GLENORNA COFFEE Harvard Case Solution & Analysis

Glenorna coffee Case Study Solution

Porter 5 forces:

To analyse the Glenorna Coffee, the most appropriate tool for conducting this analysis is the Porter’s Analysis. The Porter Analysis consists of bargaining power of Supplier and buyers, threat of Substitute product,new entrants and competitive Rivalry. Each of the following is explained relating to Glenorna Coffee below:

Bargaining Power of Buyers (High):

The Bargaining Power of buyers is high as there are majority of suppliers in the coffee industry. This causes the buyers low switching cost in which they can easily switch to other coffee powder provider regarding its pricing. There are many developing nations which are exporting coffee such as Burundi, Honduras and Ethiopia for foreign exchange earnings. The buyers have varieties of substitutes available to them such as tea, juices and other beverages to choose from.

Bargaining Power of Suppliers (Low):

The Bargaining power of suppliers is low since there ishigh variety of suppliers in the coffee industry. There are around 70 countries which produce coffee due to its climate and growing conditions in which the majority of the supply comes from Brazil, Vietnam, Colombia, Ethiopia and some other developed countries. This causes the bargaining power of suppliers to become low, and the producer shows less concern on the demand of the supplying.

The threat of Substitute Products (High):

The threat of Substitute product is highsince the coffee shops such as Starbucks, Mocha, Gloria Jeans and other coffee outlets have varieties of coffee brands to choose from.Such as Glenorna coffee product line is on producing Caffeine kick, roasted ground coffee (Arabica), Robusta and a mixed blend, there are other companies which manufacture and export different coffee powders having different taste and quality. This gives the coffee shops varieties in coffee powder to choose from such as its growth, variety, bean size, shape and colour, cup quality and density of beans.

The threat of New Entry (Moderate):

The threat of new entrants in the coffee production industry is moderate since the new entries require reasonable investment, agood supplier of coffee beans and experience in blending those beans to powders. The new entry could gain anadvantage if it does its own backwards integration by producing its own coffee beans. The backwards integration needs plantation which requires heavy investment and good growing conditions.

Competitive Rivalry (High):

The competition in the Coffee industry is high as there are many companies which are producing and exporting coffee throughout the world. The biggest rival for Glenorna Coffee is Tata Coffee, and other competitive players are Nestle, Bru and others. It was found that around 80% of coffee production was exported in the world which shows heavy competition in the market. The coffee market has been expanding its geographic reach each year due towhich the competition keeps on increasing each year.

Glenorna Decision on purchasing Coffee Plantation

After calculating the NPV and IRR of purchasing Coffee Plantation, it was found that the total NPV was about (1,333,287,069) and IRR was about 7%. The IRR was about the Cost of Capital which was at 20.51%. This shows that purchasing the Coffee Plantation for Glenorna Coffee is considered a bad decision and should not consider doing backward integration. The calculation is shown in the excel file which shows the overall costs, revenue, purchase of lands, NPV and IRR.

Glenorna Decision on growing Specialty Coffee

Glenorna should consider growing special coffee on its plantation of its current coffee brands of roasted ground coffee (Arabica) called Glenorna Premium, Robusta by the name of Glenorna classic and mixed blend called Glenorna Maharaja. The company can further specialize its coffee beans by planting new types of beans such as Arabica and Robusta, as the top 10% specialised coffee comes from Arabica. The company can also try minimizingthe coffee toxins by having advanced machinery and roasting equipment of coffee.

Improving Glenorna chain valuation

The Glenore Company can enter into the coffee business by developing an extensive value chain. In doing so, it can integrate the backwards operation like the plantation of the coffee which will assure the quality of beans and the uniformity of quality reaching to the market. In addition, the company can also add the stage of offering the brewing service in the market by opening its flagship stores. This will strengthen the brand image of the company and will also allow it to develop integrate market penetration strategy, taking control of the forward and backwards integration of supply chain.

Final Advice

The final advice for the owner of Glenorna Ranjan Appachu would be, that it can improve its chain valuation by focusing on the forward integration. Since, Glenorna was already working in manufacturing and supplying of the coffee powder, it could set up its own coffee shop in India through which it can directly deal with the customers. Glenorna coffee shop would be making its own coffee for the customers, since the coffee consumption in India has been increasing due to globalization, changing lifestyle and increasing disposable income.

Pros:

  • Improvement in the brand loyalty
  • Increase the overall sales of Glenorna coffee

Cons:

  • Requires heavy investment in setting up shops, marketing and hiring.
  • Heavy competition in the market
  • Lack of experience dealing with customers.

The purchasing of the plantation and doing the backward integration is considered a bad investment for Glenorna coffee shop so it is better that it should focus on doing the forward integration.......................

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