Overview on Main Key Players in Coffee Trading - Research Paper Example

COFFEE PRODUCTION: A Competition of bands: Coffee had emerged as a significant world trade commodity in the period of late fifteenth and early sixteenth centuries on the novice of European colonial expansion. Presently there are two types of coffee that are traded world wide: Robusta and Arabica. At present there are four main key players in this coffee trading- Procter and Gamble, Kraft Food, Nestle and Sara Lee. Together these Big Four of coffee business buys most of the production of world coffee. Besides, there are also Starbucks and Private Label. Thus a continuous fight uses to take place among these key players for capturing the market. As the days are passing, the companies are applying new marketing strategies for appealing the coffee lovers. A lot more amount of careful strategies are applied in branding, packaging, pricing and improving the taste to make the product more lucrative. So in the present analysis it has been tried to find out how the competitors are using the key principles and practices of marketing to differentiate their offerings and achieve a competitive advantage in the coffee market. Marketing: Marketing has been defined by Adcock, Halborg and Ross (2001) as ‘the study of exchange process especially those associated with the provision of goods and services.’ (Adcock, Halborg and Ross, 2001) This defines what important role marketing plays in case of business. The customers can not access the products until and unless that product is marketed. A company’s total marketing strategy should have an efficient mixture of tools of advertising, promotion via sales and relation with the people along with selling personally and marketing directly. (Kotler and Armstrong, 2005) According to Kotler and Armstrong (2005), following points have to be kept in mind for making a market strategy: 1. Advertising: It is a paid form of presentation made nonpersonally and promotion of the product by an identified sponsor. 2. Sales Promotion: It is a form of incentive that is undertaken to encourage the purchase and sale of the products. Mainly it is done with a short-term motive. 3. Public relation: One very important prerequisite of marketing is the establishment of good relations with the publics for obtaining a favorable publicity, setting up a good image in the corporate level and managing unfavorable rumors or events that can adversely affect the company. 4. Personal selling: It is a form of personal presentation done by the sales’ force of the firm for developing good customer relation. 5. Direct Marketing: Last but not the least; it is very profitable for the firm if it can directly establish a connection with the targeted individuals to get both an immediate response and maintain long-lasting relationships with the customers. Besides, financing, standardization of the product, market research, risk taking and stockholding also play important roles. However it is not necessary all these tools will be applied simultaneously in one organization to realize the goal. Actually it depends on the organization how it defines the goal. Adcock, Halborg and Ross (2001) explained this well with a simple example. He said within a retail organization, the buying function will be defined as marketing while in case of a manufacturing organization; marketing will consist of production function. However, the tools like sales promotion, advertising and market research are core marketing function. (Adcock, Halborg and Ross, 2001) As mentioned by Kurtz (2008) getting a product on the store shelf does not happen instantly. (Kurtz, 2008,). One has to analyze the data on the behaviour of customers, their incomes and families for ascertaining their purchase decisions. If proper analysis of the observations is taken into account, sales figures can rise rapidly, even in absence of high cost advertising or promotional events. Managing the need of the customers is very important in case of marketing. All these tools are summarily called the Four Ps of marketing. The Four Ps of marketing i.e. the marketing mix is the combination of tools that are used by a company to win advantage in the market place. It is not possible for a business to force a customer physically to spend his money on its product. However if the company can place the four Ps in correct place, it can maximize the potential of the product. The four Ps of marketing implies price, product, promotion and placement. There are numerous factors which are not under the control of the company like employment factor or competitors threat. But these four Ps are manageable. Each P is well integrated with one another- no one can function individually. So a proper coordination is required. First P implies the product. The company must analyze the quality of the product which it intends to sell in exchange of money. The product have to be unique also as there are other competitors in the market too. So branding is necessary. By becoming a brand, the customers help to make a strong relation with the company itself which is difficult to compete. A real brand provides the customers with a sustained level of quality products and services. Packaging is also an essential variable to determine. Now after launching, the