160037 Dissertation -FINAL1

Evaluating the Feasibility Feasibility of Marketing Honey Farm Coffee Coffee In the United United Kingdom Kingdom

A Dissertation Submitted in Part-Fulfilment of the Requirements for the Degree of Master of Business Administration of the University of Warwick

Sumant Sumant Cheng Chengappa appa Student Student # 160037 160037 March 2005 Feasibility of marketing Honey Farm Farm Coffee Coffee In the United Kingdom

1

Table of Contents

Table of Contents.............. ............................. .............................. .............................. .............................. .............................. ..................... ............ ........... ........... ........... .....2 Acknowledgement.............. ............................. .............................. .............................. .............................. .............................. .............................. ...................... ............ .....4 Executive Summary.............. ............................. .............................. .............................. .............................. ........................... .................. ........... .......... ........... ........... .....5 Introduction ............... .............................. .............................. .............................. .............................. .............................. .......................... ................ ........... ........... ........... .......10 . Honey Farm Coffee:.............. ............................. .............................. .............................. .............................. .............................. ........................... ................. ......10 1. 0 The Strategic Objective:.............. ............................. .............................. .............................. .............................. .............................. ......................... ............ ..10 10 Research Objectives:.............. ............................. .............................. .............................. .............................. .............................. ....................... .............. ......... ...13 13 Structure:.............. ............................. .............................. .............................. .............................. .............................. ............................ .................. ........... ............ ........... .....14 14 Chapter 1: Review of Literature:.............. ............................. .............................. .............................. .............................. .............................. .................. ...15 15 Introduction: .....................................................................................................................15 15 World Coffee Scenario:............. ............................ .............................. .............................. .............................. .............................. ............................ ..............15 1. 5 Indian Coffee Scenario:............... .............................. .............................. .............................. .............................. .............................. .......................... ............19 1. 9 Value Chain: ......................................................................................................................20 20 Environmental, Market and Company Analysis:............. ............................ ........................ .............. ........... ........... ........... ......... ...21 21 Summary: Summa ry: ......... ................... .................... .................... .................... .................... .................... .................... .................... .......................................... ................................23 23 Chapter 2: Methods: ............... .............................. .............................. .............................. .............................. .............................. ...................... ............ ........... ........ ..24 24 Introduction:............... .............................. .............................. .............................. .............................. .............................. ........................... .................. ............ ........... .....24 24 Value Chain Analysis: Analysis:.............. ............................. .............................. .............................. .............................. .............................. ............................ ............... ..24 24 Environmental Analysis: Coffee Scenario in the UK: ............... .......................... ................. ........... ........... ............ ......... ...25 25 Survey of the Indian Restaurant Sector:............. ............................ .............................. ............................ .................. ........... ........... ......... ....26 26 Defining Problem: .........................................................................................................27 27 Research Plan and Implementation............. ............................ .............................. .............................. .............................. ...................... .......27 27 Random Sample and Product Trial Trial Evaluation............... .............................. .......................... ................ ........... ........... .......... ........ ...28 28 Company Level Analysis: ................................... .................... .............................. .............................. .............................. ....................... ............. ........ ...30 30 Summary:.............. ............................. .............................. .............................. .............................. .............................. ......................... ............... ........... ........... ........... ........ ..30 30 Chapter 3: Results and Discussion:............. ............................ .............................. .............................. .............................. ........................... ............... ...32 32 Introduction:............... .............................. .............................. .............................. .............................. .............................. ........................... .................. ............ ........... .....32 32 Value Chain Analysis: Analysis:.............. ............................. .............................. .............................. .............................. .............................. ............................ ............... ..32 32 Market Level Analysis: ................................... .................... .............................. .............................. .............................. ........................ .............. ........... ......36 36 Micro environmental analysis:.............. ............................. .............................. .............................. .............................. .......................... ................. ......40 40 Customer Survey Results & Analysis: ..............................................................................42 42 Product Trial: .....................................................................................................................44 44 SWOT Analysis:............... .............................. .............................. .............................. .............................. .......................... ................ .......... ........... ........... .......... .....46 46 Strengths: .......................................................................................................................46 46 Weaknesses: .................................................................................................................47 47 Opportunities: ................................................................................................................48 48 Threats: .........................................................................................................................49 49 Strategic Fit:............. ............................ .............................. .............................. .............................. .............................. ........................... .................. ........... ........... ........ ..49 49 Summary:.............. ............................. .............................. .............................. .............................. .............................. ......................... ............... ........... ........... ........... ........ ..50 50 Chapter 4: Conclusions: .............. ............................. .............................. .............................. .............................. .......................... ................ ........... ........... ........ ...52 52 Recommendations:............. ............................ .............................. .............................. .............................. .............................. ......................... ............... ........... ......55 55 Limitations: Limit ations: .......... .................... .................... .................... .................... .................... .................... .................... .................... ...................................... ............................55 55 Feasibility of marketing of Honey Honey Farm Farm Coffee Coffee In the United Kingdom

2

Appendix 1: Telephone Survey Questions. Questions.......... ................... .................... .................... ......................................... ...............................61 61 Appendix 2: Tent Card.............. ............................. .............................. .............................. .............................. .............................. ........................ .............. .....62 62 Appendix 3a: Brochure Front and Back Back Pages............. ............................ .............................. .............................. ..................... ........ ..63 63 Appendix 3b: Brochure Inside pages............... .............................. .............................. .............................. ........................... ................. ........ ...64 64 Appendix 4: Discussion on Marketing Mix.............. ............................. .............................. .............................. .......................... ............65 6 .5

Feasibility of marketing of Honey Honey Farm Farm Coffee Coffee In the United Kingdom

3

Acknowledgement I acknowledge with appreciation the assistance of the following people for making this project happen:

Mr. Gautam Devaiah, Managing Director in charge of UK operations, Honey Farm

Coffee Limited, for his drive, enthusiasm and belief in the mission of the company.

Mr. Ravi Majevadia, Honey Farm Coffee Limited, for his hard work, and valuable

assistance in the customer survey.

The Honey Farm Coffee Partnership who grows the superb coffee in India, and forms the foundation of this project.

My family, for their continued support and patience during my continuing involvement with both Honey Farm Coffee and Warwick Business School commitments.

Finally, many thanks to Dr. Sally Dibb, of Warwick Business School, my supervisor, for her guidance and assistance throughout the various stages of this dissertation. Her patience and support have helped me shape this document.

Feasibility of marketing of Honey Farm Coffee In the United Kingdom

4

Executive Summary Honey Farm Coffee is a coffee growing company based in India. The company is a third-

generation family run organization that has been producing high quality speciality coffee beans since 1908. The company’s coffee estates are nestled on forested mountain slopes in the fertile and picturesque Coorg region of South India. Crystal clear streams fed by seasonal monsoon rains water the coffee estate. Immense care is taken during the cultivation stages of coffee. The coffee fruits are ripened on the bush, hand harvested, sun dried and processed with a perspective of quality.

Traditionally, all the coffee grown on the Honey Farm Coffee plantation has been sold either at the farm gate or at the local commodity auctions. The coffee commodity markets have seen a great deal of fluctuations over the years with prices driven by supply and demand and at the mercy of the weather pattern in high volume growing countries of Brazil, Colombia and Vietnam (Friedenberger et.al, 2003). India produces around 5% of the world coffee crop, but as a producer is mainly a price-taker. Currently, coffee commodity markets are at a 30-year low mainly due to over production in the coffee growing countries and a high level of warehouse stocks in the consuming countries. Currently, commodity coffee prices are below cost of production, which has led to a lack of profitability for Honey Farm Coffee. As a result, the company is considering a diversification strategy to enhance the profitability of the company (Devaiah, 2004). To assist in the decision making process, this project was conducted to evaluate the feasibility of marketing Honey Farm Coffee in the United Kingdom.


5

In order to evaluate the feasibility of marketing a value added coffee product in the United Kingdom; first, a value chain analysis for coffee was conducted along with an analysis of the quantum of value addition achieved through the various stages of the value chain. This analysis was followed by an evaluation of the macro and micro environmental factors in the target market in the United Kingdom. This study, used secondary sources of information where available, and collected primary data to evaluate the coffee consumption pattern in the Indian restaurant sector. A product trial was conducted on a random sample of restaurants in the target sector and feed back evaluated to assess the uptake of an “Indian” coffee product by these restaurants. Finally, an analysis of the “fit” between the strengths and weakness of Honey Farm Coffee and the threats and opportunities provide by the macro and micro environmental factors was conducted and gaps in competencies identified. Finally, conclusions are drawn regarding the feasibility of marketing Honey Farm Coffee in the United Kingdom, and recommendations made to enable the company to

embark on a diversification strategy.

Value chain analysis was conducted for coffee, beginning from the growing of the crop on the Honey Farm Coffee farms to the export, roasting and marketing of coffee in the consuming market in the United Kingdom. An analysis of the “value” added through various steps of the value chain shows increasing profit being gained as the commodity coffee from the farm is processed by transportation to the consuming market, and transformed by roasting and packaging. There is a clear case to be made for the grower to consider value addition considering the very low value that is released at the farm level due to very poor commodity prices. The analysis of data gathered of value addition of coffee


6

reveals that up to a 100% profit can be made by the grower if value is added to the commodity by roasting, packaging and marketing to the Indian restaurant business in the UK. The macro and micro environmental analysis of the consuming market in the United Kingdom reveals the presence of a market opportunity brought about by the increasing awareness and consumption of speciality bean and ground coffee, the increasing trend towards fair-trade products and increasing out-of –home consumption of coffee. In addition, the popularity of Indian restaurants and the consumption of coffee as an “aftermeal” beverage offer opportunities for the successful marketing of Honey Honey Farm Farm Coffee Coffee in this sector in the the UK. The absence of an “Indian” coffee brand, provides the company with a potential of “first mover advantage” to establish a relationship with the Indian restaurant sector. This sector would be considered too small for the very large coffee producers like like Nestle Nestle and Sara Lee Lee (Mody, (Mody, 2004), therefor thereforee the potential potential for competition competition is primarily primarily from from other small coffee producers and new entrants.

