Please read the Cuppa Coffee case attached below, then use the following questions as an initial basis for your analysis. These questions are meant to highlight salient issues in the case. Do not answer these questions directly in your memo. (max 500 words total):

A) Will the addition of alcohol to Cuppa Coffees menu cause brand dilution? If so, how?

B) What issues will Cuppa Coffee face across different demographics in marketing its new menu?

C) What is Cuppa Coffees main objective in adding alcohol to its menu? Will this objective resonate in all regions across the United States, or will consumers in certain parts of the country lose interest in Cuppa Coffee as a whole?

D) How should Cuppa Coffee market the addition of alcohol to its menu?

CUPPA COFFEE HAPPY HOUR: TOP OF THE MORNING, INTO THE EVENING It was a blustery day in Seattle on January 26, 2014. Jane Noel had inherited the role of marketing manager from her coffee guru of a father just a year ago. Cuppa Coffee was not just a chain, it was a brand. Lars Noel traveled to Italy in the 1980s to find that a latte was not just a cup filled with frothy milk and caffeine, it was an art form. The caf was a sacred place, where friends shared stories with one another and individuals from all walks of life retreated for hours as a reprieve from the daily grind. Coffee drinkers were fickle, and it was now becoming more evident that the seasonal pumpkin-flavored drinks would not suffice in drawing customers into stores during the later evening hours. It was difficult enough to attract consumers after their early morning cup of coffee, so Cuppa Coffee began to offer lunch sandwiches and cold drinks as options for the daily afternoon pick-me-up. Seventy percent of sales occurred before 2:00 p.m., and with a 2.45% dip in the stock price, Jane wanted to ensure that there was a way to get people through the door in the evening hours. Jane reasoned that their current menu was saturated with early morning items for those who needed a pre-work caffeine fix and doused with sandwich options for anyone who wanted a quick lunch. The late afternoon-into-evening hours were ripe areas of opportunity. What better way was there to draw coffee lovers who visited in the early morning back into stores during the evening than through the introduction of an alcohol menu? Cuppa Coffee had originally modeled its warm, inviting ambiance after Italian cafes, which also served beer, wine, and the occasional aperitif at their shops. However, with a declining stock price and consistent misses on revenue expectations, the chain needed a boost. Cuppa Coffee primarily targeted working adults in the 25 to 40 age range who could afford steep coffee prices and would enjoy specialty goods. However, college-aged students with a few bucks to splurge on caffeinated drinks in exchange for suitable study spaces also frequented Cuppa Coffee. The introduction of alcohol would complicate matters for the 18 to 24 crowd with needs to study late into the evening and find refuge from an atmosphere in which people would be drinking. It was increasingly becoming clear that this proposal to add wine and beer to Cuppa Coffee menus would not be without naysayers. Jane met with her marketing team to learn about concerns and potential downsides associated with the introduction of adult beverages. With a few pilot 1 locations in Portland, Jane's marketing team was able to survey two kinds of customers: those who had experienced Cuppa Coffee Evenings and those who had not. . A retired, 60-something, female divorcee with grown children and plenty of time noted, I don't want to be around drunks. Cuppa Coffee is going to turn into a bar!" A woman in her 30s with a minivan full of 10-year-olds en route to soccer practice asked, "What about children doing their homework there? Increased drunk driving? Isn't Cuppa Coffee supposed to be all about welcoming ambiance?" A senior in college at the University of Portland said, It's been a great addition to campus life. We just need to venture a few hundred feet from our dorms to get our work done during the day, and then call our friends to join us for a quick beer at night when we need a study break." A man in his mid-20s working 60 hours a week mentioned, This doesn't taint my perception of Cuppa Coffee at all. Since this pilot store has opened, I've been getting my coffee from here in the mornings and my beer here in the evenings. Best of both worlds." Jane hesitated before commenting on consumer reviews. Her father had high expectations of Jane, but the marketplace had changed drastically from the old days. When Lars returned from Italy in the '80s, he was truly bringing back a novel idea from Europe to the States. At the time, nobody before had the vision Cuppa Coffee had. To make matters more complex, Lars had always been a purist. Don't dilute the brand by veering too far from what we do best," he always would say. "We make coffee. Period." Jane wondered if Cuppa Coffee needed to return to its roots rather than move further away from its core product. Could Cuppa Coffee really expect to preserve its brand equity and association as a forerunner in the coffee industry through the introduction of alcohol to its menu? Moreover, could Jane truly drive more customers into stores at night without sacrificing the ambiance so central to Cuppa Coffee's image? Jane would not just need to convince herself that this launch would be successful, she would need to convince her father along with the rest of the executive board. She knew that whatever she decided would potentially re-position Cuppa Coffee and have huge implications