Expansion of Scooter’s Coffee

Joe McDevitt, Dave Johnson, Carly Thomas University of Central Missouri

MGT 4357

Executive Summary

In response to the highly competitive coffee industry, we are presenting a proposal that

will increase profits, grow the company, and improve the marketing strategy. We are meeting

with Jamie Hamburg, the Director of Marketing for Scooter’s Coffee. Through survey

conduction, interviews, and primary and secondary research of the market, we have developed a

proposal that will lower prices, introduce a social media marketing team, and create new

successful shops. The following proposal discusses the details of the plan including the research

behind the recommendations, benefits of the recommendations, an implementation schedule,

expected costs, and the projected ROI.

Table of ContentsVision, History, and Environment……………………………………………...……………..pg. 1

External Environment…………………………………………………………….……........pg. 2-5

Internal Environment………………………………………………………………………...pg.5-8

The Four Strategic Choices…………………………………………………………….……pg.7-9

The Five Forces…………………………………………………………………………....pg. 9-11

Recommendations…………………………………………………………..……..………....pg. 12

Research Behind Recommendations……………………………………………………..pg. 13-15

Benefits………………………………………………………………………………...…….pg. 16

Schedule………………………………………………………………………………...……pg. 17

Expected Costs……………………………………………………………………………….pg. 18

Projected ROI………………………………………………………………………….……..pg. 18

Measurements………………………………………………………………………………..pg. 19

Conclusion………………………………………………………………………...………....pg. 19

Authorization……………………………………………………………….….…………….pg. 20

References…………………………………………………………………………………....pg. 21

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Vision, History, and Environment

After being inspired back in 1998 by the development of the specialty coffee business in

California, along with the drive-thru business model, Don and Linda Eckles went into business

and created Scooter’s Coffee. They used the drive-thru business model along with a strong

commitment to some key business principles. After living on the West Coast for many years, the

Eckles moved back to Omaha, Nebraska and opened the first Scooter’s in Bellevue, Nebraska.

They began to franchise in 2001, only three years after the business first opened. The Eckles

focused heavily on franchising a majority of their coffee shops. Franchising allowed Scooter’s to

grow quickly during the early years of the company. Today Scooter’s operates in 15 states and

has over 150 stores. Scooter’s Coffee opened with a particular vision in mind that is still in place

today. This vision is “to remain a leader in the specialty coffee industry, and in our communities,

through our relationships with our employees and franchisees” (“Amazing People, Amazing

Drinks,” n.d.).

Scooter’s operates under two primary business models: the drive-thru coffee kiosk and

the drive-thru coffeehouse. Both have proven to be successful. “The keys to success were simple

but so important: find a great location and stay committed to high quality drinks, speed of

service, a clean store, and a big smile” (“Brand Story,” n.d.). These keys to success helped

Scooter’s expand their stores into multiple states with different locations. They also appeal to

many different types of customers.

2

External Environment

Area or Industry

Scooter’s is in the industry of coffee, which is a highly lucrative market that has seen

remarkable growth over the last decade. The demand for coffee is the highest it has ever been.

This trend is shown in the chart below.

Marvin G. Perez from Bloomberg News stated in an article that: “Millennials -- a cohort

of young people now aged about 19 to 34 -- account for about 44 percent of U.S. coffee demand,

per Chicago-based researcher Datassential.” (Perez,2016). It is important to understand why this

growth occurred in this industry. Understanding the current size of the market and the

demographics behind the growth is key because it allows us to take advantage of this growth.

With this growth comes more competition in the industry, so to prepare a strong business plan

also requires an in-depth analysis of the competitive landscape. Researching this topic helped us

to prioritize our efforts into developing the right markets.

3

Opportunities

Opportunity is something that the coffee industry does not lack. One of the biggest

opportunities in the industry right now is the lack of intense competition. Jagdish Sheth and

Rajendra Sisodia describe a very important business rule of thumb in their book, The Rule of

Three. The Rule of Three states that “in almost all industries you will find that the three strongest,

most efficient companies control 70 to 90 percent of the market” (Sheth & Sisodia, 2010).