Primary data was collected from a section of the targeted Indian restaurant businesses. Using multiple sources, a database of 1220 businesses was built up. Each of these restaurants was contacted for a telephone interview (appendix 1). The results of this survey reveals that the average consumption of coffee by these restaurants is around 7.5 kilograms of ground coffee. The vast majority of restaurants (80%) used ground coffee and “filter coffee” was the most popular brewing method for coffee in these restaurants. Instant coffee was used by 20% of the restaurants surveyed. There was a high level of interest among the restaurants about an “Indian” coffee and 60% of restaurants using ground coffee


7

would be willing to switch to an “Indian” coffee, as it was the only such product in the market. Of the restaurants using “instant” coffee, 77% would be interested in using the product provide provide a coffee coffee brewing brewing machine machine was was given given free of cost. Ground coffee coffee is is considered to be superior in quality to instant coffee (Fawkes, 2004).

A random sample of 5% of the database (60 restaurants) was generated for the second part of this study. Each of the 60 restaurants were visited after making making an appointment with the the owner / manager. A personal presentation was made along with providing information about the company and the product (appendix 2 and 3). One kilogram of coffee was provided provided free to each each of these these restaurants restaurants in their their preferred preferred form, form, either whole bean bean or ground for filter, cappuccino or cafetiere. This sample was adequate for around 100 cups of coffee, and a follow up appointment was made two weeks later to assess the experience of these restaurants and their customers with Honey Farm the Farm Coffee Coffee. The response from the product trial trial was overwhelmingl overwhelmingly y positive. positive. 55 of the 60 restaurants restaurants surveyed surveyed were either either “satisfied” or “very satisfied” with the coffee with a significant number using the descriptor (rich and aromatic, 45%), while 5% of the respondents used the descriptor “bitter” which is commonly used for a deep roast (Fawkes, 2004). The remaining respondents used the descriptor, “mild”, which was associated with a positive link to quality (Fawkes, 2004). Over 50% of the restaurants in the survey were willing to switch to using Honey Farm Farm Coffee on a regular basis at a £10 purchase price.

The final objective of this study was to evaluate the strengths and weaknesses of Honey Honey Farm Coffee Coffee in relation to the opportunities and threats afforded by the macro and


8

microenvironment. The strength of Honey Honey Farm Farm Coffee Coffee lies in its ability to produce excellent quality of speciality coffee that is appreciated as assessed by positive feed back from a random sample sample of target restaurant restaurant customer. The company has the skills and competencies to produce speciality coffee, transportation and roasting can be outsourced (Devaiah, 2004, Fawkes, 2004), while the marketing and distribution functions are clearly areas that are absent within the company at the time of this study.

The results of this project confirms the existence of a market opportunity for marketing “Indian” coffee to the Indian restaurant business in the United Kingdom and leads to the recommendation to Honey Farm Farm Coffee Coffee to proceed on a diversification strategy of value addition. This recommendation should be considered along with the counsel of filling missing competencies of marketing and distribution within the company in the target market before the company can make a successful bid of taking advantage of this market opportunity. The details of this research project are discussed in greater detail in this document.


9

Introduction Honey Farm Coffee:

The “ Honey Farm Coffee Company” produces high quality Arabica and Robusta coffees in the southwestern mountains of India in the district of Coorg. Bordering the state of Kerala, Coorg is a picturesque hilly area nestled on slopes at altitudes between 2800 and 3000 feet. The estates that produce coffee for the Honey Farm Coffee Company have, since 1908, been producing excellent quality coffee on fertile soils watered by natural monsoon fed streams. All the coffee produced by the company is shade grown under tropical forest trees that help maintain the biodiversity of the region. The coffee is ripened on the bush, hand harvested, sun dried and freshly roasted for best quality in the cup. Honey Farm Coffee Company is a third generation family run business with a dedication to producing the best quality coffees, while at the same time ensure the social well being and education of the workforce on the plantation. With the current sustained slump in prices, Honey Farm Coffee has been evaluating strategies to adapt to change. A key recommendation of the

McKinsey Report (Friedenberg et.al. 2004) was for producers of high quality coffee to adopt production, value addition and marketing of “specialty coffees” and to diversify into other crops. Diversification into crops like Vanilla and Anthurium flower production is ongoing on the Honey Farm Plantation. This report looks at Honey Farm Coffee’s evaluation of the market potential for value added coffee in the United Kingdom.

The Strategic Objective:

The Honey Farm Coffee Company business has so far been restricted to growing quality coffee and selling raw coffee to the highest bidders in the commodity auctions in India


10

(Chengappa, 2004). Commodity coffee is bought at the auction by exporters or by roasting companies like Nestle. The exporters transport the coffee to the consuming markets (Europe, Japan, and N. America), while the local roasters add value by extracting coffee for production of instant or roasted coffees and either market domestically or alternatively export to other consuming markets (Mandanna, 2004). This option of the grower selling commodity coffee has now become unattractive for Honey Farm Coffee due to prevailing low commodity prices worldwide (Friedenberg et. al., 2004).

The immense popularity of Indian food with British consumers has led to an expansion in the number of restaurants in the UK and now number close to 10,000 (White and Kokotakshi, 2004). A few years ago, Indian beers were not well know in the UK, however, with sustained marketing, Kingfisher and Cobra beers have come to be accepted as part of an Indian experience for which the customer goes to an Indian restaurant (Accountancy, 1990). Currently, Indian restaurants use coffee (from various country origins) bought in the local superstore (Mody, 2004). A similar marketing model as the one used by the Indian beer companies is proposed, for the marketing of Honey Farm Coffee in the United Kingdom. Present

Present

MARKET

PRODUCT

New

Commodity Coffee INDIA

Market Penetration

Product Development

Specialty Coffee UK New Feasibility of marketing of Honey Farm Coffee In the United Kingdom Market Development

Diversification

11

Figure 1: Competitive Strategy (Ansoff, 1988)

Using Ansoff’s (1988) competitive strategies as explained in Dibb et.al. (2001), Honey Farm Coffee is contemplating a strategic decision to consider a diversification into the

value added/roasted coffee (new product), in a fast expanding consumer market (United Kingdom) (figure 1). Of the many consumer markets, the United Kingdom was chosen because of its large network of Indian restaurants (White and Kokotakshi, 2004) , the popularity of Indian food, rising consumption of speciality coffee (Lintott, 2004) and due to the authors’ previous experience of working and living in the United Kingdom.

This DL MBA research project was set up to evaluate the feasibility of marketing of value added (roasted) Honey Farm Coffee in the United Kingdom in order to provide a critical input into the strategic decision making of the company.


12

Research Objectives:

1. Evaluate the value chain of Honey Farm Coffee: Currently, the produce of Honey Farm Coffee is sold as a commodity in the local auctions. An understanding of the

value-addition in the value chain of coffee will be a useful input into the decision of marketing a value added product in the United Kingdom.

2. Market Level Analysis: An evaluation of the macro and microenvironment of the coffee consuming market in the United Kingdom. This study will reveal the dynamics of the coffee market in the United Kingdom and will include a customer survey analysis of the selected market. A random sample of restaurants will be selected for conducting a product test, and to validate the results of the customer survey. In addition, this would test the hypothesis that value addition of commodity coffee can be gained by targeting the Indian restaurant sector in the UK.

3. Company level analysis: An evaluation of Honey Farm Coffee, its strengths and weaknesses, and the fit between the company and the opportunity presented by the environment. Objective 2 above would validate the business proposition and environmental factors in favour of value addition of coffee, while this objective attempts to determine whether Honey Farm Coffee as an organization has the skills and competencies that would enable it to benefit from a market opportunity, and if


13

not, which competencies need to be developed to benefit from the opportunity presented to the company based on the outcome of objectives 1 and 2 above.

Structure:

Chapter one of this dissertation is a review of the literature relevant to this project. The literature review starts with a look at the state of the world coffee commodity market at the current time. This is followed by an evaluation of the literature on the status of Indian coffee within the world market. The appraisal of the literature reviewing the state of the coffee markets is followed by a review of the academic literature relevant to meeting the above research objectives. Review of academic concepts that are relevant to this project follows.

Chapter two discusses the methodology that would be utilized in this research project, their strengths and limitations in meeting the research objectives. This discussion is structured based on the objectives discussed above.

Chapter three evaluates the results of the project and discusses the key implications of the research for marketing Honey Farm Coffee in the United Kingdom. The results are structured based on the research objectives.

The final chapter concludes the research report and discusses the key recommendations. The output of this research will be used as an input in a strategic decision by the Honey Farm Coffee Company regarding the feasibility of a diversification into marketing value-

added coffee in the United Kingdom. This chapter includes a discussion of possible future steps that the company could take to operationalize the findings of this research project.


14

Chapter 1: Review of Literature: Introduction:

Chapter one of this dissertation is a review of the literature relevant to this project. The first part of the literature reviews the state of the world coffee commodity market at the current time. This is followed by an evaluation of the literature on the status of Indian coffee within the world market. This sets the stage and provides the rational for conducting this research project whose outcome is to enable the Honey Farm Coffee company to evaluate its future options. The appraisal of the literature reviewing the state of the coffee markets is followed by a review of the academic literature relevant to meeting the research objectives discussed in the introduction.

World Coffee Scenario:

Coffee is the second most traded commodity after oil, and has a unique place in the modern history of the world. Its increasing popularity is visible through the rapid expansion of coffee houses in the cities of the world, exemplified by the success of Starbucks and the “life style” that it evokes.

