Business

Marketing Plan for Caffé Nero

Challenge

Caffé Nero is one of the leading companies in the coffee shop industry and Ian Semp founded it in 1987. Ten years later, the company was sold off to Gerry Ford and it formed the Caffé Nero Group Limited that is rated among the top three leading coffee vendors in the United Kingdom. In the UK alone, the company owns more than four hundred outlets. Coffee ranks as the focal product that the company offers while food takes the secondary place. The main goal of Caffé Nero Group Limited is the provision of a European fashioned experience made up of espresso coffee, an exquisite menu of Italian food and an ambient atmosphere in all its outlets (Specialty Sector: Nero’s Caffé neighborhood entrepreneurship, 1999). The company has a challenge to meet its expansion program that targets the small local towns as well as urban regions. The company also aims at achieving monetary self-sustenance in order to eradicate external funding.

Situation Analysis

Company Analysis

The company’s main goal as already mentioned is the provision of a European fashioned experience made up of espresso coffee, an exquisite menu of Italian food and an ambient atmosphere in all its outlets. The culture and philosophy of the company is based on customer satisfaction that is in accordance to the marketing concept. Therefore, the company’s focus in ensuring that customers are well served and contented first lies coffee brewing. Seven types of coffee are blended together in an Italian style resulting into a superior flavor that is exclusive to the company. The second focus lies in the outlets ambience. Leather sofas and slow cool music are a trademark for internal furnishing with an aim of creating a homely atmosphere. This is market strength over its competitors. Food and service are the other two foci where high quality is maintained in both. Food and coffee handlers are trained for good cooking and services. The company has a projected annual growth rate of 7-9 %, and together with Costa and Starbucks, they own 60 % of the coffee shop industry (Caffé Nero: Brewing Hot Results – Taking on Starbucks in Britain, 2005).

Customer Analysis

Caffé Nero has the highest customer base in the UK markets because of its high number of customers. With the culture of customer satisfaction, the four focus points identified in the previous section guide the company. The elderly and business peoples are the highest frequenters in the Caffé Nero stores as the environment supports relaxation. Teenagers and youths who are more energized may find the place a bit slow for them.

Competitor Analysis

The main competitors to the company are Starbucks and Costa, both instituted in 1971 as compared with Caffé Nero that was established in 1987. The two competitors had an earlier start against Caffé Nero with Costa owning more than five hundred outlets and Starbucks leading with more than fifteen thousand outlets. Despite this, consumers in the 2009 Allegra reports where the company topped in the five categories namely, affordability, atmosphere, food quality, coffee quality and service quality rank Caffé Nero highest. Note that this has been the trend since the year 2002. Despite trailing in the last position for having the least outlets, the company has the highest market share. Starbucks is ranked lowest in its services with the notable fact that workers are applied to multi-tasking thereby infusing an element of slowness in their services. It was not until the year 2000 that the company joined the London Stock Exchange market and the first moved volume was 18,000,000 ordinary shares each sold at 50p (Anderson, et al, 2009).

Collaborators

Caffé Nero does not have any joint ventures or subsidiaries and it operates as a private company after the 1997 sale. Initially, it was a Public Limited Company. Its sole distributors are the coffee shop outlets.

Climate

The company’s macro-economic climate can be explored by performing a PEST analysis. The PEST acronym stands for Political and legal, Economic, Social and cultural and Technological environments.

Political and Legal Environment

The food and beverage industries are often subject to strict health regulations due to food handling. In the UK, random inspections are carried out for this purpose and the appraisal of ground security and fire threats. The company must ensure that it acquires food safety measures regarding storing and handling techniques as well as a license. The British Institute of Innkeepers is responsible for the issue and revocation of drink licenses (Pederson, 2008).

Economic Environment

Coffee constitutes the world’s second largest trading item after oil. This implies that the market base for coffee and coffee products is very high with projected global sales ranging above thirty nine billion pounds. With the thriving business environment, market exploitation is based on production and selling efficiency that is capable of propelling a company beyond its rivals. With the recent 2009 economic depression, the coffee market was not affected and it was ironic that as other business sectors made losses, the coffee shops and industries were profitable. Branded outlets like Caffé Nero had revenues of up to 1.63 billion pounds, equivalent to a 6.2 percentage increase. This peculiar market behavior was attributed to changing life patterns where the regular consumers were unable to substitute their coffee with any other drink. The price level however fell to 3.50 ponds from 3.59 pounds (Caffè Nero Group Ltd, 2010).