company has to make strategic plan about advertising. Next P stands for promotion. The advertising and the promotion program should be made in such a way that the customer must feel the need of the product after seeing the advertisement. This requires a thorough market research. The very first step in case of marketing research is to define the problem. The researchers must be efficient enough to distinguish the signs of the problem with the problem itself. Then an exploratory research is undertaken by which the researcher try to figure out the cause of the problem. They design the research, formulate the hypothesis and then interpret the results. Next P is the pricing variable which must be thought through from the manufactures’ end to the final consumer price. One has to keep an eye on the distribution also because if the products do not reach the retail market, the customers won’t be able to buy them. The competitors’ price and payment plans have to be kept in mind also. Last but not the least comes the placement. The company before introducing a product in the market has to make a plan of whom to target and what niche of the market should be aimed at. The quality of the product helps to determine whom to target. As the days are passing, capturing the attention of the customers only by traditional marketing formulas is becoming difficult. To set up a strong base, one has to look for the First Mover Advantage. One will have to ensure that it has some special strategy that it could use against the competitors. Since now the world is becoming more and more technologically sound, it is very important to reach the general mass via media. Every business has risk and rewards. So companies have to build up sound strategy to sustain in the long run. Key Players in the World Coffee Market: The world market of coffee is ruled by four multinational biggies- Kraft General Foods (owner of Maxwell House and other brands), Nestle, Proctor & Gamble (owner of Folgers and other brands) and Sara Lee (owner of Chock Full O'Nuts and Hills Brothers). Besides, there are Starbucks and Private Label. Procter and Gamble Coffee: Procter and Gamble acquired Folgers Coffee which is a major brand of coffee in the US. It is a beverage division of the J.M. Smucker. The Folgers Coffee Company (‘Folgers”) is a subsidiary of the Procter & Gamble Company (P&G). Folgers leads in the production of the retailed packaged coffee products in the United States. It offers original Folgers(R) brand, Millstone(R) and it has got a license to manufacture and distribute Dunkin' Donuts(R) coffee in the retail grocery market. Kraft Food Coffee: Kraft Food has renowned bands like Maxwell House, Starbucks (under license), Gevalia, General Foods International, Yuban, Sanka, Nabob and Seattle’s Best (under license) coffees operating in the US market. In the European market, it has Jacobs, Gevalia, Carte Noire, Jacques Vabre, Kaffee HAG, Grand’ Mère, Kenco, Saimaza, Meisterroestung, Maxwell House, Onko, Splendid, Starbucks (under license) and Karat coffees. In other developing markets, there are Maxwell House, Maxim, Carte Noire, Nova Brasilia and Jacobs coffee. Sara Lee Coffee: Sara Lee has an innovative line of coffee products perked up in the market with brands like Douwe Egberts, Maison du Café, Marcilla and Café Pilão. Senseo is the single-serve coffee operating in the US. Brazilian market is mainly captured by Café Pilão. Douwe Egberts coffee is famous in the markets of the Netherlands, Belgium and Hungary. The Merrild coffee is famous in Denmark. With the help of such brands coffee products, Sara Lee has been able to hold premier market positions across Europe and in Brazil. Nestle coffee: Nestle® Coffee-Mate® is the coffee’s perfect mate as the coffee creamer brand than has kept a distinct position in the world market of coffee. It offers more than twenty flavors and available in both liquid and powder creamer options. It continues to be coffee's perfect mate as the coffee creamer brand of choice for generations. Nestle coffee mate has three products: liquid Nestle coffee mate, Powder Nestle coffee mate and the World Café Collection taking inspiration from the tastes of Europe. Next item that comes under the coffee brand of Nestle is Nescafe. It is also sold in more than 100 countries all through out the world. Products coming under Nescafe are Mountain Blend, Classic Regular, Clasico Regular, Clasico Decaf, Nescafe Gourmet Instant Regular, Nescafe Taster’s Choice Regular and Nescafe Taster’s Choice Gourmet Roast. Starbucks Coffee: Starbucks Coffee Company has got a unique position in the world in retailing, roasting and branding of specialty coffee. Starbucks (together with its subsidiaries, “Starbucks” or the “Company”) buys and roasts whole bean coffees of high quality and sells them, along with rich style Italian-style espresso beverages, cold blended beverages, a variety of complementary food items and coffee-related accessories and equipments, primarily through company-operated retail stores. Through a licensing relation with the Kraft Foods, Inc. (“Kraft”), it sells a range of Starbucks and Seattle’s Best Coffee branded packaged coffees throughout the United States. Thus with so many brands competing in the market, every player has adopted