However, all is not right within the coffee industry. There are fundamental structural problems that make the current situation unsustainable (Holmes and Smith, 2002). Coffee prices are at 30-year lows and the industry is facing its worst crisis, trapped in a vicious cycle of falling demand and surplus production (Smith 2003, Mackenzie 2004). For most of the worlds 25 million coffee farmers, prices have remained below cost of production for the past 4 years leading to large scale unemployment and hardship among the most


15

vulnerable workers in developing and under-developed economies (Friedenberg et. al., 2004). Some attempts have been made by local governments to help alleviate some of the suffering by forming farmer cooperatives, and assistance in marketing programs (Acivedo 2004). The social upheaval caused by plunging prices has been compounded by the substitution of the coffee crop by plants that produce narcotics like “khat” in Ethiopia and “coca” in Peru and Columbia (Doan (2003). Supplies of coffee have traditionally been hostages to the vagaries of weather, political conflict, national policies and a long and cyclical lag period for fundamental supply corrections due to the nature of the crop (Figure 2, Friedenberg et.al. 2004). There are a number of reasons for the current price trough. The costs associated with the industry are changing fundamentally. Brazil has innovated in coffee cultivation and thereby reduced costs associated with coffee production. Production areas have moved to frost-free regions and mechanization has improved significantly, leading to the laying off of almost 90% of workers and further reducing cost of production (Friedenberg, 2004). In addition, there has been the devaluation of the currency (Real) against the US dollar (Mandanna 2004). These factors have lead to sustainable reduction in production costs. Vietnam, a new entrant in the coffee market has planted vast areas of virgin soil with coffee, leading to a glut, especially Robusta beans (Mandanna, 2004). Between 1990 and 2000, Vietnam planted more than a million acres of Robusta coffee, with annual production rising from 84000 tons to 950000 tons (Smith, 2003), adding further pressure on the supply situation. These two countries (Brazil and Vietnam) have a sustainable advantage as cost leaders (Figure 3) (Friedenberg, et.al, 2004).


16

Figure 2 Fig2: Coffee Supply 1900-2003, Unroasted Coffee in millions of 60 Kg bags.

Other Surplus producers in the vast traditional coffee regions of the Central America, cannot match this level of mechanization primarily due to lack of resources and difficult terrain. This has lead to almost 600000 jobs lost in the Central American coffee farms according to World Bank estimates (Economist 2001, Smith, 2003). The current price situation is threatening to lead to fundamental restructuring of the coffee industry. Figure 3, from Friedenberg et.al, 2004, shows the relative cost advantages associated with major coffee growing Not Diversified/ diversified/higher countries, with countries in Central America experiencing costNot of production Notseveral Profitable Profitable

than current prices. Deficit

Figure 3: Average Profit in coffee producing countries. The depression in commodity prices of coffee have not been reflected in a corresponding drop in the price of roasted coffee in the supermarket, or the price of a cup of coffee in the Green Coffee Beans: Source: International Coffee Organization: World Bank

cafes of consuming countries. A £ 2.00 cup of coffee contains coffee worth approximately 10 pence, of which, only a fraction (0.008pence) reaches the grower (Coffee Board, 2005). For every $3 paid for a tin of roasted coffee in a supermarket in the US, the farmer receives less than 30 cents (Smith, 2003). In Haiti, a woman has to work for 3 days to make the £2 Diversified/ that is paid for a cup of coffee in the UK (Business Customwire, June 2004). Of the US$75 Profitable

billion generated from sales of coffee products, the growers get only about US$5 Billion Diversified/ (Business Not-profitable Customwire, 2004).

Average Profit, cents per pound (2003) Feasibility of marketing of Honey Farm Coffee In the United Kingdom Source: Coffee Statistics, ICO

17

The big four roasters Nestle, Procter & Gamble, Sara Lee and Kraft have seen the coffee roasting business become very profitable, while, the coffee growing community is on the brink of disaster. Some roasters have implemented schemes for alleviation of this fundamental inequity by initiating schemes that help growers.

There are several initiatives that are well intentioned and partly successful in improving the returns seen by the grower for his produce. Oxfam intends to launch in the UK a number of “fair-trade” coffee shops to assist farmer co-operatives gain a better price for their produce (Finance CustomWire, 2004). Many consumers are interested in the idea of fair trade and one study indicates that at least 50% of all consumers have purchased a “fair trade” product at some time (Barnes, 2004). Marketing muscle for fair-trade products provided by grocers like the Co-op who are looking to position themselves as ethically focused supermarket are improving awareness and popularity of fair-trade coffee (Barnes, 2005). The Mckinsey report (Friedenberg et.al., 2004), however indicates the big divide between the registered production of schemes like “Fair Trade” and “Rainforest Alliance” with the actual sales under these schemes. There has to be considerable increase in the off take of these grades of certified coffees before they make a meaningful impact on the coffee growing community. The sale of “Fair Trade” coffee is only about 17% of the certified production while sales of “shade grown” coffee amount to about a third of certified production. This is despite the fact that only a small fraction of farms are certified under these schemes, through a lengthy and expensive process (Friedenberg et.al, 2004). In addition, most of the increased price paid by the customer does not necessarily go back to the coffee grower as intended by these initiatives (Stecklow and White 2004).


18

As discussed above, coffee is a commodity with falling terms of trade and volatile prices. Paradoxically, there has however been increasing product differentiation in final markets with premium prices paid in the final high-income economies where most of the rent is appropriated without providing a benefit to the third-world grower (Kaplinsky and Fitter, 2004). This knowledge can be utilized by the coffee growing community by moving up the value chain of coffee and directly marketing the value added product in the high-income consuming markets (Kaplinsky and Fitter, 2004).

The one bright spot in the coffee industry is the growth of the “specialty coffee” segment by close to 10% (Friedenberg et.al, 2004). This has given some hope to high quality producers for value addition of their commodity product and to get prices that would make production sustainable.

Indian Coffee Scenario:

India’s share of world coffee production is 4.5% (290000MT). With 2004/05-production forecast to increase by 12 percent following an excellent monsoon, exports of coffee are also expected to increase to about 75% of production, with the remaining 60000 metric tons being consumed locally (USDA, 2004).

Indian Arabica coffees have high-body, low

acidity, positive bitterness, and excellent aroma, and compare favorably with what is produced in Columbia and Brazil (Indian Coffee, 2003), while Vietnamese quality is generally of a lower grade. A recent advertising and marketing effort by the Coffee Board, which is a quasi-government organization, has let to the increased awareness of Indian coffee and its high quality standards in the coffee consuming markets of North America and Western Europe. Till recently, a quasi-governmental body that was responsible for


19

setting procurement price marketed Indian Coffee, with most exports going to the former Soviet Union. With the collapse of the Soviet Union, termination of International Coffee Organization (ICO) quotas and the freeing up of market controls, closely followed by unsustainably low commodity prices (figure 3), has led to considerable hardship for growers and workers alike. The war in Iraq has put added pressure on growers due to increased insurance premiums and a drop in demand from the markets of the Middle East (Emerging Markets Economy, 2003). This situation threatens to decimate a sector what was once a key foreign exchange earner and employment provider in India. Temporary relief in the form of deferred loan payments and transport subsidies for exporters have marginally helped the growers and coffee exporters in India.

The UK scenario, as a key coffee consuming market, was evaluated as part of this study, and forms a key component of the results section of this report.

Value Chain:

The assessment of the value chain for coffee would provide the basis for decisions taken by the grower whether revenue could be increased through taking the commodity through the value chain. The value chain concept is useful for understanding how value is created or lost through the different activities between production of coffee and its delivery to the final customer. The stages at which maximum value is created and whether the grower has or can develop the competencies to perform other functions in the value chain is a key analysis for developing strategy (Johnson and Scholes, 2002). An extensive discussion of the value chain concept and its application for the analysis of value creation and outsourcing of non-core activities is found in the work of Porter (1985). Value chain


20

analysis looks at primary and support activities performed by the business (Johnson and Scholes, 2002). It is rare for a single organization to undertake all of the value activities from product design through delivery, there is usually specialization of roles forming a wider value system (Johnson and Scholes 2002, and Ambrosini 1998). This is true of the coffee value chain where there is specialization of value chain activities like growing, trading, transportation, distribution, retail and café’s. Interesting work by Kaplinsky and Fitter (2004) from the Institute of Development Studies at the University of Sussex looks at the value chain of coffee and the issues of technology and globalization, and discusses the de-commoditizing of coffee through branding/speciality coffee.

Environmental, Market and Company Analysis:

Value chain analysis would indicate whether an economic rational exists for the coffee grower would benefit from value addition. However, in order to be successful, an analysis of the market environmental factors would be necessary to ascertain the likelyhood of success of any diversification strategy by the company (Drucker 1981). Scanning of the environment, both macro and micro environmental factors are critical for sustainable market success (Brownlie D, 1994). A systematic and thorough analysis is the foundation around which most successful marketing strategies are based. A practical approach is presented in the work by Dibb, et. al, (1996). The macro-environmental factors include political, economic, social, technological, legal and environmental (green) issues (Dibb et, al, 2001, Kotler et.al, 1999). Micro environmental factors have a direct impact on the performance of a company. Competitive strategy is generally based on the impact of different micro environmental factors. Porter’s (1979) work forms the basis of most


21

modern competitive strategies in marketing. Identifying threats from suppliers and customers along with competitive relationship with substitute products and new entrants forms the basis of the Porter’s 5 forces of industry competitiveness (Porter, 1980). Specific market analysis of the coffee sector has been done for the UK at a regular basis (Mintel 2002, 2004). However when such secondary data is unavailable for a market sector (e.g. Indian restaurant use of coffee), primary data will need to be collected (Birn, 1999, Malhotra and Birks, 2000). This can be achieved using a number of different survey and data collection techniques (Tull and Hawkins,1993), only some of which will be appropriate for the task at hand (Dibb et. al. 2001).

Product trials are an excellent tool for evaluating the product and market and the customers response to the product. In addition, trials facilitate moving a consumer towards a “purchase” decision during the product adoption process (Dibb, et.al, 2001). Excellent quality of primary research data can be collected by this method, albeit at a high cost. It is therefore essential to select a sample from a larger population. The sample should be representative of the market, and a random sample is usually the best as each individual entity in the population has an equal chance of being part of the product survey (Pidd, 2001, Dibb et. al., 2001). The Microsoft Excel® program has been extensively used for generation of random numbers from a population (Wakhloo and Welch, 2004). A small random sample drawn from the database can thus be easily generated.

