts I & II

Charles D. Ramsey

Strayer University

CIS 500

Instructor: Dr. Sal R. Yazbeck

The Broadway Caf 2 Competitive Advantage

Competitive advantage is important to many different undertakings. Sports teams review videos of competitors games and their own previous games with those competitors to determine what they can do to gain a competitive edge. In business, analyzing the environment around The Broadway Caf and evaluating the situation in which the business currently exists can impart the advantage necessary to make the difference between success and failure of the Cafe. Michael Porters Five Forces Model is one way to find that advantage and determine how best to use it to survive and thrive in the face of competition.

The biggest threat of entry The Broadway Caf faces is entry of a large chain such as Starbucks. Starbucks has 15,000 stores in 50 countries (Starbucks Corporation [Starbucks], 2011) and, without a doubt, represents an entrant to the local market with new capacity, the desire to gain market share, and often substantial resources (Porter, 1979). At the same time, Starbucks is not the only threat to watch. Other specialty coffee roasters have arisen to compete with Starbucks. Stumptown in Portland, Oregon, offers over twenty single-source varieties of coffee beans and is aggressively pursuing international partnerships with growers (Young, 2010). The likelihood exists that these specialty roasters might also decide to enter the retailing market, grinding and brewing their beans for customers seeking that special cup of coffee. Porter rates the barriers to entry into the specialty coffee retailing industry as relatively low (Porter, 2008). He further defines seven barriers to entrants (Porter, 2008). Let us examine where The Broadway Caf stands with regard to each of them. While a large chain like Starbucks may enjoy economies of scale relative to its suppliers (by virtue of being able to spread fixed costs over thousands of stores) as well as to its buyers (because theres a certain

The Broadway Caf 3 aura attached to getting ones coffee from Starbucks), neither of these is insurmountable within the local market. The Caf already has an established supply chain, access to a broader supply chain as yet untapped, and has a cadre of loyal customers from which to build. Porter considers customer switching costs as an entry barrier, as well. Switching costs are discussed in the section below on substitute products. Capital requirements are not a major hurdle, since the Caf is already a going concern and already owns equipment necessary to grind and brew coffee, bake breads, cakes and pastries, and to prepare soups, sandwiches, and salads.

While Starbucks and other similar chains may have the advantage of incumbency in other parts of the city, the Caf is incumbent in its neighborhood, giving it the advantage, independent of size (Porter, 2008). Access to distribution channels is barely a consideration, especially if the Caf does not try to take on a bigger player in that players distribution channel. Even a bigger player cannot control Internet sales (if the Caf launches a product line for distribution via the Internet). While there are local health regulations governing the operation of the Caf, nothing in those regulations could be construed as restrictive government policy (Porter, 2008). Once again, this is not a significant barrier to entrance.

Substitute products are always present, but not always obvious. Doing without, buying used instead of new, or doing it ones self all constitute substitutes (Porter, 2008). In a struggling economy, the Caf faces the prospect that customers will do without or will buy their own specialty coffees and brew them at home. Customers choosing to forego their coffee incur no financial switching cost, but may pay the emotional cost of missing that cup of coffee in the atmosphere of the Caf. Those who choose to brew at home pay a relatively small cost to acquire a coffee grinder (new or used) and probably already own a machine to brew coffee.

The Broadway Caf 4 Customers may also elect to buy coffee elsewhere. If they choose to switch to fast-food coffees, they may get a lower quality brew. With fast-food flavored coffees, customers may get a brew containing ingredients they find undesirable, such as high-fructose corn syrup. The ambiance in a fast-food restaurant cannot match the Caf, so these customers also pay the emotional switching cost of sacrificing ambiance and quality for price advantage. Customers who switch to a chain like Starbucks may incur switching costs of higher prices, but may also find that their favorite blends arent available or may not be able to get the brew they want the way they want it.

Buyer power can drive down prices when buyers have more options (i.e., more places to buy their coffee) and raise costs when customers demand better quality or increased service (Porter, 2008). Locally, The Broadway Caf customers have few choices for specialty coffees. Some fast-food chains such as McDonalds and Dunkin Donuts are offering flavored coffees, but none are made from exotic beans; these coffees are made from the same daily brew beans the restaurants use otherwise. If Starbucks were to open a store nearby, the power of buyers would be enhanced, and the Caf would have to adjust accordingly to ensure that its level of customer service and its selections of coffees and foods remain competitive.

