The Coffee Bean & Tea Leaf Swot Analysis Mohd Rizal Kismath Batcha 2007

SWOT ANALYSIS
STRENGTH
• Recruitment, training and recognition program
The Coffee Bean & Tea Leaf has established a regional office in Singapore to provide training and
recruitment support for the region. The previous owner provides no assistance in recruitment of key
managers. They were recruited with the assistance of a local consultant.
Then each outlet of The Coffee Bean & Tea Leaf can lead and control by the manager who is
suitable enough and have knowledge and experience about the region. Then they always have the
greatest ability to find suitable adaptable strategies. In additional, special training is provided to staff to
be more forward in greeting and helping the customers.
The Coffee Bean & Tea Leaf has managed to maintain several traditions as
secrets of their success, one of which is having their Team Members provide each
customer with a Total Quality Experience inspired from the company’s Core
Values, F.R.O.T.H: Friendly, Respect, Ownership, Teamwork and Honesty. When The
Coffee Bean & Tea Leaf (The Coffee Bean) stores open their doors, they aren’t just
opening them to customers—they are opening them to new Team Members, too.

• Company’s marketing strategy

All the stores of The Coffee Bean and Tea Leaf were located at high traffic, high visible locations in
each Asian market. That the market entry strategies have found to be used by The Coffee Bean and Tea
Leaf in managing their foreign franchisees when expanding into Asia include master franchising and
company owned-stores. The marketing approach is essential to gain a competitive advantage for The
Coffee Bean & Tea Leaf in the foreign market. The construct included market entry, site location, and
market positioning. The reason for The Coffee Bean & Tea Leaf to choose master franchise as its form
of franchising is because of that the master franchising was the most popular mode of entry into distant
and cultural dissimilar market such as Asia.
The Coffee Bean & Tea Leaf found that the sale of a master franchise as a quick “off the peg”
method of establishing a franchise operation has often encountered problems related to differences in
the social, economical and cultural environment of the two countries which have necessitated
The Coffee Bean & Tea Leaf Swot Analysis Mohd Rizal Kismath Batcha 2007

substantial adaptations and modifications to the original product, systems and marketing.

Instead of sub-franchising the units, the master franchisees prefer to own and run the entire unit.
When the CEO of The Coffee Bean & Tea Leaf was asked why, he said: “The reason is attributed
largely to be limited size of the marketplace as the products are targeted at specific niche rather than the
general public…coupled with the high cost of rent, franchisees will not to be financially viable if the
ownership is limited to one or two stores.” It entered Singapore, Malaysia, and Taiwan by master
franchising. In the other hand, The Coffee Bean & Tea Leaf prefers to use company-owned stores in
Hong Kong, Australia and United States. Whereas for complex markets such as Japan, Philippines and
the Middle East, franchising is more favored.

• Company’s franchise practice

The Coffee Bean & Tea Leaf encourage information exchange between franchisor and franchisee to get
a better understanding about the environment and problems which faced by the franchisee. Regular
communications were made between the franchisor and franchisees during early stages of expansion
into a region. The Coffee Bean & Tea Leaf also provides franchise training to the franchisees and key
manager. For example, the first master franchisee and key managers spent 6 weeks training in the
United States.
Overall The Coffee Bean & Tea Leaf appears to be making few modifications for their
international franchise agreement, which is the template used for domestic franchising. These small
firms rely heavily on the professional expertise and advice of their solicitors who specialize in domestic
and international franchising. Therefore, having an appropriate solicitor who specializes in international
franchising will compensate for the lack of the ability to negotiate the contractual modifications and
handle contract enforcement to help The Coffee Bean & Tea Leaf build a good and long-term
relationship with its franchisees.
The Coffee Bean & Tea Leaf Swot Analysis Mohd Rizal Kismath Batcha 2007

• Intelligence of the leader

The Coffee Bean & Tea Leaf was established by Hyman in 1963 opening its first store in Brentwood,
California which continues to operate today as one of our highest volume and highest profile stores.
This achievement comes from the intelligence of the franchisor; Hyman awarded Sunvic the master
franchise rights for Singapore, Malaysia, Taiwan and Australia for 20 years. Over the next three
months, a six-weeks training was provided in the U.S. to key managers in product knowledge such as
coffee and tea but nothing management in stores.

The decision of Hyman to identify the master franchisee characteristics that is required for
success in Asia. However, no research has hitherto been done, especially in Asia, in determining
desired master franchisee characteristics. The master franchisee characteristics associated with success
in Asia are financial strength, entrepreneurial and like-mindedness. The master franchisee owns a
highly successful luxury watch distributorship and regional entertainment company in Asia, owns and
operates 63 outlets in Singapore, Malaysia and Taiwan.