The key “strategic messages from both the business environment and strategic capability of the company can be combined in a SWOT (strengths, weaknesses, opportunities and


22

threats) analysis (Johnson and Scholes, 2002). A SWOT analysis summaries the key issues form the business environment (opportunities and threats), and the strategic capability (strengths and weaknesses) of an organization that are most likely to impact on strategy development and in setting the future course of action (Jacobs et. al. 1998). The aim of a SWOT analysis is to identify whether the current strengths and weaknesses are relevant to and capable of dealing with changes taking place in the business environment (both opportunities and threats). It would also reveal what competencies need to be built up in order to move the business to being more relevant to the emerging environmental triggers (Johnson and Scholes, 2002).

Summary:

This chapter reviews the literature that is relevant to different aspects of this study. Honey Farm Coffee is a coffee growing company that is threatened by low commodity prices of

coffee. The literature first sets the scene for the changing environment in the coffee growing world by evaluating changes that are occurring in the production and price of the commodity in the world market and what this implies for growers. Drivers like the growth of “fair-trade” coffee and growth of speciality coffee are discussed. The coffee scenario in India and its impact on growers is discussed. Following the review of the commodity market environment, the discussion goes on to evaluate the relevant academic literature that would assist the completion of this research project and provide input to Honey Farm Coffee on the feasibility of marketing its produce by value addition in the United Kingdom.


23

Chapter 2: Methods:

Introduction:

Chapter two contains a reiteration of the project objectives along with a discussion of the methods and sources of information and its justification, which would be used to achieve the project objectives.

Value Chain Analysis:

The first objective of this study is to evaluate the value chain of Honey Farm Coffee. Adapting the value chain analysis (Porter 1985, Ambrosini 1998), extensive interviews were conducted with various key players along the coffee chain, including the grower, trader, roaster, retailer and restaurant owners. The grower has vital information on the current value chain of Honey Farm Coffee and the rationale behind project objectives evaluated in this study. The other participants of the survey including the trader, roaster, distributor and restaurant owner/managers have vital knowledge and information on key elements of the coffee value chain. The value chain for coffee in general is evaluated and this is overlaid on the current value chain of Honey Farm Coffee. The outcome of this analysis is expected to determine the extent of value that could be added by moving further up the value chain by the coffee grower ( Honey Farm Coffee). The details of information solicited and feedback achieved is discussed in detail in the results chapter. The method used to gather information was a personal interview by the author and the study


24

participants who were selected for their experience and expertise in the value chain. Representing the grower was Mr. M.B Chengappa of Honey Farm Coffee, the trader perspective was provided by Mr. Trishul Mandanna of Louis Dreyfus, who is a large coffee trading house based in London. The roaster interviewed was Mr. Andy Fawkes (Masteroast Coffee Company) who has extensive experience in the coffee industry and purchases coffee directly from growers. Steve Mody of Gandhi Oriental Foods, CEO of one of the largest distributors of ethnic foods and products to the hospitality business provided input on value creation through distribution. The Honey Farm Coffee, UK perspective was provided by its managing director, Mr Gautam Devaiah. 60 restaurant owners were individually interviewed in London. The city was chosen as the site for this research due to the increasing popularity of speciality coffee and high concentration of Indian restaurants that would be potential customers for Honey Farm Coffee. The restaurant survey is discussed in further detail below.

Environmental Analysis: Coffee Scenario in the UK :

The second objective of this study is to evaluate the macro-environmental and microenvironmental factors that are specific to the coffee business in the United Kingdom. In addition, a collection of primary data of a population of target customers and an in-depth product trial using a random sample of this population is included.

Of all the macro-environmental factors affecting the coffee industry in the UK, only the most relevant social, economic and cultural changes have been evaluated. Secondary sources of information (Dibb et. al, 2001, p 274) were used as the basis for the study of the


25

environmental, particularly social and market factors that are relevant to the coffee industry in the United Kingdom. Mintel reports (2002, 2004) contain a comprehensive survey view of the United Kingdom coffee industry. The key elements of this study are summarized in the results section

Industry competitiveness framework (Porter’s Five Forces model) (Porter, 1980, Dibb et.al, 2001) was used to structure the analysis of the micro-environmental factors relevant to the UK coffee industry with respect to the Indian Restaurant Sector. Information for the analysis were gathered from different primary sources using the personal interview technique (Dibb et.al, 2001, Devaiah 2004, Fawkes 2004, Mandanna 2004, Mody 2004). The five forces evaluated included the threat of substitutes, which are numerous for a beverage like coffee. The substitutes include, besides other hot beverages like tea, drinks like water, and other aerated drinks. Threats from competitors in the coffee sector were evaluated based on existing competition for “Indian coffee” and from other generic coffee suppliers. The threat from suppliers, new entrants and customers were also considered and input was gathered for this analysis from various people and entities with extensive experience in the UK coffee and Indian Restaurant sectors as discussed in the results section.

Survey of the Indian Restaurant Sector:

Secondary data was unavailable to evaluate this sector of the restaurant market, especially with the objective of determining the current coffee consumption habits and the response to an Indian coffee brand. Therefore primary data (Dibb et.al, 2001) was collected through a survey that was done for the purpose of this project.

There are several ways of collecting


26

primary data from the target customer group (Dibb et.al 2001), however based on the large number of participants and the available budget to conduct this research, a customer survey was considered to be the most appropriate tool, and was structured as outlined below (Kotler et.al.2002).

Defining Problem:

The objective of the customer survey was to evaluate the feasibility of marketing Honey Farm Coffee to the Indian Restaurant sector in the United Kingdom and more specifically

to ascertain the coffee consumption habits of the Indian restaurants.

Research Plan and Implementation

The research plan was as follows:

Build Database : A database of Indian restaurants in the London area was required to be

built up to assist in the customer survey. London was chosen as the location for this survey for a number of reasons. The primary reason was the high density of Indian restaurants in the city, the easy access to these restaurants both physically and via telephone and the importance of London for setting trends in the sector (White and Kokotakshi, 2004). The database was generated from multiple sources. The local chamber of commerce provided a list of businesses that were registered as Indian restaurants, the Internet (e.g.http://www.menu2menu.com/indian.html) have listings of all local restaurants and finally the London telephone yellow pages were used as the primary source of information for building the database. This list of restaurants in the London area collected for the


27

database represented all geographic areas of the city and included all categories of restaurants.

Contact Customer: Once the database was built (up to a minimum of 1000 restaurants),

each restaurant would be contacted directly and time set for a telephone interview conducted with the owner or general manager in charge of procurement to elicit required information. In the telephone interview the information to be collected (see Appendix 1) for the database included: Name of Restaurant, Owner, Manager, Working Hours, Address, Telephone/Contact information, Tube station, Usage of Coffee in kilograms per month, Coffee served (espresso, filter or cappuccino), and number of covers (seating capacity) of the restaurants. The manager/owners were also asked if they would switch to an Indian brand of coffee if it were available. In addition, each restaurant was sent the company brochure (appendix 3) in an effort to inform and educate the selected target market.

Analysis: The results of the survey were collated and analyzed to understand the nature of

the coffee business in this sample of Indian restaurants. This is discussed in the results section.

Random Sample and Product Trial Evaluation

From the database developed as described above, 60 restaurants (5% of the population) were selected as a random sample (Kotler et. al., 2002, p282, Dibb et al, 2001 p183) for product trial in the London area. Random sample numbers (Pidd, 2001) were generated to select a sample from the database (1220) population using the Mircrosoft Excel® program


28

(Wakhloo and Welch, 2004). The sample was limited to 60 and to London based on the resources (product, money and people) available to do the trial.

Each of the 60 restaurants was visited, and owner/mangers of these restaurants were informed of Honey Farm Coffee through the use of brochures, advertising material (appendix 2 and 3) and through a personal presentation (Dibb et.al, 2001 p189). One kilogram of coffee in the form (ground/bean) used by the restaurant was given free for trial with the restaurants customers. This quantity would be adequate for about 100 cups of coffee.

Two weeks later, these restaurants were visited again for a debrief on the product trial (through a personal interview), and purchase orders would be offered to these restaurants for purchase of coffee on a regular basis. The customers were asked if they rated their experience with the coffee as i. Very satisfied, ii. Satisfied or iii. dissatisfied. In addition, the customer was asked for a qualitative feedback on the taste and quality of the coffee as 1. Rich and aromatic 2. Mild 3. Bitter.

The outcome of this survey partly assessed by the conversion of product trials to paying customers would be used to evaluate the feasibility of the marketing of Honey Farm Coffee. In addition, the learning gathered would assist in developing a tentative marketing

mix for the launch of Honey Farm Coffee on a larger scale. The data gathered was analyzed statistically and results are discussed in chapter 3.


29

Company Level Analysis:

A comprehensive study was conducted to analyze the strengths and weakness of Honey Farm Coffee, and, analyze these in view of thee opportunities and threats that it would

encounter (Johnson and Scholes, 2002, Dibb et al, 2001). Further, the SWOT analysis (Jacobs et.al. 1998) was used to determine the nature of the “fit” between the company and its strategic objectives. Objective 1 and 2 discussed above would provide an insight into the opportunities that the environment provides Honey Farm Coffee. Through the SWOT analysis, an understanding would emerge, of the skills and competencies that the company needed to augment.

The SWOT analysis was conducted with extensive detail emerging from personal interviews with key players in the coffee industry (Mandanna, 2004, Devaiah, 2004, Fawkes, 2004, Chengappa, 2004 and Mody 2004). Key aspects of the opportunities emerge from the both the above interviews, the customer survey and the product trial described above. Based on this analysis, described fully in chapter 3, an idea of the key opportunities and the required competencies for Honey Farm Coffee emerge.

