Case-study Coffee Cup

Case-study Coffee Cup

Coffee Cup has been established more that 20 years ago but the business has really taken off

in early 2000 in the coffee industry with a positioning of premium brand. Coffee Cup belongs

to a multi-unit group present in the food industry and is recognized today as a leading

premium-portioned coffee company. Eight varieties of roast and ground coffee packaged in

individually-portioned aluminium capsules were created for exclusive use in the Coffee Cup

machines. This combination machines-capsules offer the consumers a refined quality and

individualized cup of espresso coffee with speed and convenience at the push of a button.

While smaller rivals have since entered the market with lower-priced and lower-quality

systems, Coffee Cup still dominates the household segment of the fast growing portion coffee

market. The technical complexity of the machines and related patents have proven to be major

barriers to entry by other established players in the coffee market. The business model of the

company consists of serving a network of strategically located boutiques (160 in the world),

consumers through internet, enterprises and big marketing events (America’s Cup, Roland

Garros). The company sells coffee in capsules (2 billion in 2005 for a price of 31cts of euro),

machines (1 million in 2005 for a price of 149-649€) and accessories (cups, boxes, plates…).

The capsules are different in BtoC or BtoB markets for economic reasons. Beyond the sales of

those finished goods, Coffee Cup takes care of the maintenance of the installed machines

which have been sold or leased especially to companies. For that part of the business, there

are activities covering the returns of machines which have been repaired and the management

of the spare parts inventory which are used for maintaining those machines.

Coffee Cup is expected to post sales of € 1.2 billion in 2008, meeting its target two years

ahead of schedule. In 2008, Coffee Cup plans to continue to invest in the core markets of

Switzerland, France, Austria and Benelux as well into growth countries such as Iberia, Italy

and Germany and place stronger focus on UK, USA and Japan. Operations will also be

expanded into Mexico. There has been a compound growth rate of 30% over the past five

years.

In terms of value chain, coffee starts to deteriorate the minute it has been picked, and

particularly once it has been ground. By storing it in an individual hermetically-sealed

aluminium capsule, the quality of the coffee is prolonged for several months. The value chain

involves:

- the producers of the raw materials;

- the external suppliers and in house production facilities (the current factory looks

like a watch factory, very high-tech, clean, and involves a lot of knowledge and

skills);

- the product development activity including capsules and machines (the capsule

system is patented, along with elements of its machines, but the patent for the

capsules runs out in 2011);

- the multiple distribution channels and third party logistics actors. To crown its

'exclusive' appeal, its pre-packaged capsules can be bought only by mail-order or

online or in exclusive boutiques (the machines are available from retailers);

- the logistics chain from the suppliers to the end-user which is mostly subcontracted

to a logistics service provider. Its cost is 7.8%. The logistics system is based on a

pick & pack solution based on the technical choice of an automated pick to light.

This expensive and centralized solution gives a quick and reliable order-todelivery lead time to each subsidiary and therefore to the end-user.

The following chart shows for the machines business the different distribution channels:

Manufacturing and distribution in the food & beverage industry is facing a lot of challenges,

such as changing consumer habits, legislation demanding greater process integrity and

traceability, or improvement of on shelf availability. These market pressures are making

efficient logistics ever more important. Reducing costs, increasing service levels and speeding

up order fulfilment time whilst maintaining the quality of products provided are the ultimate

key to success.

Late 2007 the company has appointed a new Executive Board which comes mostly from a

commodity market selling their production in the mass retail industry. After a steady growth

the company is now facing new challenges according to the evolution of the following 3 main

variables of the value chain: suppliers, products and customers. The 3 following tables give a

comparison of the value for the key items of each of those variables for 2004, 2008 and 2012.

for 2012, the figures are mostly based on the current business plan of the company and

therefore on assumptions.

Evolution of

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