Green Mountain Coffee Roasters: Five forces analysis and industry attractiveness

Green Mountain Coffee

The coffee industry is only moderately attractive. The bargaining power of buyers is relatively high for a few reasons. There is a fairly low level of differentiation in the coffee business, so consumers are apt to substitute one coffee for another if the price is not right. In addition, the bargaining power of suppliers is relatively high, since coffee is traded on the global commodities market. Green Mountain does not have the size to move the coffee market, although some competitors like Nestle might. There is only a moderate threat of substitution, since coffee's attractiveness is both the caffeine and the ritual. Tea is the closest substitute, and it is possible that cigarettes could be a substitute, though it is more likely that they will be a complement. The threat of new entrants is high, since there are few serious barriers to entry. This has worked in Green Mountain's favor. The intensity of rivalry with the industry is moderate. Coffee is dominated by a handful of companies, but most are conglomerates who can exit the business. All told, the coffee industry is at best moderately attractive, with medium to high pricing pressures on all sides.

2. In order to generate revenues and profits in this challenging environment, Green Mountain is utilizing a differentiated strategy. The company's coffee is not particularly differentiated, but the methods it uses to bring its coffees to market are. The unique packaging and the brand image that Green Mountain has cultivated contribute to this differentiation, and these sources of differentiation appear to be the main selling points for Green Mountain. Green Mountain is most assuredly not a price leader, but it could be argued that Green Mountain is a niche player. I do not believe that Green Mountain's long-term strategy is geared to them being a niche player, however. I believed that they are seeking to cultivate the mass market, and that makes them a differentiated player. That they support this with multiple points of differentiation only lends credence to this theory.

3. Green Mountain has a unique approach to the coffee business, and is building its brand. The product is also a source of strength, and so is the company's management team. Among its weaknesses, however, include its relative lack of buying power compared with major competitors, the size of its sales force and its relative lack of capital. Green Mountain must succeed as a differentiated player because it lacks the size and scope to compete any other way.

There are some interesting opportunities for Green Mountain. The company is not large, so it can expand the way it has grown thus far, gaining simply by moving into new territories. Additionally, there appears to be appetite within the coffee market for new means of packaging and delivering coffee. K-Cups in particular seem to hold a lot of promise. There are many threats, however. Probably the biggest threat comes from the company's competitors, most of which are larger and better capitalized. There are also risks associated with the state of the economy and the price of coffee on world markets/

4. For Green Mountain, the key success factor will be in its ability to differentiate itself from its larger competitors, who are in a position to compete as cost leaders. Green Mountain can differentiate by selling superior quality, which will enhance the brand. If it can back up its quality claims with a superior product all the better. Green Mountain can also compete by innovating, so that it justifies premium prices by offering delivery mechanisms the market wants but that other competitors do not offer. The company will also need to control its costs. Because there will inherently be some price competition, especially if competitors are determined to imitate Green Mountain's successful innovations, the company will always need to keep an eye on its cost structures.

5. The recommendation for Green Mountain is to continue with its strategy of differentiation backed by both strong branding and product innovation. The K-Cup concept is one that the company should pursue because it fits in well with the company's overarching strategy, and allows it to reach new markets. The company should pursue this opportunity in order to enhance its brand image and provide it with a strong growth opportunity.