Koi Cafe

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and analyze a company’s strength and weaknesses to determine a corporate strategy. It can be applied to any segment of the economy to search for profitability and attractiveness. (LLC, 2015)

2.2.1 Threat of New Entrants

The threat of new entrants refers to new businesses that are not yet in the market or industry of Singapore yet. (Kaplan, 2015, p70) In this case, in the bubble tea café industry, there is a higher threat as there is a high demand and fewer barriers to enter the industry. (Martin, 2014) For example, Chaboba Bubble Tea, which is currently popular in the UK, may bring their business here to Singapore. (Chaboba Ltd, 2010) Sales and market shares will be redistributed and there may be an impact on prices and quality of production. (Martin, 2014) Thankfully, KOI Café is a more well-known, recognized brand internationally. With strong brand identification, the threat is lowered.

2.2.2 Bargaining Power of Suppliers

Suppliers provide the raw materials that the industry needs to provide goods or services. Since the supplies that KOI Café needs are more common and generic, the company has more say over the suppliers. (Martin, 2014) For example, KOI Café uses tea leaves that are specially imported from Taiwan, for its consistency and quality. (KOICafé, 2012) However, there are still many different suppliers for the tea leaves. Hence the bargaining power of suppliers is low for KOI Café.

2.2.3 Bargaining Power of Buyers

Buyers influence in an industry through the capability to demand for lower costs, better quality and more services will determine the bargaining power. (Martin, 2014) The bubble tea industry has expanded due to its popularity. There are many other businesses which focus on the same product due to the demand. For KOI Café, this is a threat as the buyers have more power because bubble tea is relatively standardized and there are close substitutes readily available to them. (Kaplan, 2015, p70)

2.2.4 Threat of Substitutes

Different products with the same purpose and benefit may enter the industry and pose as a threat to the company. (CFO, 2015) Threat of substitutes is high for KOI Café. Recently, a new product, instant bubble tea has been released into the market. (Company, 2015) Consumers may decide to purchase instant bubble tea for convenience, for example, to avoid queueing and travelling to purchase a cup of bubble tea. This may be a huge threat to retaining their customer base as well as sustaining their business.

2.2.5 Competitive Rivalry

If there is more competition, there is more competitive pressure in the industry. (Kaplan, 2015, p70) In the bubble tea industry, the threat is high as there are a large number of competitors in the industry such as, Gong Cha and SOD Café. Although KOI Café has strong brand recognition, other companies such as Gong Cha is reputable in Singapore. (T Group, 2012) Also, most bubble tea companies have the same concept, offer the same benefits, and there are low barriers to entry, this poses as a high threat to KOI Café.

2.4 Summary of key opportunities and threats

Opportunities Threats

KOI Café has more power over its suppliers2 Other companies with the same products and sales concepts 1

Many rivals and competitors in the industry3

Other companies with the similar brand recognition as KOI Cafe 4

KOI Café has three main threats and one opportunity. For the threats, firstly, there are many bubble tea café companies with the same products and sales concepts. Secondly, KOI Café has many rivals and competition in the industry. Thirdly, even though KOI Café is widely recognized, there are still companies with similar amount of brand recognition. For opportunity, KOI Café has more power over their suppliers. Although there is one opportunity, the company still faces three threats. Measures should be taken to tackle the issue and lower the threats to sustain the business of the company.

3. Recommendation

3.1 4 types based on findings in the external environment analysis

3.1.1 Recommendation 1 – Concentration Strategy

This strategy means to produce more of the same products in the same market. (Kaplan, 2015, p75) KOI Cake should open up more outlets in order to increase revenue and maintain or increase their customer base. This would benefit the company to be the best among other companies with the same products and sales concepts. However, with all the earnings coming from a single source, it may be risky for the company.

3.1.2 Recommendation 2 – Backward & Forward Integration Strategy

Backward and forward integration strategy means to buy over it suppliers to use for the business. (Kaplan, 2015, p75) If KOI Café were to buy over its suppliers, such as the specific tea leaves from Taiwan, they would have control, reduce expenses and uncertainty. Right now, KOI Café although they have more power over their supplies they can earn extra revenue and not worry about losing their suppliers to other competitors. Although this strategy may benefit the company, there is also the concern in the investment in an industry which they are unfamiliar with. (Kaplan, 2015, p75)

3.1.3 Recommendation 3- Concentric Diversification

Concentric diversification is to expand a firm by creating or buying over businesses that are related to the initial business within the same industry. (Kaplan, 2015, p75) KOI Café could start a desert business and have puddings with taste like bubble tea. As it has never been done before, this new idea would attract customers and help KOI Café in earning revenue and better brand identification in the large competitive industry among its rivals. The other business could relate its company and products to KOI Café. Moreover, this strategy can help to reduce costs and increase market share in the industry. (Lister, 2015) However, there may be an issue in management between the two business units such as disagreements among different unit managers. (Kaplan, 2015, p75)

3.1.4 Recommendation 4 – Conglomerate Diversification

This strategy is the firm having another business with products or services that are completely different from the initial business. KOI Café could invest in a bakery