Hyman came to Singapore for a couple of weeks to assist in the opening of the inaugural store.
This was the first time they had ever set foot in Singapore. Victor recalled that early battles that were
fought the Hyman over changing menu and operational procedures. As Victor’s recalled: “I wanted to
expand the menu to include sandwiches as Singaporeans need to have food with their coffee. I felt the
drinks were too sweet for Asians, so I proposed some change. The negotiations were not easy because
to tell them it was like an insult- ‘You are a franchisee and you’re telling me what to do?’”

For the current owner, Victor undertakes evaluation of government policies on an ad hoc
manner because he believes in unsolicited enquires only. He has extensive knowledge of operating in
Asia. Victor cautions that although the Asian youth market is highly brand conscious, they are very
perceptive when it comes to food. Victor admits that those The Coffee Bean and Tea Leaf outlets in
suburbs of middle to high socio economic groups are performing financially better than those of low
The Coffee Bean & Tea Leaf Swot Analysis Mohd Rizal Kismath Batcha 2007

socio economic groups.

In July 1999, Sunvic acquired a substantial stake in the California-based International Coffee
and Tea LLC, which own the global franchise. This move has effectively transformed the former
master franchisee to franchisor. According to Victor, the move to buy over the business was logical one
(Koh 2000). “I’ve watch many other businesses were the principals take back the franchisee after
you’ve spent all your effort in building up the business. You’re at their mercy, and as your contract gets
closer with the expiry date, things will get harder for you,” Victor said.

• Company’s business strategy

For the concept of standardization of The Coffee Bean & Tea Leaf, branding and image are consistent
in host markets with that of home market. Despite the expectation that cultural differences may affect
the demand for their products and services, The Coffee Bean & Tea Leaf felt that maintaining
standardization was more important than adaptation. Standardization is enforced by The Coffee Bean &
Tea Leaf on branding to ensure that the brand image and value is being perceived consistently by its
target customers in all markets.
Adaptation has also applied to the product offering by The Coffee Bean & Tea Leaf. In its home
country The Coffee Bean & Tea Leaf have a limited range of food and beverage items in their outlets.
However, The Coffee Bean & Tea Leaf had included a wider range of hot food items in Asia as Asians
need to have food with their coffees

• Outstanding quality of input and output

Both the good quality of input and output has brings a big achievement for The Coffee Bean & Tea
Leaf. The foundation of The Coffee Bean & Tea Leaf is a commitment to quality. The Coffee Bean &
Tea Leaf produces and serves only the finest coffees and teas from around the world. Each year The
Coffee Bean & Tea Leaf search out the best harvests from Sumatra to Costa Rica to bring to their
tasting room for inspection and sampling and accept only the highest grades of green coffee and full
leaf tea.
The Coffee Bean & Tea Leaf Swot Analysis Mohd Rizal Kismath Batcha 2007

Coffee

All of the beans they import are grown at altitudes of up to 6000 feet because the cooler
temperatures at the higher altitudes cause the bean to develop more slowly, which results in a
more concerned flavor. As the growing conditions in each geographic region have a significant
impact on the look, taste and smell of the coffee, they travel to many estates in each growing
region to find Simply the Best coffee. Some of the conditions that they judge at each state are
geographic (soil composition/nutrients, proximity to he equator, altitude), climate
(seasonal/quantity of rainfall, temperature fluctuation), process/tradition (washed/natural
processing, central processing/ small-holder processing, technology/methods, storage conditions
and times), agriculture/botany (type-species, variety of trees in use, type/amount/frequency of
fertilization, type/use of shade).

Once the green coffee reaches the stores, it goes through several quality checks. In the testing
lab, they roast small batches if each new shipment to ensure that the quality meets the stringent
standards. Then, the coffee is tasted using precise guidelines to compare the coffee to the
original samples procured at the growing site. When tasting each batch, the fragrance, aroma,
flavor, acidity, body is analyzed to ensure that the ritual of coffee drinking is not compromised.
After passing the quality check, the green coffee beans are roasted fresh daily. The coffee is
meticulously monitored to ensure the most flavorful coffee. Once the optimal flavor is reached,
the coffee is then packaged using state-of-the-art equipment. Because coffee is highly
susceptible to oxidation and degradation when exposed to air and moisture, the coffee is sealed
in nitrogen-flushed, one-way valved bags in order to maintain freshness until the bag is opened.

