Industry Analysis of
Finland
So to help the marketing
department out at Starbucks, I decided to conduct my own brief industry analysis
of the Finnish market to further convince them that coming to Finland was a
great idea ;)
Using the help of the well-known
Professor Michael Porter, I conducted an analysis based on his Five Forces.
Porter’s five forces analysis is a framework for industry analysis and business
strategy development, therefore a perfect tool to help me assess the
attractiveness of the Finnish market for Starbucks!
Intensity of Rivalry
Finland’s main competition in the
coffee store culture consists of three main coffee retail chain: Coffee House
owned by the Finnish S-Group, Robert’s Coffee founded by Paulig, and the
Swedish Wayne’s Coffee. There are many more traditional cafes in Helsinki, but
these three focus mainly on specialty coffees and therefore would be a
noticeable competitor for Starbucks. According to the Finnish Restaurant Guide,
there are approximately 300 cafes in Helsinki. This number includes both the
amount of cafes and restaurant-cafes. This means that there are around 2000
consumers per café. One must take into consideration, that the number of cafes
offering gourmet coffee products is much lower.
There are approximately 12 Wayne’s
Coffee outlets, 16 Robert’s Coffee stores and 5 Coffee Houses in the capital
area. Wayne’s Coffee has a product selection consisting of 11 different hot
drinks and 10 cold drinks. They also offer 6 different fresh food options including
soups, bagels and wraps. Along with the savory options, Wayne’s Coffee has a
selection of sweet pastries such as muffins, brownies, cookies, and cinnamon
rolls. Coffee House’s product selection is very similar to that of Wayne’s
Coffee. Robert’s Coffee on the other hand concentrates more on providing drinks
than food.
The consumption of gourmet
coffees is continuously rising, which means that there is a lot of potential in
this market. Because of this rapid growth Robert’s Coffee and Wayne’s Coffee
have been looking for new, possible franchises. This means that if Starbucks
came to Finland, it would not need to steal consumers from competition rather
it would help satisfy the need for more coffee stores.
Threat of New Entrants
There is always the possibility
of new coffee chains opening in Finland. However, Starbucks has the advantage
of being such a well-known and recognized brand worldwide. With this title, the
company already has a name established for itself in Finland, while competitive
coffee chains would have to focus more on marketing and promoting themselves.
Threat of Substitute Products
One possible threatening substitute
product could be espresso machines, which are made for home use. As the
consumption of gourmet coffee increases, consumers may be more interested in
making their own specialty coffees at home, therefore saving money. Starbucks
has though taken this threat already into consideration and has begun to sell
espresso machines, brewers, and grinders under the brand Barista to its consumers. However, going to coffee stores is not
just about drinking a cup of coffee. It offers much more than what can be
achieved at home. Starbucks emphasizes the whole concept of visiting their
stores as an experience. A relaxing place to meet your friends, do your
homework, read the daily paper while enjoying a specialty coffee. Additionally,
Starbucks offers the ease for individuals to grab a coffee-to-go on their way
to or from work.
Supplier Power
In order to meet the challenges
of supporting the company’s fast-pace growth, Starbucks seeks experienced
individuals who have a variety of technical and leadership skills. Technical
skills in the three core areas of procurement, manufacturing, and logistics are
highly valued. The logistics focuses on increasing efficiency and lowering
costs associated with transporting, distributing and channeling its coffee
products worldwide.
Starbucks attains its supplies
from the actual coffee growers, resulting in the company efficiently bypassing
most of the middle market. This not only reduces a lot of the supplier’s power
but also helps to reduce costs. Also since Starbucks is such an internationally
successful company, which needs a large amount of goods, suppliers do not want
to jeopardize their co-operation with the company.
Buyer Power
Finland becoming more
international is noticeable in the growing amount of gourmet coffee consumption.
At the moment specialty coffee consumption is around 2% of all coffee
consumption in Finland, however it is estimated to have a nearly 20% growth
rate yearly (www.paulig.com). Since the
consumption of gourmet coffee is relatively low it means that there is a lot of
room and potential for growth in this market.
Sources:
Very good analysis, I like the approach you have taken here as enables you to study the Finnish market as regards to Starbucks from many different angles.
VastaaPoistaAs regards to the intensity of rivalry, I would say that there are a lot more competitors offering specialty coffee in Helsinki region in addition to the three chains you mentioned. So intense competition. Although, as you mentioned, this is not necessarily a bad thing. It actually makes sense for a company (especially as well-known as Starbucks) to enter a market with intense competition as it indicates there is existing (and possibly) growing demand.
I’m very interested about what kind of pricing strategy would you suggest for Starbucks in Finland? Browsing through your blog, I’m not sure if you have already mentioned it, if not, I’m sure you’ll discuss it in your further posts. Being a huge fan of Starbucks myself, this if of special interest to me ;) Furthermore, I look forward to hearing more about the actual marketing strategy, product portfolio, key messages and communication channels of Starbucks in Finland. At least till now I haven’t really noticed that Starbucks would have done a lot of advertising in Finland (or maybe I have just missed it :D, maybe in the future?
Good analysis, but I have a couple questions:
VastaaPoista1. How did you arrive at the 2000 people per coffee shop figure? Is that based on the total population divided by coffee shops? i.e. 2000*300 =600 000? If so, is this really a reliable way to estimate market size? I'm not sure whether you have estimated the market size in another post somewhere so I beg your pardon, if this question is out of place :)
2. You say that specialty coffee consumption rises at around 20% annually. What, however is the elasticity of demand? What is expected to happen to the consumption of specialty coffees and other higher end coffee shop items' consumption if the general economy plummets in Finland and/or the rest of Europe? Lets not forget Europe's favorite ticking time-bomb Greece - nobody really knows what a default now or later could do to the health of the entire European Union.
Good analysis overall. The three coffee shop chains chosen for this analysis are very good. At least I feel that Wayne's Coffee, Robert's Coffee and Coffee House are very similar to Starbucks in terms of brand image and "look" of the shops.
VastaaPoistaWhat interests me is that as these chains are so widely spread in Helsinki, how will Starbucks be able to differentiate and stand out from them? What is the special something they have to offer to Finnish consumers? I think a more extensive comparison of these companies would have been nice. You did list the different products they are offering, but didn't really discuss how this affects the position of Starbucks.
Thanks again for your good comments! Further to Karoliina’s comment on how we calculated the 2000 people per coffee shop figure. It was a rough estimation based on the fact that there are approximately 600 000 people living in the Helsinki region and we divided this figure by the number of coffee shops (300). As mentioned it was just meant to be a rough estimate and not an exact figure.
VastaaPoistaJenni, concerning your question on how will Starbucks be able to differentiate itself from competition, I think in this case it will rely a lot on its well-known international brand. The company is lucky in the sense that it has significant brand awareness globally which tends to speak for itself and lessen the need for the company to differentiate itself compared to less known brands. But brand recognition aside, Starbucks does a number of things to differentiate itself from competitors. For example, the company continuously innovates to produce new and fresh products tailored to meet certain types of customers.