strategic-management

136 SHARYNN TOMLIN
Albertson’s, Ralph’s, and Whole Foods Market. Peet’s reported total revenues of
$284,822,000 with a resulting operating income of $17,001,000 for the 2008 fiscal year. 11
McDonald’s (MCD)
MCD remains the world’s number-one fast-food company by sales, with about 32,000
restaurants serving burgers and fries in about 120 countries, with nearly 14,000 locations
in the United States alone. Well known for its Big Macs, Quarter Pounders, and Chicken
McNuggets, McDonald’s also offers coffee and the traditional breakfast items of Egg
McMuffins and pancakes. Although most of its outlets are free-standing units, MCD also
has many units located in airports and retail areas. Each eatery gets its food and packaging
from approved suppliers to ensure product quality. About 80 percent of the restaurants are
run by franchisees or affiliates. MCD reported staggering total revenue of $23.5 billion in
2008, generating a net income of $4.3 billion. 12
Krispy Kreme Doughnuts (KKD)
Although coffee is not the mainstay of KKD’s sweet treats, the two products do complement
each other perfectly. KKD operates a chain of almost 300 doughnut shops and more
than 200 smaller format locations throughout the United Kingdom and in more than a
dozen other countries. The shops are popular for their glazed doughnuts that are served
fresh and hot out of the fryer. In addition to its original glazed variety, KKD serves cake
and filled doughnuts, crullers, and fritters, as well as hot coffee and other beverages.
Nearly 100 locations are company-owned: the rest are franchised. KKD also markets its
doughnuts through grocery stores and supermarkets. Like other competitors, their profits
have been impacted by the economy of 2009, posting a loss of net income of $4,061,000
(2008) from their net sales of $383,984,000. 13
Industry Analysis
The 2007–2009 global recession negatively affected the specialty coffee industry.
The 1990s noted above-average coffee consumption in the Pacific, Middle Atlantic,
and New England states and found gourmet coffee drinkers tended to be slightly more
affluent than average and lived or worked in large cities. Gourmet coffee consumption also
rose with the drinker’s educational level. Those who finished college bought 49 percent
more gourmet coffee on average, and those with some postgraduate education bought
71 percent more. They also found that households with children and two working parents
bought 28 percent more gourmet coffee. The Specialty Coffee Association of America
(SCAA) described its typical customer as “an educated urban resident with the disposable
income to spend on fine coffee.” However, recent trends have shown that some of the consuming
public is concerned about the nutritional value of such products as those offered by
the specialty coffee sector and have even challenged the correctness of the labeling and
calorie information posted on the products available at retail outlets. 14
Despite its size, Starbucks alone purchases only 2 percent of the coffee produced
worldwide. The SCAA, in its “Retail in the USA 2006” report, showed that at the end of
2006, specialty coffee sales had reached $12.27 billion, up from $11.05 billion in 2005
and $8.3 billion in 2001. Sales were divided into several subgroups: 15,500 coffee cafés
(retailers with seating) had sales of $8.53 billion; 3,600 coffee kiosks (retailers without
seating), $1.08 billion; 2,900 coffee carts (mobile retailers) $400 million; and 1,900 coffee
bean roasters/retailers (roasting on the premises), $1.76 billion. Sixteen percent of the
U.S. adult population consumed specialty coffee on a daily basis, whereas 63 percent
indulged occasionally. These figures illustrate the growth in popularity of specialty
coffees, as only 13 percent and 59 percent of people reported daily and occasional consumption,
respectively, in 2002. 15
Another trend that has surfaced in the past decade has been consumer requests for
organic coffees, and more emphasis was placed by retailers on the growing environment
of the beans. Starbucks was addressing the concern proactively, going directly to the
source to ensure better quality coffee by opening a Costa Rican support office for coffee
farmers and rewarding environmentally responsible farms through its CAFE Practices
program.