GLOBAL STRATEGY ASSIGNMENT

Global Strategy Assignment

Global Strategy Assignment

Overview

Caribou Coffee has come a long way from a coffee shop in Minnesota to a publicly traded company on the NASDAQ. Based on the number of coffeehouses operated in 2007, Caribou Coffee was the second largest company-owned gourmet coffeehouse in the United States. However, the competitive market, along with a potential class-action lawsuit involving store managers has caused some serious issues, including increasingly high net losses and decreasing stock price. By providing “an experience that will make the day better” Caribou Coffee has created competitive advantage in their store operations, but the question remains whether they can maintain this and use it to sustain their growth strategy.

Caribou Coffee's dedication to creating a unique experience for customers by combining high quality products, a distinctive coffeehouse environment, and excellent customer service, differentiates their place in the coffeehouse industry. Creating strong human capital is the foundation for this differentiation strategy. The issue that will be analyzed in this case is whether or not Caribou Coffee's efforts in developing human capital will enable them to achieve sustainable competitive advantage given the competition and threats they are facing.

External Analysis

Specialty coffee is a strong and growing industry in the United States. Specialty coffee consumption increased by more than 48% from 2001 to 2006 and the market is estimated to be over $11 billion annually. The number of coffeehouses grew from only 500 units in 1991 to 24,000 units in 2006, but the industry remains highly fragmented (with the exception of market leader Starbucks). The reason for such growth is the consumer trend to specialty and traditional products such as micro brewed beer, single malt liquor, and organic foods. Coffee is seen as a new quality beverage, there is an expanding menu, and coffeehouses have become the “third place” for social consumption. However, Caribou Coffee's position is threatened by new and existing competitors that may provide coffee in a more differentiated manner.

In the strategic environment, Caribou Coffee is in danger because the industry leader, Starbucks, increased their long-term store goals from 30,000 to a target of 40,000. Starbucks is committed to dominating the industry they creating, which gives them an insurmountable first mover advantage that leaves all the other striving to become the recognized second-place coffee house. It is apparent that in the coffee industry there is enormous rivalry among competitors, which is why Caribou must maintain its differentiation to maintain their customer's loyalty.

The coffeehouse industry is characterized by intense competition not only from the industry leader, but also from the threat of new entrants and substitutes attracted by such huge growth. The buyer power here is very high because there are many choices and the switching costs for going from one coffeehouse to another is so low. Creating a good quality beverage is based upon the materials used to make the product, but coffee beans are essentially and commodity so suppliers are unable to exert control over prices.

All in all, looking at the conditions and different forces ...