The product is coffee, or specifically it is high end coffee, expertly roasted and made available to coffee shops, institutional customers and retail customers over the Internet. There are several elements to the product. The first is the beans, which are sourced from equatorial regions around the world. There are different breeds and cultivars of coffee available on the market. Coffee, like wine grapes, picks up significant characteristics from its terroir as well. The result is that there can be tremendous differences in beans from different parts of the world, or even from different farms within the same part of the world. For all of the world's major coffee companies, beans from all over the world are blended together and roasted with the objective of creating a uniform taste that can be replicated all over the world. All major competitors, from Nestle to Kraft to Starbucks, utilize this basic formula.
High end coffee, however, is highly differentiated from this formula. Ultra-premium coffee is roasted in small batches with beans from individual regions and farms. The specific roast is designed specially to bring out the unique characteristics of the beans from that farm, and for the means of production (espresso or filter). Ultra-premium coffee therefore aims for a character that is anything but uniform -- each batch and indeed each cup could and should be entirely different from its predecessor. The appeal for consumers of ultra-premium coffee lies specifically in these differences. These are the same customers who spend hundreds of dollars seeking unique wines, beers and spirits, or unique dining experiences. Such tastes typically extend to other products as well, from clothes to entertainment to automobiles and vacations.
The Internet is the perfect vehicle for this type of business. There are two reasons for this. The first is that these consumers are diffused. While the nation is filled with millions of coffee addicts, those who take it seriously enough to pursue ultra-premium coffee tend to be diffused around the country. These consumers are therefore hard to reach via conventional channels because volumes in any individual city (with one or two exceptions) are too low. The second reason is that the Internet is often where these consumers learn about different ultra-premium coffees. Aside from their local roasters, they readily order beans from companies in Chicago, Miami or Vancouver if that is where they can get the ones they want. The same goes for coffee shops that serve this high end coffee. This business is largely conducted on a national scale to meet a niche market, making the Internet the perfect vehicle for the business.
Our company, Sufi Coffee, takes its name from the Sufis of Yemen who were the first to cultivate coffee and develop it as a drinking beverage. This homage to the history of the beverage is juxtaposed against a strictly modern interpretation of coffee drinking that lies at the heart of our market. The company was founded in 2013 by four students, and is in the process of acquiring its financing. To this point, we have sent one student to learn about coffee roasting and source a roaster. The other students are working on the business plan, in particular the marketing plan, and they are also working on building the website that will be the focal point of the marketing plan.
Sufi Coffee is going to be primarily an online operation, which is a reflection of the diffused customer base and the most practical way to run a niche business in the Internet age. The company believes that it can become profitable and earn a healthy 5% share of the ultra-premium segment within two years by virtue of an aggressive Internet marketing campaign. Sufi is going to have an Amazon-style warehousing operation to handle orders, but the website will not function the same way. The website will market the products with creative input (words and images) from the Sufi team, rather than from customers. This way, customer comments can be filtered to ensure that they support the company's marketing mission. The online approach to this business allows us to better reach our target market, to do this affordably, and to be more effective in promoting the product.
The main strength of our company is going to be the quality of the coffee. We believe that we will need to offer superior quality coffee in order to compete in this segment. By definition, our coffee needs to be better than Starbucks at the very least to compete in the ultra-premium segment. However, we will benchmark against current industry leaders in order to ensure that we have taken a leadership position in the business, rather than a me-too position. Product quality is going to be the main initial strength. Other strengths that we are going to cultivate are a sound financial position and strong branding.
There are several weaknesses that our company faces. As a brand-new company, there are many things that we lack. One is that we have not yet established our brand. That is a weakness that will need to be remedied as fast as possible. Indeed, much of our plan involves both leveraging our strength but also mitigating our weaknesses as quickly as we can. We have limited contacts within the industry, and we have only a few relationships with suppliers. There is a competitive market for good suppliers, so it is a challenge for the company to secure them when they become available. There is an experience gap between our company and the companies against which we will compete. All of these weaknesses will need to be addressed, and quickly.
The business exists to exploit one major opportunity. This is a new business, so multiple opportunities might be a bit ambitious until we have mastered the first one. We seek to exploit the growth of the ultra-premium segment of coffee. As consumers begin to take their caffeine addictions more seriously, they are turning to better-quality coffee. This begins for most with a trip to Starbucks, but increasingly consumers are moving beyond to small, local roasters and shops that specialize in high-end preparations. It is at this latter level that we see an industry with tremendous growth potential. While a small niche market today, the future can be seen a number of ways. A larger niche -- something akin to where craft beer is today -- is not at all unrealistic for the United States. However, ultra-premium coffee is a major segment (20-40%) of the market in New Zealand and Australia (at least in the cities) and this is the upper bound that could happen in the U.S. As well, given a few decades of development. Either scenario implies a long-run high-growth trajectory. While some firms have already put in a decade or more into the business, the ultra-premium segment is still in its introductory phase of the product life cycle, so entering the market now and establishing market share is a tremendous opportunity if the expected growth occurs, much less the upside growth.
There are significant threats, however, to this business. Aside from the different internal weaknesses that could undue our efforts, the business is threatened by competition. If more mainstream competitors can blur the lines between the ultra-premium segment and their offerings, the segment might not be able to achieve rapid growth. If the U.S. economy tanks, it probably will not affect our target market much, but it could affect our access to financing. Banks were very hesitant to lend during the last recession, and a reoccurrence of that could stifle any growth plans we might have, even if our business is growing. Lastly, there is the threat that climate change will have a significant and negative affect on coffee supplies and coffee quality. As a result, consumers might be priced out of the coffee market, or we could find our access to beans good enough to make our coffees has dried up.
Target Market Strategy
Our target market tends to be younger (under 40), well-educated, and relatively affluent. Drinkers of ultra-premium coffee encompass both genders, and may have families or be single. However, they are generally younger and more open to new experiences, an essential characteristic of consumers in this niche. Older consumers, most of them, are stuck in their habits and patterns and are less likely to know about ultra-premium coffee much less care. The prices in this segment are not necessarily any higher than those charged by Starbucks and its imitators, something that reflects a lack of sufficient differentiation for the segment. However, these prices are still at the high end for what is normally a daily beverage. Our customers therefore are likely to have well-paying jobs, which also means they are likely to be well-educated and urban. Our customers are also aware of different trends, are discerning in their tastes with respect to many different products, and prefer to pay a premium for a better or more exclusive product.