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Coffee Corp Case Study: Product and Geographic Diversification for Business Growth

Background of Coffee Corp

Coffee Corp is attempting to grow the business by both product and geographic diversification. Making use of frameworks explored in the unit, carefully explain their logic in both these growth strategies and also discuss the challenges they face in both these attempts to be good corporate parents. (1000-word limit)


Coffee Corp Case Study Mike Porter contemplated his second and, he hoped, final retirement when stepping down as CEO in 2021. Coffee Corp was founded by Porter in 1990 as a niche coffee bean roaster and rapidly growing into a global beverage retailer. In a little more than a decade, Porter built one of the world’s most successful global chains of coffee stores earning the highest revenue, income, and profit margin, so he decided to retire in 2000. However, by 2008, Coffee Corp’s fortunes had deteriorated and Mike Porter had returned as CEO.

During his eight-year hiatus, Porter felt that that Coffee Corp was losing its unique ambience and customer experience. Porter bemoaned decisions that improved efficiency, economies of scale, and company growth at the expense of customer experience. Even though revenues were still growing, the projected trend did not look positive: growth in overall revenue and same-store sales were much smaller than in the previous year. The company had grown to over 17000 stores by 2008, but its stock price was falling.

In 2008, Porter presented a “transformation program” including goals such as “reignite the emotional attachment with our customers,” “make each store the heart of a local neighbourhood,” and “engage and inspire partners.” These goals illustrate the emphasis that Porter placed on customer experience above the usual goals of simply being market leader. 

As part of the turnaround strategy, in 2009 Coffee Corp introduced Premia, its new instant coffee, a move that some worried might further dilute the brand. In 2010, Porter rolled out new customer service guidelines: baristas would no longer make multiple drinks at the same time but would instead focus on no more than two drinks at a time, starting a second one while finishing the first. And, attempting to drive more store traffic other than the morning hours where customers need their daily caffeine intake, Coffee Corp continued to diversify its menu. To get more afternoon and evening customers - traditionally its slowest time of the day - Coffee Corp stores now offer items such as vegetables, flatbread pizza, plates of cheese, and desserts. It even introduced wine and beer, available after 4 pm. Coffee Corp’s goal is to double its revenues from food over the next few years, and also to be seen as an evening food-and-wine destination. 

Porter also pushed the adoption of new technology to engage with customers more intimately and effectively. Coffee Corp now uses social media platforms like Facebook and Twitter to communicate with customers in real time. The latest innovation is the Coffee Corp app that allows customers to order and pay for drinks and food before reaching the store to pick up their order directly to avoid queues. Non-existent before 2011, some 21 percent of all Coffee Corp transactions in U.S. stores are now made through the Coffee Corp app.


Coffee Corp in 2020 As of early 2020, 32 Coffee Corp products are offered in over 25000 company-operated and franchised stores, as well as in other retail locations globally. With stores in 75 countries, Coffee Corp is one of the largest roasters and retailers of specialty coffee in the world. Coffee Corp employs approximately 254000 people around the world. In the U.S., Coffee Corp employs 170000 people with 162000 working in company-operated stores and the remainder in support facilities, store development, and roasting, manufacturing, warehousing, and distribution operations. Approximately 84000 employees work outside of the U.S., with 81000 in company-operated stores and the remainder in regional support operations. Coffee Corp is geographically organized into four divisions: 1) Americas 2) Europe, Middle East, and Africa (EMEA) 3) China/Asia Pacific (CAP) and 4) Channel Development. Revenues as a percentage of total net revenues for fiscal 2016 were as follows: Americas (69 percent), CAP (14 percent), EMEA (5 percent), Channel Development (9 percent) and All Other Segments (3 percent). 

Coffee Corp operates its own stores and also licenses stores to third-party operators. Licensees pay Coffee Corp license fees and a portion of all revenues generated by the store in exchange for use of the Coffee Corp brand name, Coffee Corp products, detailed store operating procedures, and Coffee Corp training classes similar to those provided to employees of company-owned stores. While Coffee Corp receives a lower portion of revenues from licensed stores, most operating costs are borne by the licensee, resulting in higher operating profit margins to Coffee Corp than are earned by company-operated stores. In addition to the license fees and royalties, Coffee Corp also gains additional market access and retail space as well as local market data and expertise from licensees. In 2020, 79 percent of total net revenues were generated by company-operated stores and 10 percent were generated from licensed stores.

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