Tea

teas (black, green, and oolong) originate All from one bush, the camellia sinensis, which is
The Coffee Bean & Tea Leaf Swot Analysis Mohd Rizal Kismath Batcha 2007

distinguished by its dark green leaves and fragrant cream-colored blossoms. At harvest time, the
glossy whole leaves and young new shoots are plucked and processed for optimal freshness by
hand. During the steeping process, the leaves unfurl, releasing their flavor into the water.

• Experience and innovation

For over thirty-seven years, The Coffee Bean & Tea Leaf has developed the finest resources, roasting
techniques, retailing know-how, and innovative trend setting coffee and tea drinks. Its founder Herbert
B. Hyman is recognized as the "founding father "of specialty coffee in America and has helped mentor
many of the leading coffee executives in the industry.

At the same time, The Coffee Bean & Tea Leaf also continually builds upon vast experience to
invent numerous industry firsts. The Coffee Bean & Tea Leaf invented its trademark Ice Blended ®, the
frozen mocha drink that created a new drink category and is the most popular frozen coffee drink in the
world.

The Coffee Bean & Tea Leaf also invented the first specialty coffee extract ever produced. Their
French Deluxe ™vanilla and Special Dutch ™ Chocolate powders are industry firsts that gives coffee
drinks a flavor vastly superior to any other. The Coffee Bean & Tea Leaf newest innovations were the
Chai Latté, a creamy sweet spicy chai tea drink and its juice-based Ice Blended® Drinks, a variety of
smoothies blended with French Deluxe ™vanilla powder that have once again set an industry standard.

• Community involvement

The Coffee Bean & Tea Leaf maintains a strong commitment to the community with numerous
programs contributing to local and charitable causes. The company is proud supporters of many
schools, charities and institutions both nationally and abroad that benefits our communities, customers
and employees. The Coffee Bean & Tea Leaf can be sure that wherever there is a The Coffee Bean &
Tea Leaf, they are working hard to be a 'good neighbor'.
The Coffee Bean & Tea Leaf Swot Analysis Mohd Rizal Kismath Batcha 2007

The Coffee Bean & Tea Leaf has earned its good reputation by maintaining a strong
commitment to the community with numerous programs contributing to local and charitable causes and
as the premier chain of specialty coffee stores in the world with award-winning drinks that are known
across the world.

WEAKNESS
• Target market characteristics

The Coffee Bean & Tea Leaf is targeted the youth, who are teens and working adults in their twenties.
This has become a weakness for the firm. The Coffee Bean and Tea Leaf aligns itself with other major
brands targeting the youth market. This may lead it to lose some potential market. For example,
DOME’s positioning is “expensive and exclusive” as its target market is the professionals, managers,
executives and businessmen (PEMBs). But The Coffee Bean & Tea Leaf’s target market is the youth
and who didn’t have strong consumption power.
In the other hand, Mc-Donald’s target market is children and teens. Both of the target market for
The Coffee Bean & Tea Leaf and Mc-Donald’s are sensitive to the price issue. Mc-Donald’s positioned
the restaurant well in the target market by a competitive pricing strategy. This pricing strategy likes a
threat for The Coffee Bean & Tea Leaf. The market share and profit for The Coffee Bean & Tea Leaf are
limited.

• Franchisee’s policy

The Coffee Bean & Tea Leaf does not allow its master franchisees to sub-franchise any of their outlets
in the Middle East and Asia. The reason is attributed largely to the limited size of the specialty coffee
industry in these market. The Coffee Bean & Tea Leaf is targeted at specific niche markets rather than
the general public. Therefore, coupled with the high cost of rent, franchisees will not able to be
financially viable if the ownership is limited to one or two stores.

To be a master franchisee of The Coffee Bean & Tea Leaf, one must possess the following
characteristics: it must be a public company; it must demonstrate that it has the fund and infrastructure
to open among 30 to 40 outlets and it also must be currently running a successful business.
The Coffee Bean & Tea Leaf Swot Analysis Mohd Rizal Kismath Batcha 2007

OPPORTUNITY
• Market potential
“With the success of Singapore and Malaysia, we realize there was a great potential in Asia. We knew
we had to take it over,” said Victor in his interview with Jordan (1999). Now, the Sassoon has very
ambitious plans for the U.S. This is because of the highly potential of growth of the market in U.S.
Victor plans to further his market plan and expand the share market of The Coffee Bean & Tea Leaf
worldwide because the potential of the market. From 60 outlets on Southern California, they plan to
open additional outlets in California, Nevada and Arizona and may be as far as Chicago and New York.
The company has consulted investment banker and may try to spin off the Asian operation of The
Coffee Bean and Tea Leaf in the near future; it may also try to list the U.S. Company later.

