Summary of the Case
The case relates to three young Nepalese entrepreneurs who are planning to set up a coffee shop around the Kathmandu location. The team considers a café to be a lucrative venture given the growing demand for coffee and the rate at which Nepal’s capital city is growing. However, prior to establishing a successful café around Kathmandu, the partners must consider several factors including location, target market, competition, and the feasibility of their proposed venture. For example, the partners need to establish whether the location they were considering is the ideal one to set up the business. The team also needed to determine the ideal target market that the café would serve and the price at which they would sell. In addition, the partners need to determine where to source the inputs and the ideal marketing strategy to set the business apart from the competition (Kirkley, 2016). This discussion evaluates the situation using industry analysis. Specifically, the analysis is based on Porter’s 5 forces and aims at determining whether venturing into the coffee industry in Nepal is a worthy idea.
Porter’s Five Forces Analysis
Porte’s Five Forces is a framework that assesses and evaluates the competitive position and strength of a business. Developed by Michael E Porter, the theory is based on the idea that there are five key forces that determine the competitiveness of a business (Dobbs, 2014). By identifying where the power of the business rests, this theory allows businesses owners to understand the strength and weaknesses of the business (Bruijl, 2018). This theory can be used to establish whether the proposed venture is potentially viable.
Bargaining power of customers: The bargaining power of customers, in this case, is high given that potential customers are limited to business people, domestic students, and tourists. Customers can easily drive the prices of coffee down or switch easily from one café to the other (Kevin & Zach, 2017). In addition, customers have the freedom to choose among the existing competitors based on the prices charged. Thus, coffee customers in this location are powerful and can easily dictate terms in the market.
Bargaining Power of Suppliers: The bargaining power of suppliers of coffee beans is low since the business can switch from using Nepalese Beans to imported beans or branded beans easily. Whereas sourcing locally provides the business with the pride of locally grown products, quality can vary greatly given that the beans originate from different farmers (Kevin & Zach, 2017). Sourcing the coffee beans from importers, on the other hand, would guarantee quality consistency, but the business would lose the locally grown appeal. Finally, buying branded imports would allow the business to advertise with the supplier’s logo and leverage on international brands, but the business would have to sell at high prices.
Competitive Rivalry: Competition against the existing coffee businesses around the Kathmandu location is high. Currently, there are four main competitors that sell coffee in the same location including Himalayan Java Coffee, The Coffee Shop, Magic Beans, and Coffee Express (Kevin & Zach, 2017). Given that each of these competitors sells at different prices, the competitive rivalry for coffee customers is currently high in this location.
The Threat of substitute products: The threat of substitute products is low given that the number of avid coffee drinkers in the location continues to rise. The majority of coffee drinkers around the Kathmandu location are domestic students, business people, and tourists whose numbers continue to rise. As Shrestha indicates, between 250,000 and 350,000 coffee was sold in cafés annually, and the figures were growing by 5% every year (Kevin & Zach, 2017). The new customers becoming coffee drinkers coupled with the growing economic prosperity around the Kathmandu location makes the coffee-sold shops to be more accessible.
The Threat of new entrants: The threat of new entrants is low since there are fewer entrepreneurial challenges compared to some years back. Currently, there is easy access to coffee beans; local, imported, and branded (Kevin & Zach, 2017). In addition, power deficiencies that affected business startups have been addressed as Nepal seek to be elevated to a developing country by 2022. Unlike before, new startups also have easy access to financing facilities, which makes it easier for anyone to set up a new café around Kathmandu. Thus, the threat of new entrants in the coffee industry is currently low in Nepal and specifically in the proposed location.
Recommendation
Based on the above analysis, it is viable for the three partners to set up a café around Kathmandu. However, the new venture must set itself apart from other coffee businesses in the area. For example, it should source branded beans from international brands to benefit from advertising with the supplier’s logo. However, the prices should be kept minimal to attract as many customers as possible. Branded imports not only reduce advertisement costs but also guarantee quality consistency. Furthermore, the three partners should take advantage of online presence and social media marketing to beat main rivals in the market such as Himalayan Java Coffee. Penetration pricing would be ideal where the café sets the initial prices between Rs150 and Rs250 to allow the business to penetrate and showcase quality to its customers (Ali & Anwar, 2021). Once the café gains a high market share, it can then increase prices to match those of rivals such as Himalayan Java Coffee.
References
Ali, B. J., & Anwar, G. (2021). Marketing Strategy: Pricing strategies and its influence on consumer purchasing decision. Ali, BJ, & Anwar, G. (2021). Marketing Strategy: Pricing strategies and its influence on consumer purchasing decision. International journal of Rural Development, Environment and Health Research, 5(2), 26-39.
Bruijl, G. H. T. (2018). The relevance of Porter’s five forces in today’s innovative and changing business environment. Available at SSRN 3192207.
Dobbs, M. E. (2014). Guidelines for applying Porter’s five forces framework: a set of industry analysis templates. Competitiveness Review.
Kevin, X., & Zach, H. (2017). Kaffeine: The Nepalese café opportunity. Richard Ivey School of Business Foundation Case study Version: 2017-07-03.
Kirkley, W. W. (2016). Creating ventures: decision factors in new venture creation. Asia Pacific Journal of Innovation and Entrepreneurship.
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