Summary:

Chapter two describes the methods used to evaluate the objectives of this study described in the Introduction chapter of this report. The first objective looks at the potential for value addition for Honey Farm Coffee. Input for this stage of the research is primarily through personal interviews of key players in the coffee market involved in all parts of the value chain from the grower to the final restaurant. The second objective requires a


30

comprehensive evaluation of macro and micro-environmental factors using both primary and secondary sources of information, and evaluation of the target market using a telephone survey and more detailed product trial evaluation using a random sample of a database of the target market participants. The results produced using the methods discussed in this chapter are presented, evaluated and discussed in the next chapter.


31

Chapter 3: Results and Discussion:

Introduction:

This chapter constitutes the main part of the research project, and discusses the results of the study based on the research objectives described in the early pages of this document, and using the methods described in the preceding chapter. The chapter has been structured based on the different research objectives and, both the results and the associated discussion have been linked to facilitate analysis. At the end of this chapter is a brief summary of the results and their analysis.

Value Chain Analysis:

The value chain of coffee includes the growing in tropical areas of the world with the vast majority of the coffee produce exported to high-income consuming countries. The exported coffee is then roasted at speciality roasters and by large companies like Kraft, Sara Lee and Nestle, retailed or sold to the restaurants and other hospitality industry consumers (Kaplinsky and Fitter, 2004). Figure 4 below is a schematic representing the value chain of coffee and is adapted from the work of Porter (1985), Johnson and Scholes (2002) and Kaplinsky and Fitter (2004). Honey Farm Coffee is primarily a grower of fine quality coffee and has so far not participated in the other functions of the value chain.


32

G R O W I N G

E X P O R T

R O A S T I N G

D I S T R I B U T I O N

RESTAURANT & RETAIL

MARGIN

Figure 4: Value Chain of Coffee , (Adapted from Johnson and Scholes (2002), Kaplinsky

and Fitter (2004) The value chain of coffee starts at the production of coffee at the farm. Honey Farm Coffee has been selling this coffee as commodity and performs only the growing operation

in the value chain. (Chengappa M.B., 2004). The revenue generated by selling the commodity coffee at the farm gate is very low as can be seen in Figure 5, and the profit is – 11% (Figure 6). This is because the prevailing price of coffee is below the cost of cultivation (Chengappa 2004). The value addition begins with the physical transportation of coffee to the consumer market (UK) (Mandanna T, 2004). In spite of the costs involved in the physical relocation of coffee, there is around a 20% profit potential by selling the coffee as a commodity in the consumer market. The main customers for commodity coffee in the UK are roasters, who then sell on to supermarkets as own brands (Fawkes, A 2004).


33

Value Addition

£

12 10 8 6 4 2 0

Cost Revenue

) y t i d o m r m a F m o c (

) y t i t r d o o p m x E m o c (

e , g a G k & c R a P

t n e a r s a u h a t c s r e u p R

Figure 5: Cost VS Revenue during value addition of coffee

The next stage in the value chain is the roasting and grinding (R&G) and packaging of coffee. The main costs involved are the outsourcing of the roasting process and the cost of packaging material. The revenue that can be earned increases dramatically after the roasting process and a profit potential of around 45% (figure 5,6) is possible (Fawkes 2004). At an average selling price of £10 per kg of roasted coffee (Figure 6), a profit margin of close to 100% is possible (Devaiah, 2004). The cost calculation is only of the product and does not take into consideration selling costs. The final stage of the restaurant serving the coffee to the consumer is where the maximum value addition takes place. At an average price per cup of £2, there is close to 1900% margin (Mody, 2004) However, these calculations do not take into consideration the costs incurred by the restaurant of hiring people and rental costs etc.


34

% profit

2000 1500 1000 500 0 -500 Farm Export (commodity) (commodity) % profit

-11

20

R&G, Package

Restaurant purchase

Per Cup (@£2 per cup)

45

100

1900

Figure 6. Profit associated with coffee value-addition. (Sources, Mandanna (2004, Fawkes,

2004, Devaiah 2004) Honey Farm Coffee has control of the supply chain for coffee and is evaluating the

possibility of value addition (Chengappa 2004). This could include transportation of raw coffee to the UK, warehousing, roasting, packaging, and marketing of the roasted coffee. The customer and market survey discussed below will be used to evaluate the market targeting strategy that the grower can adopt. From the above value addition study it is clear that the grower would be well served in adding value to the commodity by performing other functions along the value chain. The analysis below of the company competencies should illuminate the feasibility of a value addition strategy for Honey Farm Coffee.


35

Market Level Analysis:

The second research objective is based on an evaluation of the macro and microenvironment of the coffee consuming market in the United Kingdom. This study will reveal the dynamics of the coffee market in the United Kingdom and will include a customer survey analysis of the target market. Assuming a supportive political (supporting trade) and economic environment (fair import tariffs, rising disposable incomes) for the development of coffee trade, this study is focused on the social factors that are of importance to any evaluation of coffee consumption in the target market. These factors include globalization, increasing disposable income, lifestyle changes towards a café culture, increased consumption of ground coffee as opposed to instant coffee, and the increasing focus on fair trade initiatives.

The analysis of value addition clearly shows that the grower ( Honey Farm Coffee) would be able to add considerable value by progressing along the coffee value chain. As discussed above, the UK market would provide an ideal avenue for value addition for Honey Farm Coffee for a number of different reasons. The UK is a high-income economy

where the popularity and consumption of speciality coffee is on the rise (Lintott, 2004), in addition, the popularity of “Indian” food and high density of restaurants led to the hypothesis that, marketing Honey Farm Coffee in Indian restaurants in the UK would lead to considerable value addition.


36

Coffee Scenario in the UK: Evidence gathered in the Mintel® survey (2002, 2004),

presented in figure 7 clearly shows that the total volume of coffee consumed in the UK is on the decline. The main competition coming from bottled water and soft drinks. This decline is visible in both the ground and instant coffee sectors of the market. Instant coffee takes about 90% of the market share in the UK (in home use), while in a more mature coffee market like Italy; almost 90% of coffee consumption uses the higher quality ground coffee.

Figure 7: UK retail sales of coffee, by volume, 1996-2001 (Mintel 2002, Mintel 2004) Year 1996 1997 1998 1999 2000 2001 2002 2003 (est)

000 tons 47.5 46.0 44.0 44.5 44.2 44.1 43.6 43.2

Index 100 97 93 94 93 93 99 98

% Change year on year -3.2 -4.3 +1.1 -0.7 -0.2 -1.1 -.9

Growth of “out of home” consumption: The positive scenario emerging from the Mintel® (2002, 2004) report is the significant growth of the Café culture and the associated “out of home” consumption of coffee. Coffee drinking began in the UK in 17th century coffee houses, there now is a return to this style of coffee drinking in the UK with café chains like Café Nero, Starbucks and Coffee Republic all experiencing significant growth (Lintott, 2004). These coffee chains have educated the consumer in appreciating good quality drink from superior quality roasted and ground coffee beans. This trend has pushed up the value of the specialty coffee industry, which has shown significant growth in recent times. The


37

café culture is also attracting a younger coffee drinker and this bodes well for the future of the coffee industry. It is expected that the café culture will continue to be “trendy” over the coming years resulting in the further growth of out of home consumption of high quality specialty coffees (Mintel 2002, 2004).

Figure 8: Indexed UK retail sales of instant coffee and ground coffee/coffee beans, at current prices, 1998-2003 (Mintel 2004)

Unlike instant coffee sales, which have been falling steadily for a number of years, the ground market has crept upwards, putting aside the sharp drop that accompanied the collapse of bean prices worldwide in 1999 (figure 8) (Mintel 2004). Consumers are becoming increasingly aware of the variety of tastes that can be provided by different blends, which is leading to more consumers placing quality ahead of convenience (Mintel 2004).


38

Fair-trade initiatives, and ethically sourced coffees are showing good growth (figure 9, Minter 2004). The British consumer is better educated on the pricing structure in the coffee industry thanks to the efforts to Oxfam and other Non Governmental Organizations. As a result, there is increased interest in the ethical sourcing of coffees and ensuring a better remunerative price to the grower (Finance Customwire 2004, Barnes, 2004, Friedenberg et.al 2004).

Year 1998 1999 2000 2001 2002 2003 (est)

£m 14 15 16 19 23 27

% of market 1.6 1.8 2.0 2.5 3.1 3.7

Index (1998) 100 107 114 136 164 193

Figure 9: UK retail Sales of Fair Trade Coffee, by value (1998-2003) adapted from Mintel 2004)

The above trends seen in the UK (Mintel 2002, 2004) were seen as positive for the prospects of marketing Honey Farm Coffee in the UK. The popularity and growth of the “out of home” consumption of coffee, the increased sophistication of the consumer as a result of the “café culture”, the drive towards sourcing ethically, and growing consumer interest in fair-trade, all are positive factors for Honey Farm Coffee. In addition, there is a thriving industry catering to the demand for ethnic food, especially Indian food, giving Honey Farm Coffee ready access to a market segment with great promise.


39

Micro environmental analysis:

Porter’s 5 forces Analysis (Porter, 1980), looks at some additional factors associated with the coffee business within the Indian Restaurant sector. This analysis and its outcome would assist the diversification decision by Honey Farm Coffee on whether to proceed with value addition.

Competitive Rivalry : Indian Restaurants use coffee from a variety of sources, including

instant coffee, supermarket bought, private brands etc. However, there is no “Indian” branded coffee that is being offered to the market segment currently (Mody 2004). However, there are other generic current suppliers who would be looking to protect their market share (Devaiah 2004). These include low cost/low quality suppliers, mid priced competitors and the high quality/high quality suppliers (e.g. Illy café) (Fawkes, 2004). Whether the industry would be perceptive to the introduction of “Indian coffee” along the same lines as Indian beer in the Indian restaurants will be evaluated in the customer survey.

Threat of New Entrants : There is a relatively high threat of new entrants of “specialty

Indian Coffee” producers (Mandanna, 2004). The barriers to entry are primarily market access, local knowledge and the cost of doing business in the UK (Devaiah, 2004). Provided there is market interest in an “Indian coffee” brand, first mover advantage may afford some protection from new entrants (Mody 2004).