from time to time different marketing strategies to win the market. Thus the next section has tried to find out what marketing strategies these players have applied from time to time for capturing the market share. Marketing Strategy in Coffee market: In recent years, so many brands have came in the market that a walk down the supermarket aisle offers the coffee lovers a dazzling but at times confusing array of coffee products of various quality, everyone packaged in seductive designs. New products persuade the customers with different interesting names that sound very attractive. As for example Folger’s Caffe Latte has flavors like Vanilla Vibe, Chocolate Mint and Caramel Grove. Nescafe has flavors like "cool Java" blend and hazelnut French roast. So a price competition is evident. To capture the market, Kraft had reduced the price of its "good to the last drop" rich French roast. (Starbucks/ Fair Trade Campaign, 2001). Here the first P-pricing strategy has been applied. Lower prices help to capture the market. Next is the role of promotion. Each company plans a huge advertising campaign for promoting its product. Advertising is an enduring link between brand and its customers. Successful relation between the brand and the customer can lead to repeat purchasing and showing their loyalty towards toward a brand. (Shimp, 2008). Any new introduction in the market needs a good marketing campaign which will be including advertising, distributing coupons, in-store merchandising and a good public relation. Keeping all these prerequisites in mind, the new Folgers marketing campaign "Roasted with Care" had been launched in New York.( (P&G: News Releases, 2008). P& G Professional, the away-from home division of Procter & Gamble had offered the office managers and employees free samples of Folgers Gourmet Selections Lively Colombian coffee. This promotion was featured on a new Web site about the benefits the office got from such campaign. It would have definitely helped to attract the eyes of other corporates regarding introduction of this brand. Sara Lee has also invested a certain portion of marketing investment into ‘consumer centric brand activities’ like events for promoting products, placing them and other in-store activities. (Sara Lee: 2007 Annual Report, 2007). These are done to capture the target consumers informing them about newly launched products. It has already increased sustainable coffee volumes by introducing Good Origin brand in distant lands like the Netherlands, the United Kingdom, Denmark and the United States. (Sara Lee: 2007 Annual Report, 2007). Sara Lee had given its Maxwell House coffee brand a makeover aiming at enhancing the flavor. It also launched Carte Noire coffee brand in a customer metal container. It also pumped the marketing muscles behind its Chock full O’ Nut brand by undertaking an advertising campaign on radio. The aim was to undercut the premium gourmet brands like Folgers and Starbucks. All these spate of advertising, packaging and promotional events helped Star Lee reviving its strong position in the packaged coffee category. Even celebrities are now-a-days attracted for promoting new products. It is has become a very common thing to sign a celebrity for advertising campaigns. For example, Oscar-winning actor George Clooney appeared in an advertisement of Nespresso, a product of Nestle Coffee. The advertisement campaign was directed by the famous French director Michel and shot in exclusive location of Los Angeles. (The Clooney Project, 2006). This gives an idea how much the company had spent in promoting its brand. Procter & Gamble’s Folgers Gourmet Selections brand had also partnered with TV actress Chandra Wilson for promoting products and also donating to Habitat for Humanity. (P&G: News Releases, 2007). Such type of campaigns easily gets the attention of mass and it becomes easy for the company to promote its product. Nestle’s Nescafe Taster’s Choice coffee as a part of promotion program introduced in 2005, a product sampling campaign by offering a free, two-week supply of Nescafe Taster’s Choice. With this campaign, the coffee lovers could log on to TastersChoice.com website for acquiring information about the promotion. It also promoted this event by airing the television. It also formed partnership with the national newspaper in conjugation with NBC’s “The Apprentice”. (Nestle: Press Release, 2005). Then comes the product. Each coffee seller always tries to find out the way of making its product unique. For example, the Procter & Gamble’ Folgers brand has many products made keeping in mind the nature of preferences of the consumer. Folgers brand introduced an ‘enhanced and proprietary roasting process’ for ensuring that customers get pure Mountain Growth taste in every cup of Folgers Classic Roast and Coffeehouse Series. Because of such enhanced roasting process, it was their aim that ‘the consumers can get a rich coffee taste from every bean’. (P&G: News Releases, 2007). P&G have realized the fact many people want to have a rich coffee but often have a budget constraint. So they introduced Folgers Gourmet Selections with high flavor and low cost. It is a mixture of both product and pricing strategy that Folgers tried to follow for capturing the market. P&G research found