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Industry Definition: The industry analyzed is specialty coffee retailing in North America.
Threat of New Entrants:
1. Economies of Scale are low. The price of opening a new store does not gain substantial
economies of scale when a firm already has many stores. Variable prices such as Aribica
beans, cups, whipped cream, etc. will benefit from some economy of scale, but not enough
to deter new entrants.
2. Capital Requirements are low. Property and inventory costs are not substantial enough
to deter new entrants.
3. Product Differentiation is medium. Although there are over 3,485 competitors, only a
few are large players. They have succeeded by selling an experience as opposed to simply
specialty coffee. In this way they have differentiated a seemingly identical product.
4. Switching Costs are low. There are no costs to consumers in switching specialty coffee
retailers. A small indirect cost may be an emotional attachment to a specific brand.
Net Conclusion: Threat of new entrants is high. The relatively low entry barriers of this
industry would make it attractive to new entrants.
Bargaining Power of Suppliers:
1. Supplier concentration relative to buyers is large. There are many exporters competing
for the business of few buyers.
2. Supplier products are not differentiated. Coffee is a commodity product.
3. Supplier products do not have high switching costs. Buyers are free to choose between
many suppliers and most do in order to diversify their product offerings and hedge.
Net Conclusion: The bargaining power of suppliers in this industry is low.
Bargaining Power of Buyers:
1. Buyer concentration relative to suppliers is large. With 10,000 buyers per shop, single