Threat of Substitutes : The threshold for change for what is essentially a commodity

product is low, and all producers are competing for the “throat space” of the consumer (Mody 2004). The main competition by substitution would come from other hot beverages


40

like tea, soft drinks, water and juices. However, coffee is associated with an after dinner/lunch drink and would be difficult to substitute in that context (Fawkes, 2004, Mody 2004).

Suppliers Bargaining Power : Honey Farm Coffee owns the supply chain, as it grows its

own coffee in plantations in India. This should give it significant competitive advantage in managing the quality and cost of coffee in addition to its positioning as a “fairly-traded”, ethically sourced coffees (Fawkes, 2004). In addition, Honey Farm Coffee grows coffee in a sustainable and eco friendly way in a rain-forest location, which has a tremendous level of biodiversity. These factors give Honey Farm Coffee significant marketing advantages that cannot be leveraged by a local coffee supplier who procures coffee in the local commodity market for value addition (Fawkes 2004, Mody 2004). Roasting and packaging of raw coffee is part of the supply chain, and this function will be outsourced to a roaster. There are several competing roasters and they are not likely to pose a significant competitive threat (Devaiah, 2004).

Buyer Bargaining Power : Switching costs are generally low for a product that is

perceived as a commodity (Dibb et al, 2001). The buyer is therefore likely to be quite powerful. However, in the Indian restaurant business, a first mover advantage and building of brand and brand loyalty may build some switching costs for the commodity (Doyle, 1994). According to Mody (2004), product loyalty is high in the Indian Restaurant sector. Once the switch is made to an Indian Coffee brand, there would generally be a high probability that customer loyalty would afford some level of protection between brand switching (Mody 2004, Devaiah, 2004).


41

Customer Survey Results & Analysis:

Due to the absence of secondary data for this specific sector of the market (coffee useage in the Indian Restaurant industry), it was essential to build up a database of target customers for generating the required input for this research. London was chosen as the location for this survey for a number of reasons. The primary reason was the high density of Indian restaurants in the city, the easy access to these restaurants both physically and via telephone and the importance of London for setting trends in the sector (White and Kokotakshi, 2004). Most product launches in this sector are in London, before it is rolled out to the rest of the country (Mody, 2004). The database was generated from multiple sources. The local chambers of commerce were the source for a list of businesses that were registered as Indian restaurants, the Internet (e.g.http://www.menu2menu.com/indian.html) have listings of all local restaurants and finally the London telephone yellow pages were used as the primary source of information for building the database. Using the methods discussed in Chapter 2, a list of 1220 restaurants in the London Metropolitan area was collected for the database (database not included in this report), and this list represented all geographic areas of the city and included all categories of restaurants.

Each of these restaurants was then telephoned for complete contact information and other details outlined in methods (appendix 1). A very small percentage (1.64%, 20 restaurants) of the contacted restaurants (1220) were not interested in further information on Honey Farm Coffee and were omitted from the next stage of data collection. The remaining 1200

restaurants were interested in more information on Honey Farm Coffee and a brochure


42

(appendix 3) was mailed to each restaurant as preliminary information. Through the telephone interview, Contact information, addresses, telephone numbers, owner/manager details, tube station access etc was ascertained (data not included) to help complete the database. Information was gathered based on the questionnaire (appendix 1) and the data is discussed below.

There was a wide range of seating capacity among the restaurants evaluated. The smallest had just a capacity for 20 people while the largest restaurant could cope with up to 150 people at the restaurant at a time. Consequently, the range of coffee usage varied from 1 kilogram to as much as 30 kilograms during a one-month period, depending on the size of the restaurant. The average consumption for the population of restaurants that were evaluate was 7.45 kilograms per restaurant. An average kilogram of roasted coffee yields around 100 cups of coffee (Fawkes, 2004). This translates to an average consumption of 750 cups of coffee per month per restaurant. There is however a cyclical pattern to coffee consumption in the United Kingdom (Mody, 2004), with consumption increasing by 50% during the colder winter months, a corresponding decline in consumption during the warmer summer months when consumption of cold beverages increase (Mody, 2004).

There was a wide variety of brewing methods adopted with about 60% of restaurants using filter coffee, while the rest were divided between using instant (20%), espresso (16%), and cafetiere (4%). This information is relevant to Honey Farm Coffee, which would be able to provide ground coffee to meet the needs of all the restaurants except those that use instant coffee (20%), unless these restaurants are converted to users of ground coffee by providing them with the required equipment.


43

The manager / owners of the restaurants were finally asked whether they would be willing to switch their coffee producer if they were able to get an “Indian” branded coffee into their restaurants. Of the restaurants that used ground coffee, 60% responded in the affirmative, provided the price matched the existing supplier, while 77% of the instant coffee using restaurants would be interested in switching provided a coffee machine was part of the deal.

Product Trial:

60 restaurants, which amounted to 5% of the database population, were selected by generating random numbers to result in a random sample in order to conduct further product trials of coffee. Appointments were set up with each owner / manager for a personal visit. During the visit, the customer was introduced to the product concept and quality aspects using samples and information materials (appendix 2,3). The customer was then given a one-kilogram sample free of cost as a product trial. The form of ground coffee given was based on the requirement of the customer (whole bean coffee, ground coffee for filter, or ground coffee for espresso). A further appointment two weeks hence was taken in order to debrief the customer on their experience with the product.

After the two-week trial period, each of these restaurants was revisited for feedback, and for ascertaining their interest in buying the coffee on a regular basis.

57% (34 restaurants) of the restaurants that sampled the coffee were “satisfied” with the quality of the coffee while 35% (21 restaurants) were “very satisfied”. The remaining 5% (3 restaurants) were dissatisfied and found the coffee samples to be “bitter” or “too strong” and were not happy with the quality of the coffee blend that was evaluated. Two of the Feasibility of marketing of Honey Farm Coffee In the United Kingdom

44

restaurants were using instant coffee in their restaurants and were unwilling to try the coffee samples unless a coffee-brewing machine was provided.

In the quantitative feedback, 45% of the respondents found the coffee to be rich and aromatic, while 5% found it bitter, 3% did not respond, as they were unable to sample the coffee without brewing-machines. The remaining 47% found the coffee to be “mild” and associated this trait with good quality.

Of the 55 restaurants that were at least “satisfied” with the coffee quality, 18 (33%) had existing contracts with other suppliers and would consider switching to Honey Farm Coffee at the completion of their contract periods. 31 (54.4%) restaurants were willing to

begin using Honey Farm Coffee immediately. The remaining 10 (17%) of the restaurants were currently using instant coffee or low-grade, low priced ground coffee (below £6 per Kg.), and were unwilling to switch to Honey Farm Coffee that was tentatively priced around £10.

Subsequent to this survey, the 31 restaurants that were willing to purchasing Honey Farm Coffee have now become customers. The average volume of coffee purchased is

approximately 8.9 kilograms per month at an average price of £11.50. The other 18 restaurants that were willing to convert but were constrained by their existing contracts will be contacted when the contracts are due for renewal/change.


45

SWOT Analysis:

The final objective is an evaluation of Honey Farm Coffee, its strengths and weaknesses, and the fit between the company and the opportunity presented by the environment. Objective 2 above has validated the business proposition and environmental (macro and micro) factors in favour of value addition of coffee, while this objective attempts to determine whether Honey Farm Coffee as an organization has the skills and competencies that would enable it to benefit from the market opportunity.

Strengths:

The Company knows what it takes to cultivate and deliver excellent quality coffee to the consumer as it has been in the coffee business since 1908 (Chengappa, 2004). It is a vertically integrated supply chain through the production of good coffee in its farms in India. It has control of all parts of the value addition chain, and those parts that it does not own, like freight, roasting etc, can easily be outsourced, and still retain some level of control on the operations (Devaiah, 2004). Being vertically integrated means that the costs at different parts of the coffee chain from farm to cup can be kept under control while at the same time not compromise on quality of the coffee that the consumer would receive (Fawkes, 2004). An added strength is its “India-ness” (Mody, 2004). Launching the product now to the Indian restaurant business would give it First Mover advantage that would be difficult and expensive for subsequent entrants to overcome (Mody, 2004). The management team of the company has spent many years in the UK working in multinational companies whose core business included beverages (Devaiah, 2004). The company could leverage these contacts in marketing, advertising, financing and knowledge


46

of the market place. Being a long established company with fully owned assets of coffee plantations since 1908 would give it added credibility with the consumer (Fawkes, 2004). Based on the feedback of product trials, and knowledge of the coffee trade, the “cup” quality of the coffee as evidenced by taste trials by resident coffee tasters at the Masteroast facility, is of exceptional quality (Fawkes, 2004). This is the primary strength of Honey Farm Coffee (Devaiah, 2004).

Weaknesses:

Honey Farm Coffee is a coffee growing company, which has very limited experience of

selling directly to the consumer. Most of its coffee is normally sold to large traders or buyers in the form of raw coffee (Chengappa 2004). Roasting and selling coffee to businesses like restaurant chains is a new proposition to the company (Devaiah, 2004). Due to its core competencies in growing, the company has only a rudimentary marketing and distribution department, and this is a significant weakness that needs to be corrected if the company is to adopt a value-addition strategy. (Mody, 2004).

Logistics is a problem due to the geographical distance between producer and consumer market. This however could be overcome by inventory that could be built up in the consumer market without significant added costs (Fawkes, 2004). Another weakness is that financing would need to be raised in the UK to set up and run a fully functional marketing outfit. The fact that most of the physical assets (estates) owned by the company is not locally located (in the UK) increases the costs of debt financing (Devaiah, 2004). The relatively small size of the target market is of concern (Mody, 2004). However,


47

projections of consumption by this sector of the market would more than consume the entire raw coffee production of the company (Devaiah, 2004, Chengappa 2004).