Social and Cultural Environment

Caffé Nero is proud to promote its fair trade in the outsourcing of its coffee supply. The management attributes this to their uncompromising standards in the quality of coffee beans used. A major concern is wedged on the fact that quality consistency in farmers’ outputs is always a fluctuating phenomenon. The company therefore offers incentives to the farmers as a motivation element for producing high quality coffee beans. Rewards are also offered for land fertility maintenance and/or enhancement. Coffee prices are set at a premium level ensuring that the farmer is recompensed at a slightly higher rate than the minimum price. All these factors cultivate a healthy relationship between the suppliers and the buyers, especially in the improvement of social welfare (Clayton, 2003).

Technological Environment

The company uses quite a number of machines for the different types and flavors brewed. A burr grinder is used to crush the coffee beans before they are roasted. The grinder and the espresso machines are different. Once the coffee beans are ground and roasted, they are then put in the espresso machine for the actual coffee brewing. Having been in the coffee shop industry for a while, the company is keen to note that the best machines are those that correspond to the pre-set brewing guidelines instituted in the industry. The water has to be heated to ninety-five degrees centigrade and the amount of watered has to be measured as one and a half oz. Seven grams of finely ground coffee powder has to be used in an atmospheric pressure of nine for twenty to twenty five seconds. Pump machines producing fifteen pressure atmospheres are used by the company and although they are more expensive as compared to steam machines, they are long lasting (Caffè Nero Group Ltd, 2010).

SWOT Analysis

SWOT is an acronym that stands for Strengths, Weaknesses, Opportunities and Threats. Caffé Nero’s strengths are instituted on its customer-oriented approach to business. Its profit and revenue levels have continued expanding as its market share increases at an average rate of 8.5% (Anderson, et al, 2009). Regarding the opening of new outlets, the company has set a realistic goal in which it opens four cafés each month to expand its market base. In a period of one year, the company was able to gain ten marketing areas that its rivals were situated. The administration is made up of a board of governors that are bent on the long-term success of the company from the cultivation of customer satisfaction in their products. The external debt has been reduced to manageable, almost insignificant level from the increased sales. Regarding the weaknesses, the company promotes sustainable growth on the institution of marketing and productive infrastructure that the company’s head asserts that it will not be changed until it recedes in the profit levels.

With the advent of globalization and liberalization, the company has to embrace change or else it will be very challenging to maintain competition with the given organizational infrastructure. This move of globalization offers an expansion opportunity to the company in the international market. The first expansion program gave Caffé Nero opportunities in Turkey and the United Arab Emirates where it has at least eight locations. As its music crew chooses the music in Caffé Nero, the coffee shop believes that giving away their music in terms of CDs will be a marketing strategy. The threats to Caffé Nero emanate from their biggest rival, Starbucks who are still ranked highest in the number of coffee shops they own. With the launch into the international market, fluctuating currency levels also pose a new threat to the company.

Market Segmentation

Market segmentation refers to the division of a market through product differentiation to create sub-sets. This strategy is used for market expansion and it helps the marketing team have a clear focus in their promotional activities in the given fields. Caffé Nero has two major market segments namely the coffee and food items. The coffee drinks are divided into hot and cold products. Espresso tops the list of the hot coffee offered in Caffé Nero. The flavors offered in this category are Espresso Ristretto, Cappuccino, Espresso Macchiato, Mocha, Americano, and Caffè Latte. For the cod coffee drinks, three flavors namely Iced Mocha, Iced Latte and Frappelatte are offered (Caffè Nero Group Ltd, 2010). These forms of product differentiation offer a wide array of coffee items for the consumer to have a variety they can choose from. Caffé Nero also offers food items that the customers can use as an accompaniment to the coffee. The food is light in nature and they are all Italian recipes. These include sandwiches namely the Caffé Nero Tomato, Basil and Mozzarella Bocatta, Panini and Italian Wraps, Soup like Porcini Mushroom and Potato, Caffé Nero Pasta and pastries like Pain Au Choc, Ursula’s Penne and Roasted Red Pepper Sauce, and Croissants (Rinsky, & Rinsky, 2008). The variety provided is good for the customer’s choices and preferences.

