Success in any industry depends on accurate PESTLE analysis and is often dependent on factors beyond any one’s control. For the coffee industry, these issues are especially problematic since the chain of production extends across several countries and therefore there are many legal, economic and political problems to contend with. Not only are these issues varied, the extent to which they can affect the coffee industry differs from one country to another.
The main factors affecting the coffee industry are discussed below.
Political
The coffee industry can be affected by many political factors, including government attitudes and trade relationships between the coffee producing country and the country to which the coffee is to be exported. A coffee manufacturer also has to look at trade relationships between his or her own country and the country from which he intends to source raw material and/or labour. For example, Starbucks may find it difficult to operate in countries in which anti-American sentiment is high. There have been many incidents in which mobs in such countries have set fire to or bombed American franchises, and operating in these countries would be a huge security risk for Starbucks.
Economic
The first economical factor affecting the coffee industry would be the spending power in a particular area. In general, the more the spending power, the more would be the demand and therefore the sales of coffee in that area.
For some multinational chains, exchange rates in the country would also be a concern, as this would affect their pricing strategies. It may be possible that a price that is considered “average” in one country may be considered too expensive in another after currency conversion. As a result, this will negatively affect sales in the other countries. Relative exchange rates, though, would not be a concern for local chains whose operations are limited to a single country.
Exchange rates also affect those corporations who import raw material from other countries. A higher exchange will make the imports more expensive, which may force these companies to increase their prices so that their profits are not affected. Whether this tactic is successful or not depends on the average spending power in that country – if this spending power is low, the resultant end product may become too expensive and this will reduce demand.
Sociological
One sociological factor that may affect consumption of coffee is consideration for health. Coffee is high in caffeine, which in turn may lead to sleep disorders, irregular heartbeats, and migraines in some people. This may cause some people to avoid the beverage altogether, which will affect sales of coffee negatively.
On the other hand, caffeine is also believed to boost metabolism, which in turns promotes weight loss. As a result, those concerned with weight loss will increase their consumption of coffee, thereby increasing sales. However, chains such as Starbucks are consistently under fire for promoting obesity in many countries. This is because of their heavy promotion of flavors rich in cream, full-fat milk and sugar. As a result, the weight-conscious may shift their consumption from creamy versions to plain black sugar-free versions of the beverage.
Attitudes of a certain culture towards coffee can also affect the sales of coffee. Some cultures, particularly in the East, are more inclined to consume tea rather than coffee. Coffee is considered a “premium” beverage in these cultures, only to be consumed either socially or on special occasions. Coffee manufacturers will thus be able to command a higher price in these areas.
Technological
Better brewing techniques can make coffee production more efficient, which allows coffee manufacturers to realize greater profits. It also allows them to develop newer and better varieties of coffee which in turn can help to boost sales by allowing coffee manufacturers to offer a wider range of products.
Development in coffee machines also means that coffee manufacturing is not limited to larger companies. It allows smaller companies to brew their own coffee, which in turn increases competition within the industry while at the same time offers customers a wider range of alternatives to choose from. This competition can and will cut into the sales of the larger retailers and manufacturers.
However, advancement in technology also means that coffee machines are getting cheaper and many people can now make coffee in their own homes rather than having to go out and buy from a café. This increases the business of corporations that sell coffee beans, for example Nestle’s Nescafe coffee. It will, though, have a negative effect on cafes and chains which sell pre-manufactured coffee, for example Starbucks.
Legal
There are many laws which can affect the coffee industry. The main ones are described in this section.
The first set of laws which affect the industry has to do with import and export. If a coffee manufacturer imports his raw materials, or exports coffee to another country, he or she needs to look at the laws regulating imports and exports. The more complicated the laws, the harder it will be to comply with them and therefore the more difficult it will be to do business in that country.
The coffee industry, like all other industries, is also affected by minimum wage laws as well as laws regarding bribery and corruption in the countries in which they are choosing to do business. They must also comply with any and all laws related to where a factory may be located, as well as local and international labour relation laws.
Environmental
The coffee industry is heavily dependent on the harvest of the coffee crop which in turn, like all other crops, is subject to the vagaries of nature. These include:
1. Earthquakes
2. Rain
3. Drought
4. Poor harvest
All these affect the harvest and therefore the quantity of coffee beans available, which in turns affects the supply of coffee.
Consumption of the beverage is also influenced by the weather. There are some who are able to consume coffee all year around, regardless of the weather. On the other hand, many individuals consume coffee to keep themselves warm in winter. This increases consumption of coffee in winter, positively affecting sales of the coffee industry as a whole.
References
Better Brewing Through Technology, Perhaps – The New Yorker. 2015. Better Brewing Through Technology, Perhaps – The New Yorker. [ONLINE] Available at:http://www.newyorker.com/business/currency/better-brewing-through-technology-perhaps. [Accessed 13 December 2015].
Risk Factors Related to the Coffee Industry for Coffee_Holding (JVA). 2015. Risk Factors Related to the Coffee Industry for Coffee_Holding (JVA). [ONLINE] Available at:http://www.wikinvest.com/stock/Coffee_Holding_(JVA)/Risk_Factors_Related_Coffee_Industry. [Accessed 13 December 2015].
2015. . [ONLINE] Available at: http://www.ifama.org/files/conf/2012/652.pdf. [Accessed 13 December 2015].
2015. . [ONLINE] Available at: http://www.ico.org/documents/food.pdf. [Accessed 13 December 2015].