As a buyer itself, the Caf has access to Internet sources for buying, as well as the option of continuing to use its current suppliers. Further, WalMart and even grocery store chains now carry exotic beans. One need only peruse the shelves in the coffee and tea aisles to see the broad selection available. Given that specialty coffee beans are more widely available, the Caf may have a better position as a buyer with its current bean purveyors. The Cafs switching costs are low, since the same equipment will grind and brew any coffee bean available.

The Broadway Caf 5 What is less certain is where the Caf stands as a buyer regarding the bakery goods, sandwiches, soups and salads. Since all the family recipes departed with Grandfather, the Caf must make a choice. Should it hire people capable of recreating the baked goods and other foods the Caf once sold? Should it find sources for those goods with similar taste, appearance, and quality? Should it just discontinue that line of business and concentrate on coffee? Space currently dedicated to baking and food preparation can be repurposed to offer more room for customers.

The broad availability of specialty coffees (as noted above) reduces the power of suppliers to the industry. Porter (1979) rates suppliers as powerful when:

The group is dominated by a small number of companies, especially when the group is more concentrated than the industry to which it sells. The groups product is unique, differentiated, or has relatively high switching costs. Suppliers do not have to contend with other products (the threat of substitutes) being sold to the industry they supply. Suppliers cou0ld conceivably enter the industry they currently supply. The industry in question (i.e., specialty coffee shops) is not an important customer.

For the most part, none of these conditions prevails, so supplier power is relatively low. One exception would be for any supplier that is the sole source for a coffee bean in high demand. The other exception is Starbucks, which roasts its own beans (Starbucks, 2011), though, more accurately, Starbucks integrated backwards, as Porter (1979) describes it, since they started out selling brewed coffee and only later entered the business of roasting beans.

The Broadway Caf 6 Rivalry among existing competitors must be evaluated in terms of its intensity and its basis. The nature of competition between rivals will determine how much rivalry will drive down profits. Intensity is great when:

Competitors are many or competitors are fairly evenly matched. The industry is growing slowly. Barriers to exiting the industry are high. A commitment to business exists driven by pride, aspirations for leadership, image enhancement, or ego. Competitors have trouble reading one anothers signals (Porter, 2008).

Locally, rivalry may not be very intense for the Caf, but will intensify as the geographic scope of the Cafs business expands. Rivalry may be more harmful to profitability if the basis of competition is price. If another caf opens nearby, offers similar products, and determines to undercut the prices at The Broadway Caf, the Cafs profitability could suffer immensely if it enters into a price battle with the other caf.

The Broadway Caf can choose to compete in three different ways:

Cost leadership Product differentiation Focused strategy (Baltzan & Phillips, 2009).

Taking the bait for a price war would represent competing for cost leadership. Trying to make Broadway Caf coffee look radically different from any other coffee might be too excessive a

The Broadway Caf 7 stretch of reality. The choice for the Caf is to focus its product differentiation strategy on customer service, quality of food and brew, and caf ambiance.

The Broadway Caf 8 E-Business

Using the Internet to buy and sell, to serve customers, and to collaborate with business partners all constitute e-business. Merely deploying a web site is not sufficient; the web site must entice customers and get them talking about The Broadway Caf. The site must inform, tread new ground where possible, and add value to the Caf (Baltzan & Phillips, 2009).

Access to the Internet is extensive and relatively inexpensive in the United States. Several companies (Quicken, GoDaddy, and others) offer cheap hosting and do-it-yourself site design software that makes creating a web site easy while yielding professional-looking results. Further, access to YouTube, Facebook, Twitter, and other social media sites is essentially free. Add to this the availability of video cameras and editing software that allow even the marginally talented to produce videos of quite acceptable quality, and it's no surprise that companies jump on Internet marketing so readily. Small cottage businesses can become international sellers overnight.

