Exporting a Ready-to-Drink Cold Coffee Product to Australia
The following details a market plan to export a ready-to-drink cold coffee product to Australia. The product is similar to Starbucks Frappuccino, which is the market leader in the industry in America, having around 90% market share. The product is named Elixa and will be manufactured and sold in America as well as exported to Australia.
Australia as the Export Country of Choice
There are several reasons why Australia has been selected as the country of choice. Firstly, it is important to recognize that the product will also be sold and marketed in America. Australia has been chosen because of the seasonal variation compared to America, because the market leader Starbucks has not established a market in Australia, because it is a stable market and finally, because Australia is an Americanized market.
Firstly, the seasonal variation is important. As a cold product, the sales peak in summer. Because it is an off-the-shelf product with limited shelf-life the product must be continually manufactured. With the product being sold in America and Australia, the seasonal variation evens out. The peak in America coincides with the trough in Australia and vice versa. The end result is consistent demand. This means that manufacturing can be consistent.
Secondly, Starbucks has not established itself in Australia. In America, Starbucks is the market leader with around 90% market share. This makes it difficult for a new product to break into the market. Exporting to Australia is an opportunity to be the market leader in that country. This will help ensure the product delivers a consistent income and an acceptable return-on-investment for the money spent on product development and advertising. The new product can establish itself in Australia to develop that income, while slowly working its way into the American market.
Thirdly, Australia is a stable market, with political and economic stability. Australia is already a significant trade partner of America, with Australia ranked 15th in terms of exports and imports with America (Ball & McCulloch 51). Figures for 2000 show that Australia has a GDP of $445.8 billion, a GDP real growth rate of 4.7% and a per capita GDP of $23,200 (U.S. Department of State). Overall, Australia is a good market economically and in terms of future growth.
Finally, Australia is an Americanized market, aware of American culture and with many similarities to the American market. These similarities mean that product and promotional programs developed for the American market would be equally effective in the Australian market. This effectively spreads the cost of product and promotional development.
Overall, the similarities between the markets and the link between America and Australia will allow for a smooth entry of Elixa into the Australian market. The Australian market is also an economically promising one, while at the same time being low risk. Entering the Australian market also spreads the risk of Elixa by allowing it to operate outside of the Starbucks-dominated American market, but without the problems of integration that various other international markets would require.
Elixa as an Export Product
There are several reasons why Elixa is a good export product. The first reason is based on the fact that the major expense is for marketing and product development. If the product can reach a larger market, the cost of this marketing and development is spread over more product sales, achieving a cost per unit saving.
Secondly, as noted earlier, the American market is dominated by Starbucks Frappuccino. Competing in this market is difficult, especially with the brand name recognition advantage Starbucks has. Exporting is a means of breaking into this market with sales in Australia able to sustain the brand while it develops itself in America. Starbucks does not have the market dominance in Australia, giving Elixa the opportunity to dominate that market.
Elixa's sales are cyclical, peaking in the summer months. Exporting to Australia is a means of evening out American demand with Australian demand. The end result is that production remains constant throughout the year, allowing for the company to manage its manufacturing operations more effectively.
Finally, the ready-to-drink cold coffee beverage is one with a growing market. It is also a standard product with a wide potential market where no changes in the product would need to be made to enter new markets. This is beneficial as there would be no requirement to either develop the product to suit other countries or to sell the idea of the cold coffee drink to other foreign markets. The exporting to Australia could be the first step in an international exporting program, with the company later expanding to export to Europe and Asia.
Profile of the Industry
The ready-to-drink cold coffee product is a new market, one established by Starbucks with the introduction of their Frappuccino. This product was first introduced across America in 1997. By the end of 1998 Frappuccino dominated the ready-to-drink coffee category with 90% U.S. market share and a yearly sales growth of 150%. Frappuccino has effectively created a product category that previously did not exist (Fischer). In 2002, it was reported that the growth of the ready-to-drink category had continued at a near double-digit rate and now sits at around U.S.$400 million. Of this market, Frappuccino has 90% market share (Reuters). These figures and the similarity between the American and Australian market suggest that Elixa is capable of being as successful in Australia as Frappuccino is in America.
To analyze the industry further, Porter's five forces model will be applied. This involves considering supplier power, barriers to entry, threat of substitutes, buyer power and degree of rivalry.
The bargaining power of a supplier is high if there are only a few large suppliers, if the supplier's product is unique, if there is a threat of the supplier integrating forward and if the industry is not an important customer of the supplier group. These criteria do not apply to Elixa since all the required supplies are standard and readily available. The packaging, coffee, milk and other ingredients can all be obtained from various suppliers. In short, the product has its value added by the production and marketing, rather than with the inputs required. This means that the bargaining power of suppliers is low.
Possible barriers to entry include economies of scale, product differentiation, capital requirements, cost disadvantage regardless of size, access to distribution channels and government policy. Economies of scale apply to the situation, with Elixa needing to achieve significant sales to offset the cost of marketing and product development. This economy of scale will be achieved by exporting the product to Australia while breaking into the American market. Product differentiation also applies because of Starbucks Frappuccino and their domination of the American market. Starbucks has the brand recognition that gives them a considerable advantage in terms of brand loyalty. Elixa will have to spend heavily on advertising to overcome this barrier. Exporting to Australia is a means of overcoming this brand loyalty, since Starbucks does not have the same brand recognition in Australia. Capital requirements are also an issue with the majority of upfront costs needed for advertising and product development. Cost disadvantages regardless of size and access to distribution channels also apply to the situation. Starbucks may have a cost advantage due to their experience in the market. They also have access to distribution channels via their partnership with PepsiCo. This will be a factor that Elixa will have to overcome. Government policy is not likely to be an issue since Australia and America are major trading partners and the product is not one that is likely to encounter government control.
The threat of substitute products is an issue. Elixa competes with carbonated drinks such as Coca Cola and Pepsi, bottled sports drinks like Gatorade, non-coffee off-the-shelf milk products and non-carbonated juice products. Elixa has a significant advantage however, in being a coffee product. A significant amount of the population are routine coffee drinkers. In summer, Elixa is an alternative to the hot coffee products and as such, has a large market of potential customers.
The bargaining power of customers is low and so this is not a major issue in the competitive environment. This low bargaining power is because the product is differentiated from others in the market and it is not concentrated in a few large buyers.
The degree of rivalry in the industry is an issue. The direct competitor Starbucks has a significant market share in America allowing them to cut their prices or to increase advertising to prevent Elixa from successfully entering the market. The indirect competitors such as Coca Cola and Pepsi are also large competitors with the ability to cut prices or increase advertising. The one benefit Elixa has over these competitors is that it is focused only on the ready-to-drink cold coffee product. Starbucks also have their retail stores and their hot coffee products as part of their product mix and Pepsi and Coca Cola have a large range of products. This specialization gives Elixa an…