Coffee Corp Case Study

Mike Porter contemplated his second and, he hoped, final retirement when stepping down as CEO in 2021. Coffee Corp was founded by Porter in 1990 as a niche coffee bean roaster and rapidly growing into a global beverage retailer. In a little more than a decade, Porter built one of the worlds most successful global chains of coffee stores earning the highest revenue, income, and profit margin, so he decided to retire in 2000. However, by 2008, Coffee Corps fortunes had deteriorated and Mike Porter had returned as CEO.

During his eight-year hiatus, Porter felt that that Coffee Corp was losing its unique ambience and customer experience. Porter bemoaned decisions that improved efficiency, economies of scale, and company growth at the expense of customer experience. Even though revenues were still growing, the projected trend did not look positive: growth in overall revenue and same-store sales were much smaller than in the previous year. The company had grown to over 17000 stores by 2008, but its stock price was falling.

In 2008, Porter presented a transformation program including goals such as reignite the emotional attachment with our customers, make each store the heart of a local neighbourhood, and engage and inspire partners. These goals illustrate the emphasis that Porter placed on customer experience above the usual goals of simply being market leader.

As part of the turnaround strategy, in 2009 Coffee Corp introduced Premia, its new instant coffee, a move that some worried might further dilute the brand. In 2010, Porter rolled out new customer service guidelines: baristas would no longer make multiple drinks at the same time but would instead focus on no more than two drinks at a time, starting a second one while finishing the first. And, attempting to drive more store traffic other than the morning hours where customers need their daily caffeine intake, Coffee Corp continued to diversify its menu. To get more afternoon and evening customers - traditionally its slowest time of the day - Coffee Corp stores now offer items such as vegetables, flatbread pizza, plates of cheese, and desserts. It even introduced wine and beer, available after 4 pm. Coffee Corps goal is to double its revenues from food over the next few years, and also to be seen as an evening food-and-wine destination.

Porter also pushed the adoption of new technology to engage with customers more intimately and effectively. Coffee Corp now uses social media platforms like Facebook and Twitter to communicate with customers in real time. The latest innovation is the Coffee Corp app that allows customers to order and pay for drinks and food before reaching the store to pick up their order directly to avoid queues. Non-existent before 2011, some 21 percent of all Coffee Corp transactions in U.S. stores are now made through the Coffee Corp app.

Coffee Corp in 2020

As of early 2020, 32 Coffee Corp products are offered in over 25000 company-operated and franchised stores, as well as in other retail locations globally. With stores in 75 countries, Coffee Corp is one of the largest roasters and retailers of specialty coffee in the world. Coffee Corp employs approximately 254000 people around the world. In the U.S., Coffee Corp employs 170000 people with 162000 working in company-operated stores and the remainder in support facilities, store development, and roasting, manufacturing, warehousing, and distribution operations.

Approximately 84000 employees work outside of the U.S., with 81000 in company-operated stores and the remainder in regional support operations. Coffee Corp is geographically organized into four divisions: 1) Americas 2) Europe, Middle East, and Africa (EMEA) 3) China/Asia Pacific (CAP) and 4) Channel Development. Revenues as a percentage of total net revenues for fiscal 2016 were as follows: Americas (69 percent), CAP (14 percent), EMEA (5 percent), Channel Development (9 percent) and All Other Segments (3 percent).

Coffee Corp operates its own stores and also licenses stores to third-party operators. Licensees pay Coffee Corp license fees and a portion of all revenues generated by the store in exchange for use of the Coffee Corp brand name, Coffee Corp products, detailed store operating procedures, and Coffee Corp training classes similar to those provided to employees of company-owned stores. While Coffee Corp receives a lower portion of revenues from licensed stores, most operating costs are borne by the licensee, resulting in higher operating profit margins to Coffee Corp than are earned by company-operated stores. In addition to the license fees and royalties, Coffee Corp also gains additional market access and retail space as well as local market data and expertise from licensees. In 2020, 79 percent of total net revenues were generated by company-operated stores and 10 percent were generated from licensed stores.

Current Challenges

In 2015, CEO Porter announced the goal of growing Coffee Corps annual revenue to $30 billion and global store count to 30000 stores around the world within the next five years. However, three persistent challenges needed to be addressed to make his stretch goals become a reality: Coffee Corps dependence on an increasingly saturated U.S. market, Coffee Corps stronger focus on competitive international markets to meet its growth targets and entering the high-end coffee shop segment.

Saturation of U.S. Market

From 2015 to 2016, Coffee Corp opened an additional net 804 stores in the Americas, increasing the total number of stores from 14803 to 15607. Coffee Corps quarterly earnings throughout 2016 showed the potential problem of such a reliance on a single market. In Q3 of 2016, comparable store sales grew by only four percent in the Americas, whereas comparable store sales growth had been at or above five percent for the 25 consecutive quarters prior to Q3 [2016], according to Porter. The limited sales growth suggests to some analysts that Coffee Corp was nearing saturation of its largest market. Would Coffee Corps efforts to diversify its menu be enough to alleviate these fears?

Global Growth

Porter believed that Coffee Corps largest growth opportunities might lay outside the U.S. In China alone, Coffee Corp is planning to operate 5000 stores by 2021, more than double the 2400 stores in 2016. Outside China and Japan, Coffee Corp also plans to double its number of cafs elsewhere in Asia to more than 4000 in the next few years. How will Coffee Corp fare in the emerging markets of Southeast Asia?

Coffee Corp Premium Roastery

The idea is to move to high-end coffee brewed by the most skilled baristas in their craft in order refresh the Coffee Corp brand as it faces increasing competition from high-end specialty roasters. In particular, Porter will focus on building a chain of high-end coffee shops that will charge as much as $12 a cup in an exclusive setting. After opening its first super-premium caf and roasteries in

Brooklyn in April 2019, Coffee Corp plans to open three additional roasteries in 2020, in Los Angeles, Shanghai, and Tokyo. Many wonder if his gut feeling about moving to the super high-end coffee experience is as correct as his first hunch some 30 years earlier when he also relied on his instinct to rollout the initial Coffee Corp concept nationwide in the U.S., and subsequently internationally with astonishing success.

1. Is Mike Porter an effective strategic leader? Making use of frameworks explored in the unit, carefully explain why or why not? When he returned as Coffee Corp CEO in 2008, he put in place several strategic initiatives to recreate Coffee Corps uniqueness. Again, using frameworks explored in the unit, advise him on how he might be successful in executing/implementing these. (1000-word limit)

2. Coffee Corp is attempting to grow the business by both product and geographic diversification. Making use of frameworks explored in the unit, carefully explain their logic in both these growth strategies and also discuss the challenges they face in both these attempts to be good corporate parents. (1000-word limit)

NOTE- You don't have to write the complete answer. please write the key strategies and aspects relevant to the answer(basically a brief answer to this)