What types of e-business should the Caf deploy? First and foremost, the Caf needs to reach consumers. Business-to-consumer functionality allows consumers to order specialty coffee beans and other merchandise the caf may offer. Further, customers could have the ability to place orders for lunch or other occasions online, specifying the future time at which the order should be ready. Secondly, the Caf should take advantage of the Internet to build closer relationships with its suppliers. Using B2B connections allow the Caf to order online and pay online, accelerating the acquisition of provisions. Finally, the Caf should consider specialized access for employees in order to allow them to participate actively in establishing their work

The Broadway Caf 9 schedules, to offer them training, and to keep them informed of developments in the business and the industry.

Web sites were once de rigueur for Internet marketers. Facebook, Twitter, YouTube and other social media have made that less so: one can still have a web presence without having an actual web site. A well-designed web site - one that looks good and operates easily and intuitively - does attract customers. A Facebook presence allows a company to collect feedback on their performance, gain new customers from existing customers recommendations to their Facebook friends, as wells as publicize special events. Twitter offers many of the same features, as long as someone in the company is articulate enough to get the message across in 140 characters or less. YouTube videos can go viral and most other social media sites allow one to link to YouTube to increase the likelihood that one's video will be seen. Google and Bing offer a different set of marketing tools, especially for brick and mortar businesses. Having the Cafe appear as a recommended destination (even though it is only an implicit recommendation) on a Google or Bing map can go far in increasing traffic through the shop. More traffic means more sales.

Once the Caf launches its web site, it must be able to measure how effective the site is in attracting customer interest and generating sales. Further, effectiveness of advertising on other web sites and that of search engine listings must also be tracked. A comprehensive strategy will monitor such things as unique hits, total hits, and number of returning viewers, and will also include clickstream data to monitor visitor interaction with the web site. On other sites where the Caf advertises, interactivity data will help gauge the effectiveness of ads by measuring how

The Broadway Caf 10 long a visitor looked at the ad, how many pages he or she viewed around the ad, and whether the visitor returned to the ad in question (Baltzan & Phillips, 2009).

Giving suppliers extranet access will allow them to see how their products are performing in the Caf and see how the Caf is marketing its products. Suppliers will be able to see current inventories, pending orders, and gather other information that will aid them in their own forecasts. Using business-to-business connections to suppliers or even using electronic marketplaces will simplify the acquisition of provisions and reduce the amount of paper accumulated in the process of doing business. If the Caf can connect with an electronic marketplace for specialty coffee beans, baking supplies, and other raw materials required, it could realize a significant price savings over more traditional methods of provisioning (Blatzan & Phillips, 2009).

An employee portal could offer email, training, business announcements, blogs, and a suggestion box. Such a portal might also give employees access to the employee scheduling system to allow them a modicum of input to their own schedules, arrange shift swaps, and request time off. The portal could also link employees to the payroll company so that they can view their own payroll information and print tax forms or proof of income. Kiosks publicly accessible computer systems to allow interactive information browsing (Baltzan & Phillips, 2009) in the Caf could be used to educate customers about our coffees, our suppliers, the growers, etc. Customers could also use kiosks to enter comments, place an order when the counter is busy, and place catering orders without tying up a counter associate. Kiosks are not a given for the Caf. Careful design and rigorous testing are necessary to ensure that the kiosks do only what they are intended to do and do not allow customers access to

The Broadway Caf 11 internal systems, allow illegal activity, or permit customers to access sites that other customers might find objectionable.

The Broadway Caf 12 References

Baltzan, P. & Phillips, A. (2009). Business driven information systems. New York: McGraw-Hill Learning Solutions.

Porter, M. E. (1979).

How competitive forces shape strategy. Harvard Business Review, 57(2),

137-145. Retrieved from EBSCOhost.

Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard Business Review, 86(1), 78-93. Retrieved from EBSCOhost.

Starbucks Corporation (2011). Our heritage. Retrieved from http://www.starbucks.com/aboutus/our-heritage

Young, B. (2010). Has Starbucks been replaced? The new competitive advantage threatening the coffee giant. Retrieved from http://www.pacesetterglobal.com/2010/03/15/has-starbucksbeen-replaced-the-new-competitive-advantage-threatening-the-coffee-giant/