not only for the company's bottom line, but also for its brand image. Cuppa Coffee: Historical Context In 1971, Cuppa Coffee opened its first store in the Beacon Hill neighborhood of Seattle. Cuppa Coffee stayed small and did not focus on expansion until about 11 years later when Lars Noel joined the team as director of retail operations and marketing. Lars launched the initiative of providing coffee to local, upscale restaurants and espresso bars. Though coffee shops were not unheard of during this time period, they were certainly far less prevalent than in the 1980s. After a trip to Milan, Lars saw an opportunity for growth and returned to the United States with expansionary plans. By 1987, Cuppa Coffee was no longer the lone coffee shop serving upper-middle-class consumers from Beacon Hill. The company had expanded to Chicago and Vancouver, with 17 stores in total. By 1991, there were 116 Cuppa Coffee locations including one at the Seattle Sea-Tac International Airport. The next year, Cuppa Coffee went public and traded under the ticker symbol, "CCOE." With an initial public offering under its belt, the chain went beyond just coffee and began offering Icees - cold, blended beverages flavored with caramel, mocha, coffee, and topped with whipped cream. At this point, the brand had become so prevalent that Cuppa Coffee began selling its own ice cream at supermarkets across the nation. In 1996, Cuppa Coffee entered Asia. Stores opened up in Japan and Singapore. A couple of years after this international expansion, Cuppa Coffee moved to further expand its menu offerings. The company acquired Tealeaf, a tea company based in Portland, Oregon. By 1998, Cuppa Coffee had launched a website and extended its brand into grocery channels across the United States. By 2000, Lars Noel had assumed the roles of chief executive officer and chief global strategist. Cuppa Coffee was quickly becoming an internationally recognized brand, and consumers associated Cuppa Coffee with high-quality beverages. Customers were increasingly willing to pay steep prices for their daily caffeine fixes, just so they could walk to work with a cup labeled "Cuppa Coffee" in hand. A Recent History: Competitors and Economic Turmoil In late 2008, Cuppa Coffee faced new competition. Cheesy's, an international, fast-food chain known for low prices and quick service introduced the Caffeinator. The Caffeinator's entry into the industry increased the number of coffee distributors in the United States, and as a result, Cuppa Coffee had new competition. During this same time period, an economic downturn triggered by the financial crisis hit the country and consumer demand for Cuppa Coffee, which many considered a luxury good, fell. During the 2008-2009 time period, when the number of coffee suppliers in the United States increased due to the entrance of the Caffeinator as well as a decreased demand for coffee by consumers due to the financial crisis, Cuppa Coffee began to work to convince consumers that its coffee drinks were not overpriced. Lars Noel began to position the brand as "not so expensive after all." He mentioned in interviews and press releases that half of Cuppa Coffee's caffeinated drinks cost less than $3, and one-third of them cost less than $2. Cuppa Coffee took an additional step and also lowered its price for certain coffee drinks by five to ten cents a cup. Cuppa Coffee 3 also introduced a $3.95 breakfast combo to combat stiff competition from Cheesy's, which offered many morning menu items for just $1. Before the recession, Cuppa Coffee was highly valued in the marketplace because there was a dearth of quality coffee elsewhere. With the success of the Caffeinator, good coffee was no longer a novelty. Without this advantage, Cuppa Coffee now focused on marketing the "Cuppa Coffee experience." However, store ambiance, personalized service, and the Cuppa Coffee touch were tough sells during the 2008 recession. Lars attempted to position the Cuppa Coffee experience as a value proposition. By 2009, Cuppa Coffee was already doing everything in its power to mitigate the impact of increased competition from Cheesy's and the results of the economic depression. To start, Cuppa Coffee closed almost 200 stores by April 2009 with plans to close 400 more due to the increased competition it was facing from Cheesy's. Cuppa Coffee laid off 700 employees at the company's support center in Seattle. In addition, the company decided to change the way customers viewed the Cuppa Coffee caf. Rather than being a luxury coffee brand, Cuppa Coffee wanted to show customers it could be an affordable coffee brand. Cuppa Coffee started to offer value meals to customers. These value meals were initiated to change the chain's image as a haven of caffeinated beverages to a place where customers could go for all their food and beverage needs, similar to Cheesy's. To further attract value-conscious customers, Cuppa Coffee began to offer loyalty cards that provided discounts to customers and sold prepaid debit cards during the holiday season in bulk to customers at Costco. There was the risk that reducing prices could tarnish the Cuppa Coffee image slightly and alienate existing customers. Many loyal customers who purchased Cuppa Coffee beverages were influenced the brand's positioning as a luxury item. These consumers wanted to be associated with high quality and elite coffee. Cuppa Coffee also positioned itself to enter the mass market for instant coffee by introducing the InstaCuppa Coffee and acquiring another coffee chain: Seattle's Caffeine Fix. InstaCuppa Coffee was instant coffee packaged for individual