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Jai Shah 5 Forces

Moreover the larger corporations are also able to

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Unformatted text preview: g restaurants and chains to simply add a premium coffee selection to their menu, because coffee as a commodity is so widely available. McDonald’s, Dunkin Donuts and Burger King have recently entered the market in this way, demonstrating how quickly new entrants can begin to make a profit in the industry. McDonald’s, for example, experienced 9% rise in pre- tax income in the first quarter of 2011 just through selling specialty coffee. (McDonald's 2012 Annual Report) Alternatively, supply side economies of scale act as a barrier to entry, as the current market competitors have national distribution channels to benefit from. There are currently 13,279 Starbucks locations and 7015 Dunkin Donuts stores in the United States, to put into perspective the scale of current competitors. Operations are run regionally to reduce costs. The companies are also able to save on their accounting and marketing finances by enabling their specialty coffee operations from the same department as for all divisions of their businesses. Moreover, the larger corporations are also able to obtain economies of scale through their suppliers by buying in bulk from coffee farmers and negotiating long- term contracts. As the existing companies are able to achieve a lower cost of production, new entrants will be unable to compete with them, decreasing the threat of new entrants. The existing coffee shop chains also have significant brand loyalty, which would deter a new entrant from coming into the market. In a recent survey conducted last year, 40 percent of 2,000 respondents said they had purc...
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