• Nishchay Nath

Strategic choices in running a coffee business

Updated: Aug 2, 2020

I have been active in the Indian specialty coffee industry as a hobbyist for the last 3+ years. My passion has pushed me to work with roasteries, visit estates, explore the specialty coffee segment and understand what drives consumer demand. Combining this with my education and experience in helping companies drive their business, I attempt to look at the coffee space from a strategy lens. The objective of this exercise is to help business owners and entrepreneurs understand the upsides and downsides of the choices they make while trying to capture a piece of the pie. Choices need to be made because resources are limited and operations need to be aligned to maximise the vision-effort-output equation.


This exercise has 2 steps.


Step 1 - Finding the sweet spot

Here we will use the 3C framework to understand where the business fits:

Can You Say What Your Strategy Is? by David J. Collis and Michael G. Rukstad

1. Customer

What you need to do here is to understand who your key customers are and define their needs. For starters, do a simple 30 minute brainstorming with your team to understand what their view/understanding is of their customers. Mind you, there is difference between customer and consumer. Customers are the ones who buy your products/services whereas consumers are the ones who use them. Case-in-point: cafes are customers of roasteries who sell wholesale roasted beans whereas the people who buy coffees from those cafes are the consumers. But for a cafe, the customer and the consumer is one person.


2. Competition

Chart out the different activities that your competitors are doing. Score them on a scale of 1 to 5 depending on the level of engagement they provide. By doing this activity across say the top 10 competitors across say 30 different activities, you will be able to identify the white spaces in which you can develop a focussed business case.


3. Company

Use a simple SWOT (Strength, Weakness, Opportunity, Threat) matrix to identify where you are currently placed. Do not spend too much time thinking on this as this should reflect your top-of-mind image of who you are/your brand is.


Once you are able to do this, there will emerge a sweet spot which is your strong suit and relatively underdeveloped. Build on to this by focussing on the key strategic choices to be made to achieve your short/mid/long term objectives.


Step 2 - Strategic choices

For the sake of simplicity, I have created a template as a starting point for the strategic choices to be made. Now, this may change from business model to business model. Individual nuances of the segment may not be captured in the below framework. How I have designed this preliminary framework is by looking at cafes, roasters, equipment supplier and manufacturers, convenience coffee segment, retail and new-age coffee aggregators. Here I have looked at 4 broad areas which need to be mapped. In each area, multiple choices have been identified to keep it as MECE (mutually exclusive collectively exhaustive) as possible. And each choice has multiple options of which only one can be chosen. The eventual choice should be vetted by asking 3 questions i.e. what you intend to do, what would be the unintended consequences of the choice and a mitigation plan.


(Note: The below framework is a work-in-progress and presents a reductive view with limited context. I intend to use this as an over-arching framework for the narratives segment. Every use case that I deep-dive into will attempt to explore the outcome of certain choices.)


1. Customer

a. Segment: Casual vs. Convenience vs. Home Brewers vs. Purists

b. Reach: Larger base vs. Higher frequency of visits

c. Orientation: Higher cups/person vs. Larger groups


2. Product

a. Timing: Early entry vs. Late entry

b. Theme: Coffee vs. Food vs. Activities

c. Positioning: Specialty vs. Convenience

d. Pricing: Premium vs. Penetration


3. Promotion

a. Communications: Community vs. Aesthetic vs. Education

b. Connect: In-cafe vs. Home vs. Online

c. Branding: Commodity vs. Premium vs. Specialty


4. People

a. Hiring: Skilled vs. Experienced

b. Growth: Build vs. Buy


Be mindful of the fact that you can only afford to choose one. Focused strategies are much more effective and even the slightest of inclusive strategies fail to capture a niche. Carefully deliberate the upsides and downsides of each strategic choice.



A few examples of successful brands and my view of their strategic choices:


Starbucks

1. Customer

a. Segment: Casual vs. Convenience vs. Home Brewers vs. Purists

b. Reach: Larger base vs. Higher frequency of visits

c. Orientation: Higher cups/person vs. Larger groups


2. Product

a. Timing: Early entry vs. Late entry

b. Theme: Coffee vs. Food vs. Activities

c. Positioning: Specialty vs. Convenience

d. Pricing: Premium vs. Penetration


3. Promotion

a. Communications: Community vs. Aesthetic vs. Education

b. Connect: In-cafe vs. Home vs. Online

c. Branding: Commodity vs. Premium vs. Specialty


4. People

a. Hiring: Skilled vs. Experienced

b. Growth: Build vs. Buy



Blue Tokai Coffee


1. Customer

a. Segment: Casual vs. Convenience vs. Home Brewers vs. Purists

b. Reach: Larger base vs. Higher frequency of visits

c. Orientation: Higher cups/person vs. Larger groups


2. Product

a. Timing: Early entry vs. Late entry

b. Theme: Coffee vs. Food vs. Activities

c. Positioning: Specialty vs. Convenience

d. Pricing: Premium vs. Penetration


3. Promotion

a. Communications: Community vs. Aesthetic vs. Education

b. Connect: In-cafe vs. Home vs. Online

c. Branding: Commodity vs. Premium vs. Specialty


4. People

a. Hiring: Skilled vs. Experienced

b. Growth: Build vs. Buy



Corridor Seven Coffee Roasters


1. Customer

a. Segment: Casual vs. Convenience vs. Home Brewers vs. Purists

b. Reach: Larger base vs. Higher frequency of visits

c. Orientation: Higher cups/person vs. Larger groups


2. Product

a. Timing: Early entry vs. Late entry

b. Theme: Coffee vs. Food vs. Activities

c. Positioning: Specialty vs. Convenience

d. Pricing: Premium vs. Penetration


3. Promotion

a. Communications: Community vs. Aesthetic vs. Education

b. Connect: In-cafe vs. Home vs. Online

c. Branding: Commodity vs. Premium vs. Specialty


4. People

a. Hiring: Skilled vs. Experienced

b. Growth: Build vs. Buy



Sleepy Owl


1. Customer

a. Segment: Casual vs. Convenience vs. Home Brewers vs. Purists

b. Reach: Larger base vs. Higher frequency of visits

c. Orientation: Higher cups/person vs. Larger groups


2. Product

a. Timing: Early entry vs. Late entry

b. Theme: Coffee vs. Food vs. Activities

c. Positioning: Specialty vs. Convenience

d. Pricing: Premium vs. Penetration


3. Promotion

a. Communications: Community vs. Aesthetic vs. Education

b. Connect: In-cafe vs. Home vs. Online

c. Branding: Commodity vs. Premium vs. Specialty


4. People

a. Hiring: Skilled vs. Experienced

b. Growth: Build vs. Buy


What next?

Development of strategy sounds like a theoretical exercise. The real benefit lies in connecting this to the execution of the strategic choices. The first thing that happens in most cases is that everybody in the team who engages in this strategic exercise understands the direction in which they are headed. Second, it allows for the company to decide which strategic initiatives to undertake and mitigation plans to optimise the outcomes. Third, the company can build a balanced scorecard with key performance indicators, targets, set up controls and assign responsibilities to respective teams within the organizational umbrella. All in all, this exercise is must for brands who are looking to build a long term business with robust financials.


I find that this can enable coffee businesses in India choose their play, leverage their strengths and understand the trade-offs of their decisions. How this translates into who wins what share of the pie is something that we will see with time. Some brands do come off as visionary and seem strategically poised to ride the coffee wave, especially in the specialty coffee space. The next 2-3 years are going to be really exciting and I hope to see a couple of brands establishing their own moats of expertise.

Want to discuss further? Mail me on p18nishchay@iima.ac.in

260 views