servings and was initially priced at $2.95 for a 3-pack and $9.95 for a 12-pack. Instant coffee was a new way for Cuppa Coffee to distinguish itself from what Cheesy's Caffeinator had to offer. Another way in which Cuppa Coffee responded to the Caffeinator was through a heavy advertising campaign targeted directly at the product. Slogans from the Cuppa Coffee advertising campaign directed toward the Caffeinator included, "Beware of cheap coffee. It comes with a price" and "Cuppa Coffee or nothing. Because compromise leaves a really bad aftertaste." Another element in their strategic response to the competition wa uisition. Cuppa Coffee acquired new companies and brands to maintain its market share. In 2012, Cuppa Coffee acquired San Francisco-based bakery chain, La Baguette de Normandy, for $100 million. Acquiring this new brand also helped Cuppa Coffee better compete with Cheesy's for the top restaurant/cafe chain spot. 4 Cuppa Coffee believed that the addition of the Caffeinator to the marketplace demonstrated the importance of affordable pricing in the caf restaurant industry. The Caffeinator challenged Cuppa Coffee because it was offering convenient and affordable pricing with similar quality. Cuppa Coffee responded with the creation of value-priced meals in order to entice customers and make them feel as if they were getting their money's worth. In addition, they believed that the introduction of the Caffeinator was just the beginning. In their view, the coffee industry would continue to change and the competitive landscape would not remain stagnant. Therefore, Cuppa Coffee must be agile. Cuppa Coffee had to introduce new products after the launch of the Caffeinator such as its own instant coffee packs that people could buy in the stores. CEO, Lars Noel, even reduced his salary from $1.2 million to less than $10,000 a year during this time to further help Cuppa Coffee in its cost cutting measures. It appeared as though Cuppa Coffee had responded very well to the industry shocks of a new competitor as well as a financial crisis. They adjusted their pricing strategy in an attempt to change the way consumers viewed Cuppa Coffee: as an affordable coffee brand rather than a luxury brand. Cuppa Coffee also focused on developing new products and services it could offer consumers in order to expand its sources of revenue. The Situation at Cuppa Coffee in 2014 Despite impressive third quarter earnings for the fiscal year 2014 with the company's earnings per share having increased 22% year-over-year to $0.67, the stock has not been a consistent winner in the market. Furthermore, specialty coffee production in Costa Rica is declining. Production fell 35% in just the past decade, which has hurt Cuppa Coffee along with other specialty coffee brands. Demand for luxury coffee has exploded, but according to South American coffee farmers several external factors involved in sustaining production of coffee beans have negatively impacted both the quality and quantity of the product specialty coffee farmers actually can generate. The problem is further exacerbated by a lack of economic stability built into what a farmer can earn to grow this product. Income from coffee production is highly variable. The declining output of specialty coffee does not square with Cuppa Coffee's plans for expansion. Not only has it opened 344 new stores in the ongoing quarter, but also it plans to open 1,600 net new stores globally in the fiscal year 2015. Cuppa Coffee currently exclusively buys Arabica coffee beans, a large portion of which comes from parts of the world where the supply of such specialty beans is decreasing. Coffee is the central product for Cuppa Coffee chains, but it is undeniable that the company has to determine an appropriate, innovative method to draw customers in for more 5 than just coffee to justify a rapid, global expansion. In 2004, Cuppa Coffee offered chocolat as a way of enticing customers into the store after work. Unfortunately, this was an unprofitable endeavor and sales in the late-afternoon-to-evening hours remained stagnant. Though industry observers have acknowledged that Cuppa Coffee may be taking a risk by implementing Cuppa Coffee Evenings, these same analysts acknowledge that Cuppa Coffee will not be an industry leader until they further diversify their menu offerings. Cuppa Coffee remains far behind Cheesy's in revenue, and other competitors, such as DonutHut, have added items that contribute to increased foot traffic into the late evening hours. Tasked with finding ways to improve their market position, Jane Noel's marketing team conducted research to evaluate product strategy and brand extension opportunities. Her team articulated the following findings: 1) Cuppa Coffee is strongly associated with certain staple menu items: coffee, espresso- based drinks, and Icees. Customers were loyal to Cuppa Coffee due to its offerings of bold coffee flavors and bar-based drink customization. Cuppa Coffee drinkers were true "coffee connoisseurs," or to put it more bluntly, "coffee snobs." These consumers enjoyed this strong coffee that less avid coffee fans may consider "burnt-tasting." Cuppa Coffee also engaged in fair trade practices, and Lars Noel repeatedly has stressed the importance of sustainable farming practices. Cuppa Coffee consumers appreciate being associated with a corporate entity that was socially conscious. 