Set up in 2008 by Nick and Linda Castle, Cielo Coffee Roastery is a social enterprise with a mission to “build better community cohesion […] and reduce loneliness” through their 4 cafés located in Leeds and West Bromwich (Cielo, date unknown). As a social enterprise, profits made are donated to charities and their main aim is to bring people together through a food and drink setting. Their cafés serve affordable yet ethically sourced coffee, which is roasted in Leeds itself. This marketing report will identify internal and external factors that affect Cielo, the company's strengths, weaknesses and potential opportunities and threats and lastly, provide strategic recommendations.
Political and Legal factors
Political factors heavily surround the impacts of Brexit and the protectionist policy measures that supplier countries are likely to levy in retaliation. Post-referendum the pound experienced heavy volatility, and to this day this continues (although to a lesser magnitude). For industries that rely heavily on imports, this weakens business confidence and increases variable costs. Import tariffs will also play a significant role in dictating demand of imports, and when these are finalised through trade agreements business operations and buying patterns will be disrupted for some time. Changes in immigration laws will reduce the supply of EU workers, who represent 30% of workers in the UK's food and drink sector (Aidan Fortune, 2018) .
Economic factors that impact the market include wage rates, the “income squeeze” and, overlapping with political factors, the exchange rate and its fluctuations. The increase in the minimum and living wage has led firms to substitute towards capital or downsize. Next April, both wage rates will increase again, with the National Living Wage increasing from £7.83 to £8.21 (Croner-i, 2018), and will no doubt pose a threat to profitability of firms across industries. The income squeeze has however improved in recent times, with the quarter ending August 2018 experiencing the highest wage growth since 2009 at 3.1% (BBC, 2018). This indicates higher disposable incomes (with wage growth 0.4% greater than inflation in the same quarter), a positive sign for firms selling elastic goods.
Population growth and an ageing population are key demographic factors that affect all industries. From 1991 to 2016 there has been a 2.2% increase in the population aged over 65 in the UK, and by 2066 this age group will represent 26% of the UK's population (ONS, 2018). This shows the great potential for development and generational marketing of products tailored to this demographic.
Changes in lifestyle are another key social factor, and through behavioural and psychographic segmentation these changes can be capitalised on. The growth of the ethical, environmentally conscious and health-focused consumers are examples of the change in consumer behaviour, and the ethical consumption market reached a value of £81 billion in 2017 (Triodos Bank, 2018).
Globalisation due to modern technologies has allowed consumers to be exposed to more products and services, and as a result consumer wants change and expand rapidly. Online shopping alongside faster transportation methods has fostered a culture that requires instant gratification, the consumer can pace through the decision-making process much faster- both beneficial and threatening for producers.
Linked to this rapid consumerism is its effect on the environment. Consumers have realised the implications of a throwaway culture and are now backtracking towards purchasing from local sources so as to reduce their carbon footprint. A 5.1% growth in vegetarian product sales in 2016 (Ethical Consumer, 2017) is the best example to show the spike in environmental awareness translating to changes in purchasing patterns. Plastic waste represents another key shopper concern, with a 2018 survey conducted by Kantar TNS showing that 63% of the British public want to reduce their consumption of goods packaged in plastic. Although the environmental standards of a product is never likely to be as high up in a consumer's priorities as price and quality, there has been a drastic shift in culture to accommodate for more conscious products.
Cielo serves a range of specialty coffees alongside hot and cold food, similar to any of their competitors. The unique selling proposition that this brand offers of being a socially and environmentally conscious choice sets Cielo apart from the likes of Starbucks, Costa and other market leaders that can be found in Leeds and West Bromwich. By utilising a mixture of the societal, product and non-profit marketing concepts, Cielo has sustained its value to consumers. This is displayed by the importance given to the in-house roasting (customer satisfaction) and the fact that all profits are donated to charitable causes that help communities (social welfare). Although the societal marketing concept is sometimes used as a marketing ploy, the founders' statement and vision held by the volunteers and staff alike show this is not the case here, social aims are always prioritised over profit. Cielo's operations are conducted by approximately 40 volunteers who can give a minimum of 2 hours a week in each of the 4 sites. The main paid roles are of Baristas and Duty Managers, which require more expertise and time commitment. Although the majority of roles are unpaid, it is expected that the staff satisfaction amongst volunteers is high, as they are not motivated by salary but by the cause itself. The founders of Cielo are husband and wife, so a more friendly management approach would be expected, too.
