Analysis of a Business Environment: Coffee and Cake Ltd (CC Ltd)

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Executive Summary

Regarding the case study for Coffee and Cakes Ltd, this report follows internal and external analyses for the business. PESTLE analysis, SWOT analysis and Porter’s five forces have been performed. The methods helped understand the business’s actual comparative areas of interest, coupled with the weaknesses, to analyze its current market growth and prospective desirable market position.

SWOT Analysis

Figure 1 SWOT Framework | Source: (Koshesh, and Jafari, 2019)

Strengths

The company has a huge target audience, reaching a range of ages and genders, and the scope of the target demographic enables a higher revenue forecast. The company is situated along the famous strip of 12 coffee shops and industrial bakery in the West Midlands, which raised the property value to £9,000,000.

West Midlands was the perfect location for the coffee and cake industry as the region draws a large proportion of both local and non-local consumers, enabling increased exposure. With the bakery and the coffee houses, it became a multi-purpose business, selling coffees, cupcakes, and cakes, further expanding the target market.

The profit framework was on a high-end range of mainstream products in various coffee and cake businesses. They believed they would provide higher quality products than competitors using better raw materials.

The fact that the business’ products were produced morally by taking into account quality assurances and using appropriate raw materials was a strong advantageous stance for the company as consumers are increasingly worried about realistic production and corporate obligations (Koshesh and Jafari, 2019).

Approximately half of the customers buy socially competent products exhibited in massive scale summaries of social obligations. The business operations were not labour-intensive, which enabled the business to employ a small number of employees. It was a company-wide activity the way work roles were diversified.

Using this approach, overhead costs were significantly depleted, encouraging workers to establish specific capabilities for business processes. The multi-purpose business had regular sales for 100 lines of products retained during regular operations, with the understanding that the company’s fixed costs could be adequately covered.

Weaknesses

While West Mainland created a stronger consumer base, it became a disadvantage when most of the region was filled with shopping areas. This became a target of major problems, such as restricted parking bays, and the customers could face parking issues. Since raw materials have a limited expiry date, the company expected a high stock turnover rate.

To sustain and supply the appropriate amount of raw materials for daily operation, an efficient restocking and reordering process must be established; however, almost all the profits were spent on it (Nandonde, 2019). Moreover, the production processes generated a lot of sales wastage.

It could be hard to attain quality assurance as the products had one or two days’ shelf life. This resulted in using a large number of raw ingredients to ensure quality, thereby increasing raw material expenses.

Be it as it may, the business does not have a social media platform to market its products. These days, online platforms are the best hubs to reach out to the public. This may result in a loss of consumer base since the consumers would not know about the place in the crowd of many other coffee and cakes businesses (Green, 2019).

Opportunities

There is currently a huge cultural trend that people now go for various coffees, cupcakes and cakes rather than conventional products. For starters, coffee and cakes have now been a part of their daily routine, acknowledging this phenomenon.

The emerging trend can direct the business towards event catering, like anniversaries and social occasions requiring various products. Since the business produces a line of 100 cakes and coffees, this may work to their benefit. This will also enable them to build customer loyalty across word of mouth marketing.

Moreover, the business can use online platforms for marketing its products and competing with rivals. With an incredibly customer-friendly website, the company can reach out to the consumers as people depend on the internet to gather large information about a brand or company.

Furthermore, the recovering economy upholds that consumers have far more optional wages for spending because cakes and coffees are a part of their daily routine (Smith and Graham, 2019). Moreover, the deleveraging of licensing laws has given companies; such as Coffees and cakes Ltd the opportunity to include various product lines in cafes, such as liquor.

That may aim to further pull fragments from the marketplace. Some of those are expanding prospective niche markets or sections to concentrate on. For instance, creating caffeine-free and sugar-free alternatives for those customers concerned about the health hazards of surplus caffeine or sugar intake Upgrading passion for corporate social responsibility, ethical exchange, and pragmatic coffee and cake production programs to reduce the carbon effect can provide the company with an overwhelming advantage as this has consistently adopted positive business strategies (Preda, 2019).

Threats

Consumers focus on a healthy lifestyle and avoid sugar and caffeine, which is a serious hazard. The complexity requires finding the right choices for those consumers who can’t or choose not to consume loaded coffees or cakes. A decaffeinated alternative and sugar-free cakes will expose such an industry sub-fragment.

Changes in the environment speak adequately to the threat of producing coffee and cakes whilst making the raw materials more expensive and increasing sales wastage for quality control. Furthermore, there’s versatile competition with Costa Coffee and Starbucks, which are in the spotlight for producing coffees and cakes.

The increase in competitors within the market makes it difficult to keep Coffee and Cakes Ltd. in contact with their customers who have already been deviated to other outlets. There are cupcake and coffee-specific companies threatening coffee and cake Ltd, with many cafes in the chosen area selling baked goods takeout, such as bread and sandwiches.

The business must draw consumers by having an attractive front for every shop and billboards on the streets. With this, the steadfastness strategy is a good way to counteract this, as it is the route to correspondence with buyers via unofficial long-range contact locations (Mulia, 2019).