2) Presentation is everything for a luxury brand like Cuppa Coffee, but traditional television advertisements have not been the marketing channels of choice for this caf chain. Cuppa Coffee most effectively spreads the word about new promotions through in-store advertising, promotional pull-outs in newspapers, and social media outlets. Furthermore, the Cuppa Coffee cup presents itself as an advertisement. Customers wait in long lines for their Cuppa Coffee beverage of choice and hold onto the cup throughout the morning. Cuppa Coffee has had to spend increasingly less money on formal marketing since 2011, which is indicative of the fact that the brand sells itself. 3) The average Cuppa Coffee customer visits the store 6 times per month while a loyal 20 percent go to the stores 16 times per month. 4) Specialty coffee sales are increasing 20 percent year over year and account for nearly 8 percent of the $18 billion United States coffee market. Coffee consumption also outpaces soft drinks for the majority of Americans. Thirty million Americans drink specialty coffee beverages daily. 5) Consumers overall find Cuppa Coffee service to be better and employees to be friendlier, though DonutHut is perceived as quicker overall. 6 The Challenges Ahead at Cuppa Coffee Jane Noel did not take these findings lightly. Cuppa Coffee clearly was perceived as primarily a coffee retailer, but the addition of an alcohol menu would not clearly hurt or help the brand in terms of perception or equity. Strategically, adding wine and beer as a permanent fixture on its current menus globally would appeal to customers in countries where alcohol is an appropriate after-hours beverage. However, Jane was hesitant to implement changes wholesale. Her father, as a global strategist, would certainly want her to highlight to the executive board that she did not plan to make changes in a wholesale manner. Customization was key. At the pilot stores in Portland, the beer served is typically local. There are beers from local breweries along with a variety of wine offerings: riesling, pinot gris, pinot noir, and syrah from local river valleys. The beers offered are priced $1 to $2 more expensive than they would normally be if one were to walk to the local pub, while the wine maintains a steep price of $8 to $10 a glass. There is also the question of liability. Though wine is stacked in decorative racks above the preparation area behind the counter and baristas must check identification before serving alcohol, Cuppa Coffee could open up the floodgates for potential to violating laws related to serving minors. Furthermore, under-age baristas, along with those who are of age, have ready access to alcohol on the job. What will the implications be for the hiring process? Will a more intensive application process be necessary? Would different staff be required? Jane was wary of these considerations, though ultimately she was excited to try something new. She reasoned that the first stores to introduce Cuppa Coffee Evenings would be those in densely populated, transit-adjacent areas. Therefore, customers would have the option of leaving via public transportation rather than driving home from an enjoyable night spent at Cuppa Coffee Evenings. Rather than spending the night at a dive bar with sticky floors and foul odors, customers could choose to unwind in the same Cuppa Coffee ambiance they enjoy during the morning and early afternoon hours. At these hours, however, they would have the option of enjoying a different variety of beverages. Jane's Decision Jane never wanted to stand on the shoulders of her father and call herself tall. She wanted to continue what her father had begun over 30 years ago. As she sifted through the past quarterly earnings, she remembered what he once told her: "We do coffee. Be careful in your product expansion strategies, and remember that you need to perfect what you're good at before looking too far ahead. Learn from 2008. I did it wrong then, don't you do it wrong now. 7 Jane sighed as she looked at the dip in stock prices and the disparity between morning and evening sales. What further troubled Jane was the fact that although Cuppa Coffee was a behemoth in the coffee industry, it was still far behind Cheesy's in revenue, global presence, and brand recognition. The Caffeinator was able to take down Cuppa Coffee despite the fact that Cheesy's was not primarily a coffee retailer. Cheesy's delivered a high-quality product that Cuppa Coffee was supposed to be the best at delivering to consumers, and certainly threatened Cuppa Coffee as the leader in the coffee marketplace. How would the addition of wine and beer increase Cuppa Coffee's profitability when Cuppa Coffee could not even guarantee that it was "the best" at making its core product? Most bars could offer the same alcoholic beverages at a lower cost. Was Jane getting ahead of herself? Jane recalled her father's words to her when she was younger: "I'm going to tell you this once hospitality is brutal. It's not an industry for the faint of heart. You open up a shop one day, close it down the next. Your friend might own the spot next door and you'll have to directly compete to steer business away from him and toward you. Let me tell you why Cuppa Coffee is different. We know what we do well, and we stick to it." Jane did not want to introduce beer and wine to the menu and cause Cuppa Coffee's downward spiral. Revenues were still consistently increasing, but as her father once told her, profitability was never consistent in hospitality. Jane wanted to make sure her father knew she had heard him all those years ago. She also knew she could not live in his shadow and had to prove herself as a marketing visionary at a company that was an industry leader but whose position in the market was being threatened by growing competition. Jane knew what she had to do. 8