For customers coffee is a low involvement product for which they are not likely to conduct wide ranging research beforehand. The low cost matches the low cognitive dissonance that consumers would experience if they regretted the purchase, however a good quality coffee alongside a favourable environment will manifest strong brand loyalty, especially for customers that wish to spend altruistically. Customer specifications are ethical, quality coffee which contributes to important social causes.
Although Cielo aims to source locally, this is impossible for the supply of coffee beans. They change suppliers according to harvest seasons in different source countries, such as Brazil and Uganda. As they are focused on the ethics of production, relationships with suppliers are unlikely to be strained by excessive bargaining. Harvest will depend on weather and so the price of importing is dependent on the market conditions, however Cielo does recognise that these suppliers will charge higher prices overall as they pay a fair wage.
Cielo's stakeholders include the general public, the councils of the districts they have coffee shops in, the charities they donate to, and their suppliers. To keep these stakeholders satisfied, Cielo must achieve steady revenue and stay committed to its status as a social enterprise.
The coffee shop market is monopolistic in the UK, depicted by the differentiated products and low price setting power of independent brands. More established firms hold greater monopoly power, and have attained this through steady expansion across the country, but these are not the direct competitors for Cielo. Cielo's direct competitors would be those that offer the same experience, the same products and are of the social enterprise niche. A close competitor for Cielo's Leeds shops would be the likes of The Feel Good Café in the east of the city, who also operate on a volunteer basis as a social enterprise serving more affordable food and drinks, and exist to foster a close knit community. (The Old Fire Station, date unknown)
In terms of marketing it would be expected that Cielo staff do this in-house and due to constrained budget do not subcontract this business element to agencies. The cost effective method of social media based marketing is employed heavily by Cielo, and they have achieved a strong presence on Instagram and Facebook. Distribution of their monthly coffee subscriptions will also be organised by staff.
Cielo's strengths lie in its unique positioning, ethical sourcing and strong brand values. As they are committed to their affordability, they have a competitive edge over the market leaders. Like any primary product market, the coffee market is vulnerable to volatility, and supply may be more risky than in other markets. However, as they source their coffee ethically, supplier relations are much more positive, and price hikes may be cushioned by the pre-existent premium on ethical coffee. Cielo has also been successful in creating value for their customers, as can be seen through the high ratings of their coffee shops on Google and Facebook pages. This method of post purchase evaluation is especially valuable in attracting millennials, who are the most active consumers of user generated information. The lack of intermediaries due to the size of the company allows for more direct control of operations and thus company values are not diluted/commercialised by third parties. Due to this, there is also more transparency in where profits are directed- a factor of great value to stakeholders such as the government and the general public, and donatable profits are maximised as there are fewer costs of sales.
A conventional weakness would refer to their lack of market power as compared to other coffee outlets in Leeds and West Bromwich, however these chains do not serve the same purpose as Cielo and thus aren't strictly comparable. A more significant weakness would be their current opening times in all 4 of their locations. To illustrate this, the York Place coffee shop in central Leeds is closed at the weekends and only open until 4pm in the week. Lack of volunteers and staff is greatly inhibiting revenue, and if the shops were open until the late evening, Cielo would be able to serve as a post-work social setting for employees of the nearby offices. This leads on to another weakness of low brand recognition, as many people will not have free time when the cafés are open, and therefore not be able to have an experience of the brand. The location of some Cielo coffee shops is another weakness, as they are not munificent environments, such as the West Bromwich site in Sandwell. As per the last national census, 40% of this district's population were in the DE social grade and 20% received benefits, implying very low disposable income (Birmingham Government, 2011), far from ideal for firms selling non-essential/luxury items such as specialty coffee.
