Coffee Truck Business Plan: Market and Strategy Analysis

Introduction and Market Overview

The market for coffee is in a state of monopolistic competition. Coffee is widely available from coffee shops like Starbucks, from restaurants, and from people making it at home. The nature of competition for a coffee truck will change depending on location, but there is always a need in monopolistic competition to find ways to distinguish a product or service from the competition and to create a distinctive brand for the truck.

Target Market and Key Economic Concepts

The target market for the coffee truck will shift somewhat with each location. A location downtown — for example, near the Rail Runner — would attract one particular clientele, while a location near the university would have different characteristics. The underlying factor is that all customers want coffee, related drinks, and snacks. The demographic characteristics might differ depending on location, but the psychographic characteristics will be similar across each market.

Even for fair trade coffee, demand is inelastic (Niemi, 2009). The demand for coffee is inelastic because coffee is a ritualistic purchase — coffee drinkers do not skip their morning cups very often. The consumer of a coffee truck is specifically someone who wants coffee on the go. In that sense, the truck competes against other coffee trucks and coffee shops that offer coffee to go, with a convenience advantage over both.

Another important economic consideration is the size of the market in any given area. This depends on the level of foot traffic in an area, adjusted for how many people are likely to stop. Coffee is a low-cost purchase, so income is usually not an important factor, though one critical substitute — making coffee at home — means that market potential is defined by the people who are willing to buy coffee away from home. This is a fairly large market, but it is nonetheless an important consideration when selecting the truck's location.

Product Mix

For a coffee truck, coffee is obviously the most important part of the product mix. The challenge is that coffee is difficult to differentiate. Consumers tend to have stated preferences — sometimes for a particular roast, sometimes for fair trade or organic — but for the most part the product is not highly differentiated. However, research has found that demand for fair trade coffee is inelastic (Niemi, 2009), and fair trade has broad consumer appeal. Customers seeking convenience are unlikely to be deterred by a slight premium for fair trade coffee, making it one area where the truck can meaningfully differentiate its product. Specialty drinks are another avenue for differentiation. The truck should therefore seek to become known for a signature drink or a rotating series of unique coffee creations.

Other beverages and snacks offer additional opportunities for differentiation, and can be set apart from the competition more easily than coffee itself. A variety of teas and hot chocolates can be a strong source of distinction — an authentic Mexican hot chocolate on a crisp New Mexico morning is a compelling offering. Pastries and snacks should be of the highest standard, contributing to the truck's reputation. Since they will need to be prepared off-site, there are opportunities to partner with the best local bakeries to ensure that the truck's offerings are superior to those of competing trucks and shops, regardless of location. Premium positioning must be supported by the best food, because the competitive environment changes by location — wherever the truck is parked, the goal is to be the best option in the area.