Marketing Mix

The marketing mix puts forward four marketing elements that are fundamental in the marketing plan.

Product: Caffé Nero’s products are brand and remain exclusive to the company infusing a level of quality. Food handling and cooking entails quality with the coffee baristas being trained for a period of two weeks before they can be allowed to brew coffee. Upon the completion of the training, the barista is expected to brew a perfect espresso for two days before they can take the bar service. An additional five days are required under the close inspection and orientation by a maestro before the barista can handle any service. This ensures efficiency. Top chefs like Ursula Ferrigno work with the company to come up with pasta recipes exclusive to Caffé Nero. All the pastries are made with baked items imported from France as they make the best-baked items. The warranty accorded to the taste and quality of food and coffee is therefore high (Business, 2002).

Price: Caffé Nero charges different prices for all items. The products price level is determined by the profit margin. With coffee, the margins tend to be low necessitating a high price to be fixed since the consumption per single customer ranges at most as two cups. Averagely, each customer only takes one cup of coffee per visit. This explains why a consumer has to part with 1.95 pounds for an item whose raw resources cost only 4p. With the inelasticity that comes with coffee demand, any price level can be used. The company ensures that it charges fair prices to maintain its customers.

Promotion: Caffé Nero promotes its products through its website Caffé nero.com where it displays its products and the price charged for each in Sterling Pounds. A CD having samples of music played in the coffee shops are also given to customers as a promotion strategy. The customers have the chance to suggest songs they would like to hear to the music team. While enjoying meals or coffee at the Caffé Nero stores, the customers can enjoy free internet access courtesy of the BT Openzone wireless broadband. This is very appealing to the customers and it is a promotional strategy for the coffee shop.

Place: With the expansion scheme at hand where Caffé Nero is opening physical outlets in rural and urban regions, online outlets have also been introduced to overcome the spatial challenges. A consumer can order and have the product delivered to them within a given period. This has expanded the distributional framework for the coffee shop (Caffè Nero Group Ltd, 2010).

Recommendations

1. With the introduction of the BT Openzone, the coffee shop can use it to target the teenagers and youths who enjoy such services in order to increase the market share.
2. Outlets that are appeasing to the young generation and playing energetic music as opposed to the slow jazz jams may be introduced too.
3. Caffé Nero should consider changing its structural organization for a better chance in the international market.

 

 

 

 

 

 

 

 

 

 

 

 

References:

Anderson, D. R., Sweeney, D. J., & Williams, T. A. (2009). Statistics for Business and Economics. Greater Vancouver, Canada‎: Cengage Learning EMEA.

Business – Interview: Ford’s Coffee Breakthrough – The UK’s penchant for coffee has grown rapidly over the past few years. Caffé Nero is one of the leading players that has steamed to success. (January 01, 2002). Accountancy, 129, 1301, 32.

Caffé Nero: Brewing Hot Results – Taking on Starbucks in Britain. (October 24, 2005). Business Week, 64.

Caffè Nero Group Ltd. (2010). Caffè Nero the Italian Coffee Company ‘The Best Espresso this Side of Milan’. Retrieved June 17, 2010 from http://www.caffenero.com/

Clayton, A. (2003). London‘s Coffee Houses: A Stimulating Story. New York, NY: Historical Publications.

Pederson, J. P. (2008). International Directory of Company Histories, Volume 97. St James, MO: St. James Press.

Rinsky, G., & Rinsky, L. H. (2008). The Pastry Chef’s Companion: A Comprehensive Resource Guide for the Baking and Pastry Professional. Hoboken, NJ: John Wiley and Sons.

Specialty Sector: Caffè Nero’s Neighbourhood Entrepreneurship. (January 01, 1999). Coffee and Cocoa International, 26, 5, 40-41.