Dark Roast Java
Problem & Solution
Problem Worth Solving
Thanks primarily to Starbucks, within the past 20 years the coffeehouse has become a familiar feature of American life. Every day, millions of Americans stop for an espresso-based coffee drink. People who would not have dreamed of spending more than 50 cents for a cup of coffee a few years ago now gladly pay $3 to $5 for their cappuccino, mocha latte or vanilla ice blended drink.
The specialty-coffee business is growing at a healthy pace. During the past 20 years, there has not been a single year, despite war and recession, in which specialty coffee sales have not grown. In many years the increase has been in double digits. In addition, no coffeehouse chains have failed during this time, although the list of casualties in other industries is quite long.
Starbucks, The Coffee Bean, Peet’s, Diedrich’s and other major chains serve average quality drinks in establishments that have the same generic design appearance. Indeed, Starbucks and The Coffee Bean are often referred to as "fast food" coffeehouses due to their "cookie cutter" design. Now that Americans’ coffee preferences have broadened and matured, many are asking for more from their coffeehouse.
Dark Roast Java launches with its first coffeehouse located in downtown Pleasantville. Dark Roast Java will offer residents and visitors a totally new style of coffeehouse – one offering a uniquely flavorful coffee drink and a comfortable, upscale environment at which to socialize, relax or work.
- Variety: No other coffeehouse in the area will provide the range of coffee drinks, tea, cocoa, juice, smoothies and other products that Dark Roast Java does.
- Location: Dark Roast Java will be located in the prime section of downtown Pleasantville in the heart of the shopping and entertainment district. Dark Roast Java locations are designed for high volume year round, with revenues and profits to match.
- Expansion: Assuming this store is successful, it will be the first of a chain of Dark Roast Java coffeehouses located in markets that have similar demographic profiles, significant traffic by the store, year-round tourist activity and a sizeable student population.
Market Size & Segments
Dark Roast Java’s customer base in Pleasantville is comprised of five target groups.
- Affluent local residents
- Local business people
- Travelers passing through
These groups are all potentially strong customer segments. The benefit of this mix of customers is that it helps maintain
consistent business throughout the year
. For example, while tourism is strong all year long in Pleasantville, it peaks during the summer months. Conversely, the student population is not as strong during the summer as it is from September through June of each year.
The other customer segments (local residents, local business and pass-through traffic on US 66) provide a consistent foundation all year long.
Also, by appealing to several market segments, Dark Roast Java does not become overly dependent on any single consumer group. For example, several local coffeehouses with primarily student customers do poorly during the non-school months. They must also market themselves anew each year to the incoming students. Dark Roast Java will avoid these peaks and valleys in business with a mix of customers.
- Affluent locals. Within five miles of Dark Roast Java are 200,000 of the most affluent people in America. Homes in adjacent Niceburg sell for $1 million to $50 million. Key influencers, trendsetters, artists, writers and celebrities have homes in Pleasantville.
- Tourists. More than 5,000,000 tourists visit Pleasantville every year. Most will pass by the Dark Roast Java location. Tourist come to "America’s Riviera" for the beaches, shopping, dining and nearby vineyards.
- Local business people. Dark Roast Java is located on the corner of ‘A’ Street and First Avenue in the heart of the prime downtown business district. It’s across from the exclusive, chic, Descarte (I Spend, Therefore I Am) department store, and one block from the number one shopping destination in Pleasantville, Lucre Galerie. ‘A’ Street and Frist Avenue are the two most heavily traveled streets in Pleasantville.
- Students. Pleasantville is home to a major branch of the State University as well as dozens of other schools, including many prestigious private schools and academies. Pleasantville High School is less than a mile from Dark Roast Java.
- Travelers on US 66. One of the state’s two major north/south routes passes through Pleasantville. According to Dept of Transportation, more than 35 million auto trips will pass through the city. Many of these travelers will stop for a meal, to refuel and have a cup of coffee. US 66 is also a heavily traveled commuter route to Shorewood and Beachey Head to the south.
Sources: Department of Transforation, State University, Pleasantville Chamber of Commerce.
Target Market Segment Strategy
Overall, our strategy is to maintain a constantly high customer count by leveraging our appeal to five groups of potential customers.
Local Residents. Approximately 200,000 people live within five miles of our Dark Roast Java location. The most affluent of these live even closer, within three miles. It is a short 5 minute drive to Dark Roast Java for most of our potential local customers. Excellent public parking is available within 100 yards.
Local customers form the loyal core of our business. We will reach out to them through local marketing, involvement in the Chamber of Commerce, support of local charitable organizations and sponsorship of events and youth sports teams.
Tourists. Pleasantville has excellent year-round tourist activity. About 5 million people will visit the area during the next year. While hotels are virtually sold out during the summer months, tourism all year is exceptionally strong. This is due in large part to the temperate climate, weekend or day-trip visitors from the greater Ontopolis area and an unusually large number of special events (e.g. film festivals, concerts, art shows) scheduled throughout the year.
