Coffee Case

Executive Summary


This report represents the situation analysis of the Caffè Nero Group Ltd. in the UK and its strategies for the international expansion process. This report is intended to facilitate an understanding of the company's potential for internationalisation. The report includes a brief overview and history of the company with a timeline which illustrates its expansion in the UK.

There follows an internal analysis of the company (SWOT) and external analysis of United Kingdom and Switzerland (PEST), followed by a description of the trends in Switzerland. The cultural analysis of the UK and Switzerland is undertaken by using Hofstede's model, which is based on Individualism, Power Distance, Masculinity and Uncertainty Avoidance indices. Porter's Diamond is the framework which is used to evaluate the nation's competitive advantage. It is based on the analysis of the factor conditions, demand conditions, related and supporting activities, company's strategy, structure and rivalry and government oriented issues, related to company.

The report ends with the proposition of the future strategies and the strategically orientated recommendations for the company, which are based on the findings from the analysis.

Methodology
This report is based on secondary research, using only secondary data, which includes information from the World Wide Web, academic literature, newspapers, academic journals and online databases.

Limitations
Secondary data is in general rather limited in terms of:

* Reliability of the resources - some sources provide misinformation on the specific topic, therefore there is the problem of finding reliable information.

* Data classification - some reports are poorly classified and it is time consuming to find the specific information required.

* Non-availability of data - some of the data is not available anywhere. This is where primary research is essential.

* Data language - the comparison of two different markets, one of which is with a non-English speaking population, puts the restraints on the correct understanding of the data provided.

Company History and Overview
The Caffè Nero Group ranks as one of the three largest operators of espresso shops in the United Kingdom operating 263 coffee shops in more than 50 cities and towns in the United Kingdom (Datamonitor, 2007), with sites from Brighton to Glasgow. The company employs more than 1,969 people (Datamonitor, 2007), thus being classified as large scale enterprise.

The first Caffè Nero coffee shop was opened in 1990 in the South Kensington area of London. With the opening of the first coffee shop they introduced to the British the totally foreign concept of standing while drinking coffee. In addition to this the British, Londoners specifically, weren't used to such types of hot drinks as mocha, latte or espresso, because of the tradition of drinking tea (Datamonitor, 2007).

Over the next six years following the opening of the first coffee shop, Caffè Nero Group PLC opened another four coffee shops in different locations in London, which indicates the growth of demand as the result of acceptance of the product by Londoners.

Products offered


According to the official website of the company, the Caffè Nero units offer different types of coffee (espresso, cappuccino), and a great variety of food (sandwiches, soups, Italian wraps, paninis, pasta and pastries), which makes the Caffè Nero cafés not only coffee shops, but a place where you can also have a nice meal. Nonetheless the fundamental product still remains their specific coffee.

Target market


Caffè Nero at the beginning of its rise in the coffee retail business targeted mostly middle income Italian Londoners or tourists. Nowadays the main target market is middle income middle-aged customer groups (Londoners/tourists or students) or businesspeople who aim to have coffee on the go because of high occupancy and longer working hours.

Consumer behaviour and lifestyle


UK consumers, as most consumers from other European countries, are also becoming more adventurous in their food choices and are seeking a wider array of food and beverage offers, including Fairtrade, organics and healthy food options and are also eating and drinking more on the move (www.uktalkmarketing.com).

Hall (2000) points out that the growth of café society could be modernized by the growth of the rate of the female population in society based on the argument that in general women prefer to spend their leisure time in a non-smoky and clean environment.

According to the IGD official website (14/08/2006) there are some more lifestyle changes that appear to be the main demand drivers:

* The image of the hot beverage represented as the main part of a lifestyle

* 24-hour product offered instead of meal products offered at specific times

* The need for an energy-provider for on-the-move lifestyle

* As a result the rate of coffee drunk every day around the world is two billion cups per day, which reflects coffee as the second most widely operated product, after oil, valued at a total of US$140 billion

The Caffè Nero Group is managed by Gerry Ford, who in 1997 through Paladin Associates Ltd. with a group of investors purchased the five Caffè Nero coffee shops. The new management team with financial sponsorship from Banc Boston redesigned all of the Caffè Nero units and turned them into a small established chain.

Caffè Nero Group PLC Timeline after the year 1999:


End of 1999: Caffè Nero Group PLC's partnership with the British Airport Authority (BAA) and as a result expansion to 13 bars and new openings outside of London and on BAA territory.

End of 2000: Expansion to 30 sites throughout the United Kingdom.

2002: Acquisition of 26 Aroma coffee sites from McDonald's. It makes first pre-tax profit in six months.

2004: Partnership with House of Fraser and as a result expansion to 145 sites (some of them are located in House of Fraser's shops in London's Regent's Street, London's Victoria, Croydon, Glasgow and Guildford).

June 2004: Caffè Nero Group's purchase of eight Coffee Republic units in Cardiff and Southern England for its 5.7% stake in the company. The company's turnover grew by