Opportunities:

The UK coffee drinking market is expanding in the restaurant and out of home drinking sectors (Mintel 2002, 2004). The cultural changes discussed in the preceding environmental survey, with increases in ground coffee consumption (Mintel 2004), rising concern for sustainability and “fair trade” and the continued popularity of Indian cuisine (Lintott, 2004), combine to create a powerful marketing opportunity for Honey Farm Coffee (Devaiah, 2004).

The Company has the opportunity to get the first mover advantage in a vibrant sector of the restaurant market within the UK (Mody, 2004, Devaiah, 2004). This would represent considerable added value to the low prices that the coffee traditionally fetches in the commodity markets (Kaplinsky and Fitter, 2004). Consumers in Indian restaurants in Britain would benefit by having available to it quality Indian coffee to complete the dining experience in the Indian restaurant (Mody, 2004). Once the product is established in the UK, the opportunity for geographic expansion to similar establishments in the USA and Europe would arise (Mody, 2004, Devaiah, 2004).


48

Threats:

The larger coffee producing companies (e.g. Nestle, Sara Lee) would not be interested in a small market sector like Indian restaurants in the UK, and would be unlikely to emerge as competitors (Fawkes, 2004).

The strategic reaction of current generic coffee suppliers to the Indian restaurant sector would be a clear threat to Honey Farm Coffee (Mody, 2004). If the reaction of the supplier is price based, this will erode the anticipated profit margins of the company (Devaiah, 2004).

Entry of other producers of Indian Coffee is clearly a threat and would represent increased competition in the sector (Fawkes, 2004). This can be countered to some extent by achieving a first mover advantage and establishing a brand and therefore increasing the entry costs to new entrants (Fawkes 2004, Devaiah, 2004, Dibb et. al. 2001).

Delay in shipping caused by bad weather, war etc could potentially be a problem with the delivery of the coffee to the UK. However, this could be overcome with buffer stocks (Fawkes, 2004).

Strategic Fit:

For strategic success it is essential to understand the “fit” between the company’s strengths and the opportunities presented by the environment (Johnson and Scholes, 2002). In addition, it is essential to determine the competencies that it would need in order to meet the company’s strategic goals (Jacobs, et. al., 1998). The changes occurring in the macro environment of commodity coffee clearly affects the profitability of Honey Farm Coffee. Feasibility of marketing of Honey Farm Coffee In the United Kingdom

49

In addition, there are positive changes and opportunities provided by the changing coffeeconsumption landscape in the United Kingdom, which represents an opening for the marketing of the company’s value-added produce in this market. The quality of the coffee produced by the company is superior to the generic coffee that is marketed currently in the United Kingdom (Fawkes, 2004). The company therefore has the quality produce required to meet the needs provided by the market opportunity (Devaiah, 2004). However, Honey Farm Coffee is a company whose main competence is growing excellent quality coffee and

not in marketing a value added product (Chengappa, 2004). Value chain activities like logistics and roasting can be outsourced to other entities (Mody, 2004, Fawkes, 2004). However, the company will have to build up its resources in marketing and distribution in the target market in order to take advantage of the market opportunity (Devaiah, 2004).

Summary:

This chapter contains a presentation and discussion of the results obtained using the methods discussed earlier. The key objectives of this research require an analysis of the coffee value chain and the value addition possible at different stages of the value chain. The results presented above clearly demonstrate the opportunity for significant value addition for Honey Farm Coffee by diversifying its activities through the various stages of the value chain. The remit of the company excludes a foray into the restaurant business (Devaiah, 2004). With this in mind, the diversification up the value chain up to the roasting and marketing of coffee offers the company the potential to significantly increase its revenue as compared to auctioning the coffee grown on its farms as a commodity.


50

The analysis of the macro and micro environmental factors at play in the UK market clearly presents the company with a market opportunity for marketing an “Indian” coffee to the Indian restaurant sector. Feedback from 1220 restaurants in the database developed for this research and the more in depth product trial study using a random sample of 60 restaurants from this database demonstrates the quality and acceptability of the product within the target market segment. The response has been encouraging and the feasibility of marketing Honey Farm Coffee within the Indian restaurant sector of the UK market has been demonstrated.

There is however, a lacuna in its competencies that the company would require to fill before it would be in a position to benefit from the demonstrated market opportunity. The absence of a competent marketing and distribution set up in the target market is an apparent limitation of Honey Farm Coffee.

The objectives of this study was to provide an input to the strategic decision making process of Honey Farm Coffee, by exploring the feasibility of marketing Honey Farm Coffee within the Indian restaurant sector in the United Kingdom. The results obtained and

described in this chapter clearly meet these objectives.


51

Chapter 4: Conclusions: This chapter concludes the research project, and summarizes the results of the study based on the research objectives described in the introduction to this document, and using the methods described in the chapter 2.

Honey Farm Coffee has been growing excellent coffee on a family owned farm since 1908.

The coffee has primarily been sold at the commodity auctions and value addition has not been attempted. However, the coffee industry is going through a crisis where cost of cultivation is not met by the prevailing commodity prices, which are at a 30-year low. This study was set up to evaluate the prevailing market in the United Kingdom and more specifically targeted at the Indian restaurant sector with the objective of evaluating the feasibility of marketing Honey Farm Coffee.

Value chain analysis was conducted for coffee from the growing of the commodity on the Honey Farm Coffee farms, to the export, value addition and marketing of coffee in the

consuming market in the United Kingdom. An analysis of the value added through various steps of the value chain shows an increasing profit being made as the commodity coffee from the farm is processed by transportation to the consuming market, and transformed by roasting and packaging. There is a clear case to be made for the grower to consider value addition, considering the very low value that is released at the farm level due to very poor commodity prices. The analysis of data in figure 6 reveals that up to a 100% profit can be made if value is added by roasting, packaging and marketing to the restaurant business. Participants in the restaurant trade who actually serve the “cup” can make larger profits, but this level of diversification would be outside the remit of the company (Devaiah, 2004).


52

The macro and micro environmental analysis of the consuming market in the United Kingdom reveals the presence of an opportunity brought about by the increasing awareness and consumption of speciality bean and ground coffee, the increasing trend towards fairtrade products and increasing out-of –home consumption of coffee. In addition, the popularity of Indian restaurants and the consumption of coffee as an “after-meal” beverage offer opportunities for the successful marketing of Honey Farm Coffee in this sector in the UK. The absence of an “Indian” coffee brand, provides the company with a potential of “first mover advantage” to establish a relationship with the Indian restaurant sector. This sector would be considered too small for the very large coffee producers like Nestle and Sara Lee (Mody, 2004), therefore the potential for competition is primarily from other small coffee producers and new entrants.

Primary data was collected from a section of the targeted Indian restaurant businesses. Using multiple sources, a database of 1220 businesses was built up. Each of these restaurants was contacted for a telephone interview (appendix 1). The results of this survey reveals that the average consumption of coffee by these restaurants is around 7.5 kilograms of ground coffee. The vast majority of restaurants (80%) used ground coffee and “filter coffee” was the most popular brewing method for coffee in these restaurants. Instant coffee was used by 20% of the restaurants surveyed. There was a high level of interest among the restaurants about an “Indian” coffee and 60% of restaurants using ground coffee would be willing to switch to the “Indian” coffee, as it was the only such product in the market. Of the restaurants using “instant” coffee, 77% would be interested in using the


53

product provide a coffee brewing machine was given free of cost. Ground coffee is considered to be superior in quality to instant coffee (Fawkes, 2004).

A random sample amounting to 5% of the database (60 restaurants) was selected for the second part of this study. Each of the restaurants were visited after making an appointment with the owner / manager. A personal presentation was made along with providing information about the company and the product (appendix 2 and 3). One kilogram of coffee was provided free to each of these restaurants in their preferred form, either whole bean or ground for filter, cappuccino or cafetiere. This sample was adequate for around 100 cups of coffee, and a follow up appointment was made two weeks later to assess the experience of these restaurants and their customers with Honey Farm Coffee. The response from the product trial was overwhelmingly positive. 55 of the 60 restaurants surveyed were either “satisfied” or “very satisfied” with the coffee with a significant number using the descriptor (rich and aromatic, 45%), while 5% of the respondents used the descriptor “bitter” which is commonly used for a deep roast (Fawkes, 2004). The remaining respondents used the descriptor, “mild”, which was associated with a positive link to quality (Fawkes, 2004). Over 50% of the restaurants in the survey were willing to switch to using Honey Farm Coffee on a regular basis at a £10 purchase price.

The final objective of this study was to evaluate the strengths and weaknesses of Honey Farm Coffee in relation to the opportunities and threats afforded by the macro and

microenvironment. The biggest strength of Honey Farm Coffee is the ability to produce excellent quality of speciality coffee that is appreciated as assessed by positive feed back


54

from a random sample of target restaurants. The company has the skills and competencies to produce speciality coffee, transportation and roasting can be outsourced (Devaiah, 2004, Fawkes, 2004), while the marketing and distribution functions are clearly areas that are absent within the company at the time of this study.

Recommendations:

The results of this study as discussed above clearly indicate that Honey Farm Coffee would benefit from a diversification strategy. Presently, the company’s profitability is threatened by very low commodity prices that are subject to the vagaries of the weather and other demand and supply factors. Moving up the value chain of coffee would not only add significant value and therefore profitability but also protect the company from price fluctuation seen in the commodity markets for coffee. However, in order to benefit from the market opportunity, Honey Farm Coffee will require to transform itself into a company that is marketing oriented with representation in the target market. Through hiring and training, the company would need to put into place a strong marketing team along with the necessary financing to launch a coffee in the target market.

Limitations:

This study has been limited to evaluating the prospects of marketing Honey Farm Coffee to the Indian restaurant business in the United Kingdom. It does not evaluate in detail the pricing response of current suppliers and new entrants into the business. Another limitation


55

in the study is that it has been limited to the London area and response from other regions of the country could be different. The costs used in this study is based on commodity prices during the period of this study (2004), and results, especially value addition percentages can change due to fluctuating commodity prices. A detailed study to choose a marketing mix for launching Honey Farm Coffee was outside the scope of this study. However, early discussions with key players (Mody, 2004, Devaiah, 2004 and Fawkes 2004) on developing an appropriate marketing mix is laid out in appendix 4.