Porter’s Five Forces

Figure 2 Porter’s Five Forces | Source: (Ho, 2019)

Competitive Rivalry

Coffee and Cake Ltd. experiences tough competition and market rivalry in the cafe business and coffee store markets. Many external factors relate to the force of rivalry and competition. An external force amplifies competitive rivalry is the growing coffee and cake businesses. Coffee and Cakes Ltd. has a lot of different sized rivals ranging from small stores to chains.

In terms of specialization and policy, competitors’ market is slightly diverse. A rather moderate variation further increases the degree of market competitiveness. However, the rivalry is intensified due to the low switching cost, which are drawbacks for customers as they move from one coffee or cake store to the next. In all, competition has been one of the business’s top priorities based on this factor of the Five Forces evaluation (Ho, 2019).

Bargaining Power of Buyers

The strong bargaining power of buyers is witnessed by Coffee and Cakes Ltd because consumers can quickly move from other products dependent on low switching costs. However, the wide variety of replacements implies that consumers can stay away from Coffee and Cakes Ltd. if they wish, as there are alternatives, such as instant drinks.

Such significant variables outweigh the assumption that company sales are small compared to the total revenue. The smaller size of individual purchases corresponds to the low effect of individual consumers on the business. Therefore, buyer bargaining power remains a strategic concern (Mahat, 2019).

Bargaining Power of Suppliers

Coffee and Cakes Ltd has experienced the weak bargaining power of suppliers. The external factor that places modest pressure on the business is the medium number of actual suppliers. Nevertheless, their bargaining power is undermined by the broad range of suppliers that offer a variety of ingredients. There are several suppliers of ingredients for cakes and coffee beans worldwide. This external force restricts individual suppliers ‘ impact (Karami, 2019).

 

Threat of Substitution

The threat of substitution for Coffees and Cakes Ltd. is a strong force. The wide variety of alternatives makes it much easier for people to purchase products elsewhere instead of Coffee and Cakes Ltd.

Such alternatives can be ready-to-drink coffees, powdered cake mixes, and other available options at different outlets such as restaurants, fast food chains, kiosks, groceries, and marts. Furthermore, the low switching costs also exacerbate the threats of alternatives because many variants cost much less than goods offered by Coffee and Cakes Ltd (Zhang, 2019).

 

The threat of New Entrants

The level of threat of new entrants posed on Coffee and Cakes Ltd. Is high. The cost of doing business is aligned with the volatility of setting up and sustaining coffee shop and cafe operations.

For instance, the cost of running a small coffee shop is lower than the cost of running a coffee shop chain. There are high supply demands and relative costs. Such external factors make it difficult for cafe chains to do business.

Furthermore, the development of a brand identity is expensive. The company does not have enough resources, and the brand identity to reach that level of value that of brand identities of the competitors takes time. Combining these factors enhances the threat of new entrants (Karami, 2019).

PESTLE Analysis

Figure 3 PESTLE Framework | Source: (Irani, and Sharif, 2018)

Political

The central political obligation experienced by the business is the considerations about the way the raw materials are sourced, which has drawn the attention of the politicians in the countries from which the company originates the raw materials.

Therefore, the company must adhere to socio-environmental standards and pursue suitable sourcing approaches in line with the “Fair Trade” processes negotiated by companies with developing and developed country governmental bodies.

Another political challenge faced is the need to abide by the rules and policies in the countries from which it originates its raw materials. This is required in developing nations due to activism and heightened political sensitivity that creates the foundation for the sourcing objectives.

The last political challenge is the legislative changes in the home market which must be accounted for as the decisions made by the company are based on short term incentives rather than long term initiatives (Irani, and Sharif, 2018).

Economic

The major external economic force is the current global economic crisis severely damaged most businesses ‘ profitability. Nevertheless, customers are moving to cheaper substitutes rather than reducing their caffeine and sugar consumption, which is an opportunity for the company. Nevertheless, the business must deal with rising operating and labour costs as both extremes pressure the business from the inflationary macroeconomic climate combined with declining profitability (Nguyen, 2016).

Social

While this business can offer low price substitutes, it must do so without compromising quality, which is its main socio-cultural dilemma in growing its target market. Furthermore, customers worried about the product’s social and environmental impacts imply that the company must be aware and considerate of this phenomenon. Lastly, the ageing wave of baby boomers implies that elderly customers ‘ expenditure is expected to slacken, and the business must reach out to Gen X and the Millennials (Oblinger, 2003).

Technological

The company is not on any social media platform; hence, it is not poised to secure the benefits. The company does not have an online presence because consumers cannot search the web to look for the products offered or track the locations of the shops (Nguyen, 2016).

Legal

The company must seek to abide by the laws and regulations in the nations from which it sources the raw materials, be it the home country. Moreover, it has to stay updated with the current laws of the home country (Zalengera et al., 2014).

Environmental

Numerous complaints from politicians, global advocacy groups, and the customers themselves about various coffee and cakes business practices regarding environmental impact and carbon footprint have been made. Therefore, the business must consider these issues (Irani and Sharif, 2018).

Conclusion

The preceding analyses show the external environment in which Coffee and Cakes Ltd. Is stable. However, the company needs to establish an online platform to expand its customer base. Moreover, it must have low price alternatives. Since the competition is strong, the company must stay updated with laws and legislation.

References

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