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Within the consumer discretionary sector, the cafe space is expanding day-by-
day. New market entrants are trying to create unrest in the market and the existing
players are trying to fight for their survival and brand image. Recently, Strange Donuts
has opened its franchise and is eager to expand within the United States and into
Mexico. The coffee and confectionary industry is highly competitive having global
brands such as Dunkin, Starbucks, and Krispy Kreme that are expanding their
operations to all over the world. According to the CHD Experts LLC., (2018), within
the United States there are more than 13,000 shops with the proportion of 9,140 Dunkin
Donuts, 316 Krispy Kreme, 470 Daylight Donuts and other donut brands.
Alone, Dunkin Donuts is worth upwards of $35B. From 2016-2024, the confectionary
industry is expected to grow from $40 billion to the $55 billion. North America
accounts for 49% of the entire market for the coffee and confectionary industry, with
the rest of the entire world making up only 51% of the market. The confectionary
market is continuously growing at the rate of approximately 5.2% annually.
CPM Matrix
Critical Success Factors Weight Rating Score Rating Score Rating Score
Competitive Overview
Starbucks Analysis
Opportunities
Threats
1. Economic conditions in the U.S. and international markets could adversely
affect their business and financial results. This is basically saying that if the
global economy does not perform well, people will have less money to spend on
their products, because Starbucks is seen as a luxury more than a necessity. This
is a factor that spans across virtually the entire restaurant and is not exclusive to
Starbucks.
2. Environmental Impact: Starbuck’s purchases, roast and sell high-quality whole
bean Arabica coffee beans and related coffee products. The price of coffee is
subject to significant volatility and has and may again increase significantly due
to one or more of the factors described below. The high-quality Arabica coffee
of the quality we seek tends to trade on a negotiated basis at a premium above
the “C” price. This premium depends upon the supply and demand at the time
of purchase and the amount of the premium can vary significantly. Increases in
the “C” coffee commodity price do increase the price of high-quality Arabica
coffee and also impact our ability to enter into fixed-price purchase
commitments. We frequently enter into supply contracts whereby the quality,
quantity, delivery period, and other negotiated terms are agreed upon, but the
date, and therefore price, at which the base “C” coffee commodity price
component will be fixed has not yet been established. These are known as price-
to-be-fixed contracts. The supply and price of coffee we purchase can also be
affected by multiple factors in the producing countries, such as weather
(including the potential effects of climate change), natural disasters, crop
disease, general increase in farm inputs and costs of production, inventory
levels and political and economic conditions, as well as the actions of certain
organizations and associations that have historically attempted to influence
prices of green coffee through agreements establishing export quotas or by
restricting coffee supplies. Speculative trading in coffee commodities can also
influence coffee prices. Because of the significance of coffee beans to our
operations, combined with our ability to only partially mitigate future price risk
through purchasing practices and hedging activities, increases in the cost of
high-quality Arabica coffee beans could have an adverse impact on our
profitability. In addition, if we are not able to purchase sufficient quantities of
green coffee due to any of the above factors or to a worldwide or regional
shortage, we may not be able to fulfill the demand for our coffee, which could
have an adverse impact on our profitability
Threats
1. Advertising: The amount of costs associated with Krispy Kreme products,
including advertising and other brand promotional activities, are expensed as
incurred, and were approximately $10.3 million, $9.8 million and $8.2 million
in fiscal 2016, 2015 and 2014, respectively (Krispy Kreme 10K, 2016). Overall
the amount Krispy Kreme is spending on advertising has significantly increased
over the past 3 years, which could lead to a threat. Potentially being a threat to
the company by comparing other competitors spending cost on advertising. If
other competitors are spending less on advertising, Krispy Kreme may be over
spending and have their costs tied up in the wrong focus. To be sure the
company is spending its resources properly, they could: run an analysis of what
other companies are spending on advertising, and see how effective Krispy
Kreme’s advertising is by having a survey to see how customers are receiving
advertisements by Krispy Kreme.
2. Price: Although we utilize forward purchase contracts and futures contracts
and/or options on such contracts to mitigate the risks related to commodity price
fluctuations, such contracts do not fully mitigate commodity price risk,
particularly over the longer term. In addition, the portion of our anticipated
future commodity requirements that is subject to such contracts varies from
time to time. Flour, shortening and sugar are our three most significant
ingredients. We also purchase a substantial amount of gasoline to fuel our fleet
of CPG delivery vehicles. The prices of wheat and soybean oil, which are the
principal components of flour and shortening respectively, and of sugar and
gasoline, have been volatile in recent years. We attempt to leverage our size to
achieve economies of scale in purchasing, but there can be no assurances that
we can always do so effectively. Adverse changes in commodity prices could
adversely affect our profitability. Although price may be a threat towards a
company, especially if prices rise. The outcome of changing different sugar,
flour, and shortening distributors could lead to a change in the quality of
products Krispy Kreme serves. Even though price has its downfalls, finding a
cheaper producer of their ingredients could lead to lower quality of products
which could result in less sales which would really have a negative impact on
Krispy Kreme.
Threats
1. Government health and regulatory laws: Dunkin Donuts presently dominates
the U.S. Market as well as outside of U.S. with more than 700 stores worldwide.
Company is expanding to the international market but the problem it has in the
foreign markets is the health issues and consciousness. Although, Dunkin
Donuts has already included the healthier options in its menu but still it is a
threat for the company because people are becoming more selective in their
choices concerning health. It has been notices that governments and some cities
have restricted the drinks and sugary items usage in different locations.
Therefore, it could a problem for the company.
2. Price: Price is the cause of war between brands. The brand offering lower prices
with greater quality enjoys the market share and customers’ loyalty. So, there is
the case of Dunkin Donuts which offer medium and competitive prices to its
customers but some of the products have higher prices than the competitors
such as Krispy Kreme and Starbucks. The price of Grande latter at Starbucks
costs $3.65 but the same latte cost $3.29 at Dunkin with extra flavors, sugar,
cream, and milk with no extra charges. There is not a much difference in the
prices of Starbucks and Dunkin Donuts. So, it is a big threat for the Dunkin that
if it increases the prices then the nearest competitors such as Starbucks and
Krispy Kreme will attract the customers to themselves. However, Dunkin
Donuts has to be vigilant in setting prices. Dunkin must compare its prices with
its competitors who are charges more or less such as Starbucks and Kreme.
9 Starbucks can add new customers to its loyalty program 0.04 4 0.16
Weighted
Threats Weight Rating
Score
In the External Factors Evaluation (EFE) Dunkin has scored 2.37 weighted score which
is below average score. It indicates that Dunkin Company does not have higher
opportunities but threats. It also means that company is not strong enough as it should
be. So, there is a strong need to address the external matters of the company.
References
1. Krispy Kreme. (2016, January 31). Krispy Kreme 2016 Annual Report.
Retrieved from
http://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_KKD_2016.pd
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2. Starbucks. (2017, January 31). Starbucks 2017 Annual Report 10K. Retrieved
from https://s22.q4cdn.com/869488222/files/doc_financials/annual/2017/01/FY17-
Starbucks-Form-10-K.pdf
3. Tristano, D. (2018, April 11). Growth In Upscale Doughnut Chains Becoming
A Little 'Strange'. Retrieved from
https://www.forbes.com/sites/darrentristano/2018/04/10/growth-in-upscale-doughnut-
chains-becoming-a-little-strange/#7ba074b1f647