56

References: Accountancy (1990), A beer with your Biriyani! Accountancy; Dec90, Vol. 106 Issue 1168, p33 Acevedo, A., (2004), Agreement with local coffee industry announced. Caribbean Business; 2/19/2004, Vol. 32 Issue 7, p53 Ambrosini, V, G.Johnson and Scholes, K (eds) 1998. Exploring techniques of Analysis and evaluation in Strategic management. Prentice Hall.

Ansoff, H.I., (1988), The New Corporate Strategy , John Bailey & Sons, New York, NY. Barnes, R., (2004), More than 50% of consumers buy Fairtrade goods. Marketing (UK); 3/4/2004, p3 Barnes, R, (2005), Co-Op leads fair-trade drive. Marketing (UK) 2/116/2005, p16. Birn, R. (1999), The Effective Use of Market Research . Kogan Page, London. Brownlie, D. (1994), Organising for Environmental Scanning: Orthodoxies and Reformations. Journal of Marketing Management 10(8) pg. 703

Business Customwire (28/6/2004), Trade: Coffee crisis a forgotten issue on global agends.

Chengappa, M.B. (2004), Proprietor of Honey Farm Coffee Estates, Personal Interview Coffee Board Bulletin (2005), Indian Coffee Value addition Devaiah, G (2004), Managing Director, Honey Farm Coffee (UK) Ltd. Personal Interview. Dibb, S., Simkin, L. and Bradley, J. (1996), The Marketing Planning Workbook London: Thomson. Feasibility of marketing of Honey Farm Coffee In the United Kingdom

57

Dibb, S., Simkin, L., Pride, W.M. and Ferrell, O.C. (2001) Marketing Concepts and Strategies. Houghton Mifflin Company, Boston MA.

Doan. T.N., (2003), Planting Trouble . Economist; 12/13/2003, Vol. 369 Issue 8354, p61 Doyle, P. (1994), Building successful brands: the strategic options, The Journal of Consumer Marketing, vol 7, no. 2, 1993, p5. Drucker, P. (1981), Management in Turbulent Times. London: Butterworth-Heinemann. Economist (2001), Drowning in cheap coffee. Economist; 9/29/2001, Vol. 360 Issue 8241, p43. Emerging Markets Economy (2003), Indian coffee exporters suffer from Iraq war . Emerging Markets Economy; 3/20/2003 Fawkes, A, (2004) Managing Director, Masteroast Coffee Company , Peterboro UK. Personal Interview Finance CustomWire (5/13/2004) Oxfam to launch fair trade coffee shops. Friedenberg, S.G., Jordan, C. and Mohindra, V., (2004), Easing Coffee Farmers’ Woes . The McKinsey Quarterly, Number 2. Holmes, S and Smith, G (2002) For Coffee Growers, not even a whiff of profits, Business Week; 9/9/2002 Issue 3798, p110, 4/5p Indian Coffee (2003), Illycaffe First India Coffee Quality Awards Presented, Indian Coffee, November 2003. Jacobs, T., Shepard, J. and Johnson, G. (1998), in Exploring techniques of Analysis and evaluation in Strategic management. Ambrosini, V, G.Johnson and Scholes, K (eds)

1998. Prentice Hall.


58

Johnson, G. and Scholes, K (2002), In: Exploring Corporate Strategy. Sixth Edition, Prentice Hall, UK. Kaplinsky, R and Fitter, R, (2004), Technology and Globalisation: Who gains when commodities are de-commodified? International Journal Of Technology and

Globalization, 2004, Vol. 1 Issue. p5 Kotler, K, Armstrong, G., Saunders, J. and Wong, V., (2002), Principles of Marketing , 3rd Edition, Prentice Hall. Lintott, A., (2004), Analyst comment . Marketing (UK); 6/3/2004, p35 MacKenzie, C., (2004), Bitter harvest . Canadian Business; 5/10/2004, Vol. 77 Issue 10, p43 Malhotra, N.KL. and Birks, D.F., (2000), Marketing Research: an applied approach, Pearson, Harlow, Financial Times/Prentice Hall Mandanna, T, (2004) Louis Dreyfus, London UK, Personal Interview Mintel (2002), Coffee, Market Intelligence , January, 2002 Mody, S (2004), Managing Director, Gandhi Oriental Foods , UK. Personal Interview Pidd, M (2001), Tools for Thinking, Modelling in Management Science , John Wiley and Sons, London Porter, M.E., (1979), How Competitive Forces Shape Strategy. Harvard Business Review, March-April, pg. 137. Porter, M.E., (1980), Competitive Strategy, Techniques for Analyzing Industries and Competitors, Free Press

Porter, M.E. (1985), Competitive Advantage. Free Press


59

Smith, T. (2003), Difficult Times for the coffee Industry as Demand falls . The New York Times. November 25th 2003 Stecklow, S. and White, E., (2004) At Some Retailers, 'Fair Trade' Carries A Very High Cost. Wall Street Journal - Eastern Edition; 6/8/2004, Vol. 243 Issue 111, pA1

Tull, D.S. and Hawkins, D.I. (1993), Marketing Research , New York, Macmillan USDA (2004), India Coffee Annual 2004 , Global Agriculture Information Network Report (IN4045) Wakhloo,N and Welch, E., (2004) , Univerity of Illinois, Springfield http://www.uis.edu/ctl/training/detailedtips/excelgeneratingnumbers.htm

White, H. and Kokotakshi, K., (2004), Indian food in the UK : personal values and changing patterns of consumption. International Journal of Consumer Studies; Jun2004,

Vol. 28 Issue 3, p284


60

Appendix 1: Telephone Survey Questions.

1. Name of Restaurant:

2. Owner / Manager:

3. Working Hours:

4. Address:

5. Telephone/Contact information:

6. Tube station for access:

7. Number of covers (seating capacity) of the restaurant:

8. Coffee served (espresso, filter or cappuccino):

9. Usage of Coffee in kilograms per month:

10. Would you switch to an Indian brand of coffee if it were available? Yes/No


61

Appendix 2: Tent Card

Tent Card: Front View

Tent Card: Rear View


62

Appendix 3a: Brochure Front and Back Pages

Feasibility of marketing Honey Farm Coffee In the United Kingdom

63

Appendix 3b: Brochure Inside pages


64

Appendix 4: Discussion on Marketing Mix

Product : The differential advantages of “Indian”, ”Fresh from Farm to Cup”, “Specialty,

and premium coffee” would be reflected in the packaging and the product (Devaiah, 2004). The coffee would be sourced directly from the farm from the current seasons production and stocks made available at the roaster in the UK. When order from individual businesses is placed, the coffee would be custom roasted based on specifications (type of roast, type of grind, package size etc) and the freshly roasted coffee would be delivered to the customer within 3 days. Only premium grades of coffee would be used in the product and each batch of roasted coffee would be tested (by cupping) for exacting quality standards. The augmented product would include a refund or exchange for dissatisfied customers. In terms of quality, the product will be at the upper end of the market, primarily due to the control on the growing of premium coffee grades and in the fresh roasting of the product. Honey Farm Coffee has been scored higher in terms of freshness (Fawkes, 2004), as all

coffee will be roasted fresh for the customer, while other coffees are roasted and stored for several months in containers in the marketing chain (Mody 2004). Price: The range of roasted coffee in the market varies from £6 for “house” coffee to £28

for the specialty coffee. Honey Farm Coffee would consider the value proposition for the customer in the targeted segment when setting the price. It would not be a competitor at the low price end of the market. It would provide a premium specialty product at a reasonable price that reflected the current pricing structure of the market. Being a differentiated product, there would be some flexibility in pricing. However, considering the low switching costs associated with the product and the objective of building market share, the customers value proposition would be considered while fixing the price. There would be flexibility built into the pricing depending on the evolution of market and competitor activity.

Feasibility of marketing Honey Farm Coffee In the United Kingdom

65

House coffees generally use the lowest grades of coffee and charge the lowest prices. Illy coffee, positioned as a premium coffee to the hospitality industry generally priced around £20-30 per Kg. Honey Farm Coffee, even though it matches Illy in terms of quality, and is better from a perspective of “freshness” of roast, will be priced more moderately keeping in mind the price sensitivity of the sector to which it is targeted. However, Honey Farm Coffee will compete as a specialty coffee rather than in a “commodity” roast cost

leadership position. Promotion : Initial promotion would involve provision of samples of Honey Farm Coffee

to individual businesses for trial. Advertising targeting the owners of Indian restaurants in the UK would then be conducted along with direct marketing, mailing and advertising in gourmet food magazines. The objective will be to build a brand image of Honey Farm Coffee. Using the restaurants to act as conduits for retail of coffee packs in addition to

serving the coffee (with margins shared with the restaurant owners), will be in the focus in the second phase of the product promotion. The diners at the restaurant are the final consumers of the product. Awareness will be built using “tent” cards (appendix 2) on dining tables. A website (www.honeyfarmcoffee.com) would be set up to act as a window to the world of Honey Farm Coffee. Honey Farm Coffee has recently sponsored coffee in various events including the Cartier Polo Tournament (July 24,25th 2004) and Best India Restaurants in Britain Awards, (May, 2004). Place : Indian Restaurants based in the UK will be the place where the coffee will be

available for consumption to the eventual customer. The company is very much aware that thought its customers are the owners of restaurants, the eventual consumer of the coffee who will be clients of the restaurants will hold the key to the success of the marketing of Honey Farm Coffee. Initial feed back from clients of trial restaurants in London has been

very encouraging. After establishing the brand in the United Kingdom, the company will consider the distribution of coffee in the North America and the EU. People : The first phase of marketing will target the 10000 Indian restaurant owners. A

marketing team appropriate for this target segment would be developed to assist in the


66

160037 Dissertation -FINAL1

Recommend Documents