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Processed and Packaged Goods Mitchell Schmitt. Coffee Production in the US This industry produces coffee, typically by purchasing coffee beans and processing.

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Presentation on theme: "Processed and Packaged Goods Mitchell Schmitt. Coffee Production in the US This industry produces coffee, typically by purchasing coffee beans and processing."— Presentation transcript:

1 Processed and Packaged Goods Mitchell Schmitt

2 Coffee Production in the US This industry produces coffee, typically by purchasing coffee beans and processing them into roasted or ground coffee products… …the industry excludes tea production and revenue from coffee made on premises, such as in a coffeehouse or cafe. Coffee creamer production is also excluded from the industry. Supply Industries Baking Mix & Prepared Food Production Hay & Crop Farming Plastic Film, Sheet & Bag Manufacturing Demand Industries Grocery Wholesaling Supermarkets & Grocery Stores Convenience Stores Food Service Contractors Source: IBIS World

3 Coffee Production in the US Source: IBIS World

4 Coffee Production in the US Source: IBIS World

5 Coffee Production in the US Source: IBIS World

6 Major Industry Players Source: IBIS World

7 Industry Performance Key external drivers: – Demand from supermarkets, grocery wholesalers, and grocery stores Wholesalers are the link to stores, and stores are the link to customers Fighting for in-store advertising and shelf space – World price of coffee Risen sharply recently growing demand in other countries leading to supply shortages – Per capita coffee consumption Recent studies have shown positive health effects of coffee – World price of crude oil Transportation costs

8 Industry Performance Current performance: coffee production industrys revenue has performed well despite increases in commodity pricing, which has been passed on to the consumer. Increased demand: consumers are increasingly demanding specialized, high-quality coffee, particularly in single- serving amounts. – Though economic recession curbed consumer income in 2013, consumers view coffee as an affordable luxury item. – Media attention pointing to positive health benefits from coffee has also spurred greater demand.

9 Industry Outlook Life cycle: industry is mature, characterized by saturated domestic market and a range of well- established brands. Premiumization and stable coffee consumption will drive the Coffee Production industry's growth over the next five years. Weak dollar against the currencies of major trading partners will boost industry exports. Revenue is forecast to grow at an annualized rate of 1.0% to $11.5 billion over the five years to 2018.

10 Products and Markets Key Buying Industries: Grocery Wholesaling Supermarkets & Grocery Stores Convenience Stores Food Service Contractors Key Selling Industries: Baking Mix & Prepared Food Production Hay & Crop Farming Plastic Film, Sheet & Bag Manufacturing

11 Products and Markets Coffee manufacturing Gourmet and specialty coffee segments Ground roasted coffee Whole bean and other coffee

12 Products and Markets Market Segmentation By age Brewed in home vs. purchased in store Exports

13 Products and Markets International Trade Imports are increasing Exports are increasing

14 Competitive Landscape Market Share Concentration High industry concentration Expected market share going forward Basis of Competition Competition is medium and increasing Internal Competition External Competition

15 Competitive Landscape Barriers to Entry High and increasing Major players have established high brand and customer loyalty Contracts with key suppliers CompetitionMedium ConcentrationHigh Life Cycle StageMature Capital IntensityHigh Technology ChangeMedium Regulation & PolicyMedium Industry AssistanceLow Source:

16 Major Companies Percent Market Share Kraft Starbucks Nestle J.M. Smucker Co. Green Mountain Coffee Roasters 10.9% 15.6% 16.2% 21% 22% Market Participants Brands Maxwell House, General Foods, Seattles Best, Starbucks Nescafe, Tasters Choice, Coffee-Mate Folgers, Dunkin, Millstone, Café Bustelo Green Mountain, Keurig, Tullys, Diedrich

17 Operating Conditions High levels of Capital Intensity Plants require sophisticated technology Recent CapEx Expenditures for major companies Increased automation, decrease in labor hours $.38 is spent on capital per labor dollar Technology and Systems Level of technology is determined by processing method 2 Methods: Dry and Wet Change in the technology necessary to roast and grind coffee beans is low

18 Operating Conditions pt.2 Industry is defined by high levels of revenue volatility Revenue is dependent upon cost of raw materials, energy and oil prices, weather conditions, exchange rates, and household incomes Extremely sensitive to economic conditions Industry revenues have been rapidly increasing in recent years Average levels of regulation Governed by FDA Required to label nutrition contents Consumers are demanding more detailed information Failure to abide by regulations can cause product recalls

19 Environmental Regulation Industry Assistance Governed by EPA Eco-friendly operations are used as selling points to potential customers Adherence has created more efficient operations and improved quality Low amounts of tariff protection exists for manufacturers The U.S. protects coffee bean to prevent there rusting Further research is being conducted by Global Agriculture and Food Security Program International Coffee Organization is made up of coffee importing and exporting countries to facilitate trade Operating Conditions pt. 3

20 Starbucks Coffee Company

21 Relevant Facts CEO is Howard Schultz (Highly Regarded) Headquartered in Seattle, WA $13.3 B in revenues in 2012 with operating margins of 15% Nearly 80% of stores are company-owned vs. franchised SBUX has paid a dividend for the past 12 quarters

22 Brief History First Store opened in 1971 in Seattle, WA; Only sold coffee beans and equipment 1980s- Howard Schultz started Il Giornale coffee bars and bought out Starbucks 1990s- Franchise expands beyond Seattle and becomes a leading coffee provider in North America 06/26/1992- Starbucks is taken public at $17 per share Present Day- 18,000 stores in 62 countries with stock trading around $75 per share

23 Strategy Mission Statement: To inspire and nurture the human spirit – one person, one cup and one neighborhood at a time. Product Differentiation; Sell premium products with large profit margins Outstanding Marketing Campaigns Repeat Business (Starbucks cards) Keep Employees Satisfied Make entering their stores an experience Company Operated stores

24 Products Starbucks is the premier roaster, marketer and retailer of specialty coffee in the world Frappuccino, Lattes, Iced Coffees, Espresso Also sell tea, other beverages, and fresh food items Sell packaged products through licensed stores, grocery stores, and other foodservice accounts K-Cups and Coffee Grounds

25 Business Units and Markets Segmented into four markets 1. Americas (75%) 2. Europe, Middle East, and Africa(EMEA) (9%) 3. China- Asia Pacific (CAP)(5%) 4. Global Consumer Products (10%)

26 Competition Premium coffee sales compete against quick service restaurants and specialty coffee shops Main competitors for this segment include Dunkin Donuts, McDonalds, and Caribou Coffee Competes with all packaged coffee and tea products sold through supermarkets and other retailers

27 Risk Factors Global Economic Conditions Increased prices of Arabica Coffee Beans Success is dependent upon perceived value of brands Adverse public or medical opinion about health effects of products Changes in healthcare laws may induce employees to elect Starbucks insurance plan

28 SWOT Analysis Strengths Customer Loyalty Employees #1 coffee sales Strong management Product Innovation Weaknesses Difficulty adopting café culture in Europe Heavily dependent on sales in the Americas

29 SWOT Analysis Opportunities Enter emerging Economies Expand Retail Sales Increase Product Offering Vertical Integration Threats Health effects Rising price of coffee beans Low barriers to entry for competition

30 Recent Performance


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