A Context for Competition

By Tracy Ging

Competition within the coffee industry is intensifying. At least that is what some roasters and retailers (21 percent) are reporting, according to the most recent SCAA sector report. Interestingly enough, this is the first time that comment has popped up. While it seems likely that the pressure has been building for a few years, only now does the data reflect the echoing sentiment, which essentially amounts to, “Yeah, it’s rough out there.”

While specialty coffee companies undoubtedly have an acute understanding of their specific competitors, there are likely more and bigger forces at play that are important to comprehend. One of the most commonly referenced models for assessing competition was developed by Michael E. Porter, a leading authority on competitive strategy and professor at Harvard Business School. In Porter’s Five Forces model, he provides a framework that identifies five major influences over the context in which an organization operates:

1. Intensity of rivalry amongst existing competitors
2. Threat of entry by new competitors
3. Pressure from substitute products
4. Bargaining power of buyers (customers)
5. Bargaining power of suppliers

Generally speaking, the first of these—rivalry among existing competitors—is where people put the majority of their focus. Direct competitors have the distinct advantage of knowing your business fairly well because they’re already out there, selling against you. These are the guys that go up and down the street, making life a little more difficult—picking off one account at a time. You know the ones—regardless of what you offer, they find a way to offer just a little more (or for a little less). This is also the kind of competition that intensifies when the industry fragments, which we’ve seen clearly in the past decade. High rates of growth have attracted hundreds of new entrants, so there is simply more competition now than ever before. To read the rest of this article, subscribe to The Chronicle or become a member today! If you’re already a Chronicle subscriber or member, please login.

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