With a troubled economy and fears of terrorism, more people are opting for the relatively inexpensive, easy and safe short trip to Pleasantville for recreation. And, according to the Chamber of Commerce, 90% of all tourists visiting Pleasantville will pass by the Dark Roast Java location.
We will target these potential customers with ads in local tourism guides.
Local businesses. Many local businesses, both private and government, are within two blocks of Dark Roast Java. Lucre Galerie, the prime shopping center of Pleasantville, is one block away. The county courthouse is two blocks away. Dark Roast Java is in the heart of the shopping and dining area.
Because much of the employee parking is out of the immediate area with shuttle service to downtown, most people stay near their place of employment during breakfast, lunch and for after-work relaxing. A significant number of these local business people find Dark Roast Java an inviting and convenient destination.
We also offer coffee service to local restaurants, night spots and businesses. Coffee service brings in additional revenue and promotes Dark Roast Java among employees at these businesses.
We will also reach business customers through Chamber of Commerce activities and by personally visiting the shops and businesses to distribute discount coupons and menus.
Students. The area has more than 30,000 students in several schools, including nearby City College and State University. Students, most of whom are under the drinking age, have few places they can go to meet their friends. Coffeehouses have proven to be very popular with students—even high school students—as an "in" place to go that’s also affordable.
To reach students we offer special student discount cards, pass out free coffee coupons at student events and offer entertainment on weekends.
Students represent an excellent customer segment for several reasons:
Students bring an energy and youth to the coffeehouse
By attracting students we generate excellent word-of-mouth
Students represent a large base of potential part-time employees
Often under the drinking age, students need an affordable place to hang out with their friends
Travelers on US 66. The Dept of Transportation estimates that there will be 35 million auto trips through Pleasantville this year, a number that is increasing every year. US 66 is one of two major freeways in the state and the one favored by travelers who want to take a bit more time and make a few stops during their trip. It’s also a major commuter route to the cities to the south in Sunshine County.
Our primary method of reaching this target customer group will be our participation as a AAA member, offering a 20% discount on all coffee and tea drinks when AAA members show their membership card.
We also conduct PR activities in media outside the local market to expose the Dark Roast Java name to a wider state and national audience.
Source: Dept of Transportation, Pleasantville Chamber of Commerce, US Census Bureau.
4.3.1 Competitive Comparison
"Until everybody can walk to a coffeehouse and get a properly prepared espresso drink, we’re not even approaching market saturation."
— Mike Ferguson, Marketing & Communications Director
Specialty Coffee Association, Long Beach. 2002.
Leaders in the specialty coffee chain category in the United States include:
Starbucks (6,300 stores). Started the specialty coffee chain phenomena in America in 1982. 99% are company owned. Revenues exceeded $6 billion in 2002. Average store gross revenue is $805,000. Now in 30 countries. Same store sales increased by 10% in 2002.
Caribou Coffee (260 stores). Second largest all company-owned chain. Founded in 1992 in Minneapolis.
Tully’s (103 stores). The third largest company-owned chain. Another Seattle-born company. The only coffeehouse chain that has not experienced excellent growth every year; business.com cites poor management as as the reason. New management seems to leading a turnaround.
Coffee Bean & Tea Leaf (210 stores). Oldest privately held specialty coffee retailer in the U.S. (founded 1963). 90% of stores are franchises.
Peet’s (58 stores) One of the few successful IPO’s in 2001. 58% of revenues come from sales of whole coffee beans. Gross profit last year was 49.5%.
Gloria Jean’s (291 stores, 195 in U.S.). Only 19 stores are company owned.
Seattle’s Best (150 stores). Owned by AFC, which also owns Popeye’s Chicken, Church’s, Cinnabon and Torrefazione Italia Coffee (21 stores). Seattle’s Best is also distributed at 7,000 locations such as grocery stores and office buildings.
Diedrich Coffee Company Originally founded in 1916 when the owners inherited a coffee plantation. Headquartered in Southern California. First coffeehouse in 1982. Owns the Gloria Jean and Coffee People chain. 386 outlets total and 370 wholesale accounts. Although they serve an excellent product they have operated "below the radar."
Bucks County Coffee A Mid-Atlantic chain of 40 stores founded in 1982. Has a very good reputation.
PJ’s Coffee & Tea (22 stores). This New Orleans-area chain owns four of their stores.
Java Dave’s (14 stores). Mostly in the Oklahoma area, 12 are franchises and two are company owned.
Quikava (68 locations). A unit of the Massachusetts-based Chock Full O’Nuts organization. Many are kiosks. All but three are franchises.
New World Coffee (33 stores). Mostly concentrated in the New Jersey/New York area. All but three are franchises. A division of Manhattan Bagel.
Bad Ass Coffee Company (29 stores). Begun in Hawaii, this company has grown rapidly by offering a Hawaiian-grown coffee and a milder, mellower brew.
It’s a Grind (86 stores). Fast-growing chain that began in Long Beach, California seven years ago. Most locations are franchises. Concentrated in Southern California and Las Vegas. Company reported $12 million in revenue in 2002. Its stores average more than $500,000 gross revenue.