that many consumers desire premium coffee with unique locales. Millstone Coffee, a division of P & G keeping these things in mind had introduced Costa Rica Tarrazu which is a medium roast with a balanced finish, Kenya AA, a medium dark roast with intense finish and Mandheling, a dark roast with a complex but smooth finish. (P&G: News Releases, 2007). Many advertisements for General Foods International Coffees had the concept around visiting friends, spending time with spouse and family and other emotional moments. It always had done a thorough market research in accessing the psychology of the consumers. They also spend substantial amount of advertisements for nurturing homemakers. Next P the companies apply is that of placement. A very important part of marketing strategy is retailing the products so that the products could reach every section of consumers. P& G’s Dunkin’ Donut packaged coffee had been introduced in select retail outlets so that consumers can easily enjoy coffee sitting at home. Procter & Gamble supported the product launch with a multifaceted marketing campaign which included network TV, national consumer print and local radio ads, the dunkinathome.com Web site and a public relations program that boosted up the "America Runs on Dunkin'" advertising theme. (P&G: News Releases, 2007). In 2001 Sara Lee offered the consumers a wide variety of frothy gourmet coffees, Cappuccinos and Espressos with a single serve coffee innovation, the Philips Senseo coffee machine. These help to record an impressive growth as 2008 annual report of Sara Lee suggests. (Sara Lee: 2008 Annual Report, 2008). Sara Lee’s Douwe Egberts had also opened a new coffee and gift shop across the Netherlands so that consumers could have an easy access to the Douwe Egberts coffees and coffee-related products. That innovative store has a café also providing exciting shopping opportunities to the Dutch Douwe Egberts consumers. (Sara Lee: 2007 Summary Annual Report, 2007). Thus it has been found that since so there are so many coffee brands competing in the world coffee market, the companies have to think on more and more innovative ideas of how to structure the four Ps, how to make their products an easy reach for all coffee lovers and how to mould the mind of the customers towards their products. But sometimes some company might apply some means of marketing which may be inappropriate for the general public So the company has to be very careful regarding these facts. This competition will continue for capturing the coffee market but because of these marketing on a good note the consumers will be able to expect more and more enriched, delicious but moderate cost coffee day by day because of such competition. References: 1. Kotler. P., Armstrong. G., 2005. Principles of marketing. Prentice Hall (USA). 2. Adcock. D., Halborg. A., Ross. C., Marketing: Principles and Practice (Paperback). Prentice Hall (USA). 1. Kurtz. D.L., 2008, Contemporary Marketing. Cengage Learning(Stamford, CT) 2. Organic Consumers Association, Starbucks/ Fair Trade Campaign, 2001. “Coffee 3. BREWING A CHEAPER CUP: Coffee quality takes a dive as beans glut the world 4. market” Available at: http://www.organicconsumers.org/starbucks/cheap.cfm 5. (Accessed on August 11, 2009). 6. P&G: News Release, 2007. “Millstone(R) Coffee Furthers Commitment to Exceptional Variety With Three New Exotic Blends.” Available at: http://www.pginvestor.com/phoenix.zhtml?c=104574&p=irol-newsArticle&ID=996925&highlight=coffee (Accessed on August 11, 2009). 7. Shimp. T.A., 2008, Advertising Promotion, and Other Aspects of Integrated Marketing Communications. Cengage Learning (Stamford). 8. P&G: News Releases, 2008. “Folgers Introduces a Revolutionary Enhanced Roasting Process and Unprecedented Marketing Campaign.” Available at: http://www.pginvestor.com/phoenix.zhtml?c=104574&p=irol-newsArticle&ID=1185532&highlight=coffee (Accessed on August 11, 2009). 9. P&G: News Releases, 2007. “TV Actress Chandra Wilson and Folgers Gourmet Selections(R) Team Up With Habitat for Humanity(R) to Help Families Wake Up Special Every Day.” Available at: http://www.pginvestor.com/phoenix.zhtml?c=104574&p=irol-newsArticle&ID=1039641&highlight=coffee (Accessed on August 11, 2009) 10. P&G: News Releases, 2007. “Procter & Gamble Brings Dunkin' Donuts Coffee to Kitchens Across the Country”. Available at: http://www.pginvestor.com/phoenix.zhtml?c=104574&p=irol-newsArticle&ID=1039641&highlight=coffee Accessed on August 11, 2009). 11. Sara Lee, 2007. “2007 Summary Annual Report”. Available at http://www.saralee.com/InvestorRelations/FinancialInformation/~/media/6585251800A1484CB7685F712E7EF9B9.ashx (Accessed on August 11, 2009) 12. LiVEJOURNAL, 2006. “The Clooney Project”. Available at http://clooneyproject.livejournal.com/tag/nespresso (Accessed on August 11, 2009) 13. Nestle, Press Release, 2005. “Fans of the show can sample the great taste of NESCAFÉ® TASTER’S CHOICE®”. Available at http://www.nestleusa.com/PubNews/PressReleaseLibraryDetails.aspx?id=740B0A57-E49D-42E5-82F2-96E29AA7ABD3 (Accessed on August 11, 2009) 14. Sara Lee, 2008. “2008 Annual Report”. Available at http://www.saralee.com/InvestorRelations/FinancialInformation/~/media/78710F81E6CA462AA77330C2DEF17A94.ashx (Accessed on August 11, 2009) Read More