Strong growth in the UK coffee shop market year on year shows that Cielo's business model is sustainable, and coffee is not a fleeting trend. The Project Café Report (Allegra World Coffee Portal, 2018) states there was 7.3 % growth in UK coffee shop turnover in 2017 and that this market's value will increase by £3.4 billion by 2022. Cielo's strength of specialty coffee is matched by shifts in consumer preferences in the market. It has been noticed that consumers are now prepared to pay a premium for quality coffee (Alison Brittain, 2017), incentivised by artisan aesthetics and locally sourced food. The statistics quoted promise resilient growth despite the market volatilities that will be caused by Brexit, hence business confidence shouldn't be knocked, and expansion propositions remain profitable if the finance is available.
As discussed in the technological factors affecting the industry, rapid changes in customer preferences represent a sizeable opportunity for coffee shops. In recent years, social media has led to UK cafés introducing global flavours such as turmeric and matcha lattes, both of which also appeal to consumers concerned with healthier alternatives. Here, Cielo is presented with an opportunity to appeal a younger demographic who are most aware of new products as well as the health conscious consumers by introducing more niche drinks such as those mentioned.
Although there is promising sales growth in the UK coffee shop market, there is a strong contrasting argument that the market is reaching its saturation point. Citigroup researchers suggest there are “only 4-5 years of structural growth in the UK coffee market” (J. Ainley et al, Citi, 2017), as there are already 22,000 outlets in the UK that serve this purpose. This weakens the case for business expansion as councils across the country will recognise there is a greater need for other facilities as opposed to one more café on their high streets.
Brexit poses a greater threat for Cielo, as import tariffs will face changes and retaliatory protectionism from overseas will disrupt supply chains. Further weakening of the pound will once again make imports relatively more expensive, damaging profit margins and thus how much can be donated to Cielo's chosen causes.
As this is a social enterprise and not a generic coffee chain, strategy recommendations will not be geared towards how to maximise profits but rather will focus on how Cielo can gain traction and recognition in their local areas.
The first strategic recommendation would be to sign the 4 coffee houses up for the “suspended coffee” scheme. Suspended coffee is when a customer buys one cup for themselves and one that is “suspended” for a person in need. The cafés that offer this service may be close competitors as their customer specifications are the same: good quality coffee that also helps others. Participating cafés are featured on the Suspended Coffees website and the public can search for cafés near them that are part of the scheme- a very direct and simple way of introducing more conscious consumers to Cielo. Cielo will also receive a ‘sticker' to put on their door to increase awareness of the scheme. Cielo will not incur any costs and will strengthen its branding as a wholly social enterprise. By doing so Cielo could convert its weakness of low brand recognition into a strength, as people are likely to remember how their altruistic behaviour directly helped someone in need and will be more likely to return as a result.
Secondly, considering Cielo's mission is to reduce loneliness and improve community cohesion, the company should hold more events that invite homeless people into their coffee house for the evening. Cielo could enlist the help of some of the charities they donate their profits to, and set up something akin to the “Haircuts for the Homeless” concept, where they serve coffee/food whilst providing a greatly appreciated service. By holding events in the evenings, they would be helping the homeless community when they most need it (especially in winter months) and would not be disrupting their regular operations. Cielo's current weakness of restricted opening times could be diminished if events were held on the weekends and evenings- as some willing volunteers may not be able to give their time during days in the week due to school and work, and their strength of prolonging ethical values would be reiterated.
Through these recommendations I believe Cielo could thrive even more as an enterprise and make their company more known. These strategies do not distract from the business' values and will reinstate them. There are, however, some constraints in imposing these recommendations. As Cielo works mainly on a volunteer basis the second recommendation would require extra hours from the staff and volunteers, however I think this issue could be overcome if Cielo was recognised on more volunteering schemes such as the Duke of Edinburgh volunteering requirement.
As someone who has studied Economics and not Business Studies, I found that the vast majority of concepts covered were new to me and require
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