Dunkin’ Donuts More than 800 outlets serving a surprisingly good coffee. Many people think it’s the best.
Specialty coffee chains in Canada:
Blenz (27 stores).
Second Cup (401 stores)
Tim Horton’s (2,100 stores/150 in U.S.). This store is very close to being a Dunkin’ Donuts style operation where baked goods are the primary products.
Although the specialty coffee industry is successful and expanding rapidly, there is still much room for growth—especially in niche market segments, according to The Specialty Coffee Association of America. Market maturity is not expected to be reached until at least 2019.
Sources: Business.com, Yahoo Business, Dun & Bradstreet, Hoover’s Business Data, Starbucks Corporation, Specialty Coffee Association, National Coffee Association. 2002.
Surprisingly, the leading coffeehouse chain, Starbucks, has only mediocre stores in the Pleasantville area (eight locations). Its highest volume store (1,150 customers daily) is at an excellent location on ‘A’ Street, the main thoroughfare in town, but the store is unattractive, small and lacks outside seating.
The other high-volume Starbucks is located at the end of a shopping mall in Mount Hill and averages 952 customers daily. It is not a particularly attractive store, although it does have a sizeable lounge area and some outside seating.
Other Starbucks locations in the Pleasantville area are even less memorable, with small facilities and mediocre locations. Photos of some of these locations are shown in the appendix.
Coffee Bean also has an excellent location directly across the street from Starbucks on ‘A’ Street in downtown Pleasantville. This busy coffeehouse is very small. A counter inside and a couple of tables outside are the only areas for customers to sit down. A second Coffee Bean opened in 2002 on the northern end of ‘A’ Street, about three miles from downtown. Another location in Mount Hill is scheduled to open in Summer 2004.
Other competitors include three independent coffeehouses. Paradiseo is located on State Street in a good location. They serve good coffee but have a limited menu and a very "funky" decor. It is a big hangout for the "Goth" and "punk" crowd. A second Paradiseo is located in Shorewood. New managers are trying to improve the store but without success so far.
Another independent is Grounds for Action, located in a residential neighborhood but on a busy street in what was once a gas station. This coffeehouse is also very "collegiate" in its decor, and a favored haunt of the law school students, but manages to average more than 250 customers per day. They have a second location in Springfield.
Ambrosia Kaffe is primarily a student hangout located about three blocks off First Avenue in the northern end of the business district. Its business is modest. The business has undergone changes in management during recent years.
Both Barnes & Noble and Borders Books have integrated cafes that serves espresso drinks into their store plans. Both of these are within two blocks of the Dark Roast Java site.
The Barnes & Noble coffee cafe is very small, located in the rear of the store, and not very busy despite serving Starbucks coffee.
The Borders Books cafe is larger, about 1,000 square feet, and does a good business. They are in a good location, adjacent to the same major parking garage as Dark Roast Java and they also draw from book shoppers and drop-ins from ‘A’ Street. The quality of their coffee and pastries does not compare with ours, and the service can often be quite slow.
The Pleasantville Roastery is a bean roaster and coffeehouse with brick walls and a "San Francisco" style. The coffee is roasted on site. They do much of their business by mail order. They suffer from a very poor location in a difficult to find (or even see) shopping mall off lower ‘C’ Street. A second, small outlet opened in 2003 in Lucre Galerie. Despite their poor location, this is probably the most formidable competitor in town. They make a quality cup of coffee and have a loyal following.
Our competitive edge, compared to the other coffeehouses in the greater Pleasantville area includes the following:
A significantly higher quality, better tasting coffee product.
Our current location can arguably be considered the best in the market—in the heart of the downtown shopping, dining, entertainment and cultural district in Pleasantville and adjacent to the historic Egyptian Theatre.
An ambiance superior to all other coffeehouses in the area with upscale "Cote d’Azur" look. It features stained glass decorations, art glasswork, Mediterranean Riviera style furnishings and outdoor dining.
The only coffeehouse downtown to provide regular weekend evening entertainment.
A wider variety of popular drinks than our competitors, including flavored coffee drinks, tea, chai, cocoa, juice and Italian sodas. We have several drink options for people who don’t drink coffee: tea, cocoa, juice and smoothies.
Our Internet website will include sales of whole coffee beans, tea, chocolates, gift items and gift baskets.
Keys to Success
Keys to Success
The keys to our success will be:
- A superior-tasting product backed by a unique quality store
- A relaxing, upscale interior design
- Prime site selection with an upscale affluent population, year-round tourist activity, heavy pedestrian traffic by the site, a dynamic student population and a concentration of local businesses
- A market that exposes Dark Roast Java to high-profile "trend-setters" and "key influencers"
- Ongoing, aggressive marketing
- Highly trained and friendly staff
- Multiple revenue streams including gift items, gift baskets and coffee gift/frequency cards in addition to coffee, pastry, chocolates, tea, juice, water and soft drinks
- A dynamic website with online sales capability