• Changing of lifestyle

Despite major economic recessions, terrorist attacks and two wars over the past two decades, the
specialty coffee industry has grown every year. One industry observer said, "When times are good the
coffeehouse industry is great. And when times are bad the coffeehouse industry is great."

Lifestyle factors converge to make the coffee industry strong at all times. The stimulant effect
of coffee is an important reason why many hard-working, fast-paced Malaysian consider a stop at their
local coffeehouse a necessary part of their day. Conversely, coffeehouses provide calm, inviting
environment for people to socialize, relax or catch up on work.

Young people under the legal drinking age are one of the fastest-growing segments of the coffee
drinking market. Coffeehouses provide them with a much-needed place to meet with their friends.
Besides, entertainment on weekend nights draws a young group of enthusiastic customers. The surge in
interest in coffee drinking among young people assures a diverse, receptive, sophisticated customer
base now and in the future.

Older adults also enjoy the fact that for the relatively modest price of a cup of coffee and snack, they
The Coffee Bean & Tea Leaf Swot Analysis Mohd Rizal Kismath Batcha 2007

can meet with their friends, relax or work. Instead of going to a bar and paying for an alcoholic drink or
a restaurant where a meal usually comes with a hefty price tag, the coffeehouse is an intimate yet
inexpensive venue.

THREAT
• Competition

The global coffee market is a very competitive sector and The Coffee Bean & Tea Leaf must compete
against the likes of restaurants such as McDonald, Kentucky Fried Chicken (KFC) and coffee shops
such as Starbucks, Dome and Old Town Café. A major competitor with substantially greater financial,
marketing and operating resources than The Coffee Beans & Tea Leaf could enter this market at any
time and compete directly against the company. Besides Coffee manufacturers including Starbucks
Corporation, The Proctor & Gamble Company, and Nestle USA, Inc. distribute premium coffee
products nationally in supermarkets and convenience stores. Many of these products may be substitutes
for The Coffee Bean & Tea Leaf’s coffees and coffee drinks. So The Coffee Bean & Tea Leaf must be
aware of competition on all levels and maintain its operational performance if it is to retain its status as
the world’s leading specialty coffee retailer.

• Host country risk management

Risk management issues such as government policies, regulations, macroeconomic variations and
monetary uncertainties are important to The Coffee Bean & Tea Leaf on its international franchising. In
recent years, the greatest growth in international franchising occurred in Asia, South America, Central
America and Mexico. This is because the markets of most of the developed countries became
increasingly in saturated and competitive.
Therefore, as more and more foreign franchisors expand to culturally diverse countries such as
East Asia, host country policy evaluation and foreign exchange management are fundamental
capabilities that are important for The Coffee Bean & Tea Leaf to develop. Understanding host country
government policies concerning to the transfer and repatriation of dividends, fees and royalties has
been found to be an important capability for The Coffee Bean & Tea Leaf. The Coffee Bean & Tea Leaf
conducts a very little host government policy evaluation. The reason for this could be attributed to a
lack of resources and reactive approach to market expansion.
The Coffee Bean & Tea Leaf Swot Analysis Mohd Rizal Kismath Batcha 2007

• Culture environmental aspects

The need for The Coffee Bean & Tea Leaf to adapt its concept, business format, and products to the
culture of host country comes to be a threat for The Coffee Bean & Tea Leaf if it failed to meet the
culture of host country. The cultural environment adds complexity to franchising in a foreign country.
Culture impacts the negotiation of contracts, the daily operations, the hiring of personnel, as well as the
format of the franchise. The very strengths of the franchise format, its standardization, make its
successful of replication in foreign markets difficult to The Coffee Bean & Tea Leaf. Franchising
requires a high degree of standardization to be effective; however, in foreign markets the pressure to
adapt the product or service is frequently high to The Coffee Bean & Tea Leaf.

• Enthusiasm of health consciousness

New age beverages have experienced a rebirth as manufactures have capitalized on consumers’
growing interest in herbal remedies such as Tongkat Ali and Kacip Fatimah. People are cutting down
on caffeine but the consumption of decaffeinated coffee has not seen an increase. Consumer attitude to
health care are changing and more people are taking responsibility for their health rather than passively
accepting medical decisions. Within this desire to exercise individual decision, many consumers are
looking outside the traditional realm pharmaceuticals to herbal remedies and supplements. As a result,
demand for coffee from The Coffee Bean & Tea Leaf will decline because consumer changing their
lifestyle and they are more concern about their health care and they also believe that drinking coffee
will harm their health.