Strategic Expansion of Black Canyon Coffee: A Focus on Asia

Essay, Pages 6 (1480 words)

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Company Background

Black Canyon Coffee (BCC) is a Thailand based coffeehouse which has actually grown to end up being the largest cafe chain in Thailand. BCC opened their first shop in 1993 in Bangkok and ever since company has actually experienced 15 to 20 per cent annual development with extremely little debt. Though Thailand is a low coffee consuming nation however with the assistance of tactical marketing BCC has had the ability to penetrate the market. Presently BCC had 78 areas in 2002, and nearly 100 locations in 2003.

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BCC was founded by Pravit C. Pong who likewise is the managing director of the firm. Currently BCC has about 1000 team member, 500 of which are direct staff members and rest being joint venture partners and franchisees. BCC considers Starbucks, Coffee World, Au Bon Pain as their rivals and believe that by concentrating on their core proficiency BCC can exceed their rivals.

Issue Analysis

As the articles states, BCC founders had no previous experience in dining establishment organisation and were not even coffee drinkers.

Originating from an IT background, creators of BCC wanted to start a service of their own. BCC follows an industrial organization (I/O) model due to the fact that the company was formed by tactically analyzing external environment and elements. Recognizing that food is among the fundamental need of human being, Pravit along with his associates with no previous experience in the food sector saw that coffee was quickly becoming a popular beverage in Thailand. Because creators were brand-new and naïve in the company, monetary institutions were not prepared to buy business and so mostly they had to work around with what they had out of their own pocket.

BCC came out with a vision of being the best coffee house and global cuisine restaurant in Thailand by concentrating on client relationships and the quality of food that is being served to them. Their mission is to please BCC's customers with both the items, services, and personnel of Black Canyon. BCC ran three different kinds of outlets namely kiosks, mini-restaurants and complete restaurants.

All these outlets differ from each other in the services they offer and the revenue they generate. Company is expecting a growing emphasis on kiosks in location such as gas stations and other grocery stores. Though kiosks only sell coffee, beverages and snacks while restaurant serves coffee, beverages, snacks fast food and other continental food dishes. Hence, one of the issue in hand with Black Canyon Coffee is which franchise they should focus on in its expansion (kiosks, mini-restaurants, full-sized restaurant). Different franchise options have different benefits and drawbacks associated with them and having an Industrial organization model in place they have to make strategic decisions based on external environment. Another issue that BCC is facing is that of expanding globally or change their business model. Since, BCC has captured the Thai market they are looking for newer ways to gain market share. BCC has considered two opportunities for change in business model. First option was to sell branded Black Canyon Coffee beans in supermarket and other retail outlets. Second option is to get expertise in food service and develop a separate restaurant concept.

BCC is not sure about which option should they work in to because they don’t have efficient managerial skills to work on it. BCC has also planned to go global and expand in different countries. They have opened few stores in other countries like Singapore, Malaysia and Indonesia and they are planning to open shops in Australia and North America. Though BCC has started expanding globally but the shops are all joint venture operations with other foreign outlets because BCC does not have enough capital to fund investments in multiple countries. Another reason of why BCC is interested going through franchise route is because BCC wants a local partner who understands culture and tradition of the county and its people. Local business partners carries more understanding and knowledge of the culture and traditions people follow as they are one among them.

Another issue with opening shops in foreign locations is that of lack of efficient human resource. Experiences staff who speaks English in BCC are very few and hence if they are one place planning the start-up they cannot function someplace else and so the expansion rate slows down. Another challenge with the expansion is that of increased complexity of supply chain. Having foreign outlets scattered across the world, BCC needs to fight with stale inventory or stock shortages. With these challenges and restraints in place BCC has to take corresponding steps to expand globally.

Solutions Analysis

Coffee consumption is increasing not only in Thailand but also in other Asian countries which provides BCC a great business opportunity to expand. According to me BCC should plan on expanding throughout Asia initially through kiosks. They should also go ahead with selling branded Black Canyon Coffee beans in supermarket and other retail outlet. For expansion in America and Europe they should focus into the niche of high-end restaurant business. Cost of goods sold at kiosks is twice that of a restaurant and so is the productivity. Though range of services available at kiosks are little less compares to a restaurant but the setup expenses, franchise fee and other expenses are lesser compared to the restaurant. Kiosks provide the highest profit margin to the company and hence will help BCC to generate revenue. Opening multiple kiosks not only in Thailand but throughout Asia will help company to expand and increase company’s potential growth and since kiosks are much easier than a restaurant to open it would be more feasible for BCC staff to work on it.

Though rent of a kiosk is more than that of a restaurant in Thailand but different countries have different cost associated with it and so kiosks is the most efficient way to expand in Asia. Selling branded coffee across the globe would allow BCC to enter into new market and make an impression on coffee consumers. This move will provide a product for customers to consume in the comfort of their homes. This would also act as a response of how consumers find the product and whether or not BCC should invest more in the country. This would also increase the revenue for the company while avoiding high costs associated with operating a kiosk or restaurant. Once the above expansion plans work successfully BCC needs to expand its marketing efforts and let people know that they offer both western items and other Asian specialties. Black Canyon Coffee will benefit the most if its strategic implementation consists of franchising opportunities coupled with selling braded BCC beans in supermarkets and other retail outlets. BCC headquarters should take control of the location of new franchises and provide adequate training for new franchise owners so that vision and mission of BCC should be reflected throughout the organization.

Creating locally owned and managed franchises allows each location to add specific menu items that are appropriate for each region they are serving. BCC should continue its reliance on its Bangkok headquarters as a distribution warehouse which provides quality control of all the offered products. Centralization helps in better management of the organization. Since, BCC is incapable of self-packaging on a large scale level, it needs to ally with a packaging company in Bangkok for near future production. The low cost associated with instant coffee production and BCC’s high brand recognition and perceived quality will make for a smooth and highly profitable expansion with lowest risk.

For first two years, BCC should focus on selling beans in Thailand and other countries of Asia. Once this generates capital BCC needs to manage three year expansion plan of kiosks in Thailand and other Asian countries by partnering with local entities so that necessary changes could be catered. Once the initial expansion plan is met company should be able to generate market value and show its existence in the Asian market. This should attract various other investors who are ready to invest in further expansion of the company. By this stage BCC should have gained much needed experience and exposure to enter American and European market.

Conclusion

BCC is an industrial organization before expanding into other countries they need to transform their skills from external environment to internal environment. Training employees is one of the most vital key of BCC’s success. They need to polish their work force so that implementation phase can be worked in smoothly and efficiently. To summarize BCC should first focus on selling the branded beans across Thailand and other Asian countries as this would help generate capital. Next step would be to expand in other Asian countries through opening kiosks which would be the safest bet to start with as it requires less setup expenses and less time for the setup. Success with this step would help in further expansion in American and European markets.