Koots Tea Case Study

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Buyer power is high.

Buyers are a source of high pressure. Coffee and tea consumers have low switching costs, which make them willing to experiment with vendors of these products. There are many buyers now, but in light of the deregulation of the telecommunications industry, there may soon be few. If the LOHAS consumer demands a unique product like KGT’s, which is what Kouta and Suga-san are banking on, then they might be induced to purchase from the first company that brings its product to market in a convenient location.

Among the implications of the Five Forces analysis are that KGT will need to focus on recruiting store staff, protect its ideas, develop a supply chain, create demand for its product, and try to be the first to market in locations that other chains have not yet or are unwilling to enter. It will need to establish a “temporary monopoly” in creative locations such as a store-within-a-store or in lifestyle venues such as spas and hotels, before its rivals can do so. An average student put it this way:

To analyze an industry, you need to look at the current economic/social environment, your competitors, your target market, the growth potential of the industry, and the bargaining power of suppliers and buyers. Matsuda doesn’t have enough information about the food retail industry as a whole, but he does know a lot about the beverage industry. He knows the trends in coffee and tea and is confident that he can convince his market to drink green tea.

*The industry analysis is a process that provides Matsuda “with key information about the industry, such as its current situation and trends” (Katz and Green, pg. 173) and should focus on the weaknesses such as cultural boundaries, an unknown brand image and raw material costs. In addition, the threats such as the location of the shop, the availability of substitutes and the barriers that rivals would encounter to enter this market should be addressed. There is a large and growing market for tea especially among the environmentally conscious consumer.

Simply put:

*Kouta needs to put more money into research and development and into finding cheaper ways to make his products so that he can still make a profit. Kouta was having a very hard time reaching the breakeven point in the Koots Green Tea shops, let alone making a profit. The problem was that to have the high quality Kouta felt was needed in his products; he needed to spend a lot on high quality ingredients.

*The market for hot-drinks continues to rise in America, Japan, and globally. Competition is in any and all other drink selling stores, particularly in those stores selling hot-drinks. There are too many in the United States to list; Starbucks, Peet’s Coffee, Tully’s (yes, even his own store is competition) and all the specialty tea shop chains listed in Exhibit 3 of this case study only slightly dent the vast list of competitors. The number and variety of these competitors only continues to grow as the years progress. As mentioned in the article, fast-paced Americans also shop at convenience stores that sell lower quality but quicker-ready teas and coffees at a cheap price, so these would be competitors as well. KGT could argue for its differentiation in quality of product, new age café design and Japanese culture within each store; however with the competition at the level it is, buyer power may supersede the benefits of this differentiation. Finally, supply leaves little profit margin because the quality tealeaves used in the cafés are very expensive.

At this point in the discussion, advanced or MBA students need to be pressed as to exactly how the U.S. entry and eventual expansion plan should be carried out, or if they should at all. Pros and cons of these strategic options are summarized in Exhibit IM-5, at the end of this note. In our experience class tends to be evenly split if they are asked to vote whether Kouta should stay in Japan to continue working for Ito-en vs. resigning to move to America and grow the KGT venture in the U.S.

Competitive moves such as innovation or new market entry are seldom made without assessment of rivals’ defensive capabilities and probable responses (Chen, 1996). Another possible move and counter-move could be adaptation via competitive imitation (Lieberman & Asaba, 2006). Competitive imitation may be a requirement for some new entrants that attempt to replicate the successes of existing players, typically in order to overcome what has been termed “the liability of newness” (Aldrich, 1979; Stinchcombe, 1965). Some students say that:

Educating customers is important and is Koots’ first task to tackle. So long as Americans know something about green tea more than superficially, they will decide whether they like it or not. If I had been in Kouta’s shoes, I wouldn’t have rented a fixed space and paid a higher rent on that space every month. I would rather have a small space in Safeway, Costco, Ikea, or even an Apple store and give demonstrations to customers, telling them how to make tea, taste tea, and buy tea and how to differentiate among teas.

*Only innovation can attract customers and investors; Kouta can’t imitate the way of Starbucks. Green tea and coffee may be in similar segments in the beverage industry, but they are totally different businesses, especially in a foreign country. Americans are used to drinking coffee everyday, but green tea is a new world for Americans. Kouta lacks new ideas for entering the green tea market; he needs innovation. It appears that Kouta doesn’t have any plan for developing the Chinese market, or even for the other Asian markets. I only know that the Chinese don’t drink Japanese green tea; in the other Asian countries, probably, they have own green tea products. From the Starbucks and Apple Computer cases, we learned that both company leaders think China is a huge market opportunity, and they have big plans to develop their market share in China. But for Kouta, he doesn’t have many places to expand the Japanese green tea market except in America.

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SWOT Analysis for Koots Green Tea

Strengths

Weaknesses

- Unique product/service offering (authentic Japanese green tea & setting)

- Entrepreneurial leadership & vision

- Experience in managing multiple retail units and franchises

- Cash proceeds