Examples of the Rule of Three include industries such as:

Fast Food Burgers

Athletic Apparel Phone Providers Specialized Coffee Industry

McDonalds

Burger King

Wendy’s

Nike

Adidas

Under Armor

Verizon Wireless

AT&T

T-Mobile

Starbucks

Dunkin Donuts

?

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Here is a current look at the coffee industry:

There are three separate pieces of the coffee industry “pie. ” First, being the biggest, is

Starbucks which owns more than half of the coffee stores in the world today. Next is Dunkin

Donuts, which owns almost half. The final piece of the pie is a pool of locally or regionally

owned franchises and businesses. Each of these different companies owns a similarly small

portion of the market.

The opportunity available for Scooter’s is not to dominate the industry, but to take over

the third piece of the pie. In a 2015 report by The Specialty Coffee Association, it was estimated

that the specialty coffee market was worth around 48 billion dollars (SpecialtyCoffeeAssociation,

2015). In this case, Scooter’s does not have to go up against Goliath; they just need to compete

with a bunch of different David’s.

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Threats

Some of the threats that Scooter's experiences correlate directly with its competitors. The

coffee industry is always growing, with new companies always merging. Per Statista, the coffee

industry has been “dominated by the companies Starbucks and Dunkin Brands Inc. with a

combined market share of 50 percent in 2011” (Statistics and Facts). Both companies have similar

business models to Scooter’s. They sell specialty coffee while offering both drive-thru and walk-

in options for purchasing coffee.

Internal Environment

Strengths

Scooter’s has many strengths that allow them to compete in the industry. They take a lot

of pride in making sure the product and the service they offer is the very best. During an interview

with an ex-franchisee, Shawn Bouwens stated that Scooter’s focuses on excellent customer

service and being extremely convenient. Another unique strength is that Scooter’s is a very

socially-responsible company. They concetrate on helping the environment. Their coffee is

organically grown, and they have partnered with the Arbor Day Foundation. Scooter's tells its

customers that, “With each cup that you drink, you help preserve 2 square feet of rainforests,

which are the home to many plant and animal species vital to our existence!” (Scooter's Coffee:

Committed). Today, being socially responsible is very imperative for an organization. Many

consumers want to see that they are making purchases from companies that give back to society.

Scooter’s does just that.

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Weaknesses

One of the greatest weaknesses about Scooter’s is the company’s marketing strategy,

specifically advertising. Of a survey consisting of 50 responses, 22% have never even heard of

Scooter’s. Also, only 14% of the respondents said that they had seen an advertisement for

Scooter’s. This number shows that there is a significant weakness in the marketing practices for

Scooter’s. These statistics can be viewed in the charts below.  

The company needs to find a better way to advertise to their customers. Right now, many

consumers are not even aware of Scooter’s and what they have to offer the coffee industry.

Scooter’s needs to use many advertising medians to gain the greatest number of customers as

possible. To achieve this, the company needs to implement a new marketing strategy that

includes changes to promotion and placement of advertisements.

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The Four Strategic Choices

Which markets to pursue?

Several factors contribute to deciding which market is right for a company. Scooter’s

focus since its inception in 1998 is based almost entirely around the Midwest. Centrally-located

distribution centers allow for growth, not only

on one, but both sides of the country.

Below are five available markets nearest the

Distribution Centers:

-Illinois           -Mississippi         -Tennessee

-Wyoming -Kentucky 

What Unique Value Can Scooter’s Offer?

Scooter’s business motto is “Amazing people, serving amazing drinks, amazingly fast.”

In an interview with Brittani Bax, a former barista, she discussed that customers genuinely look

for coffee shops that go by a motto like Scooter’s. “It is extremely important to have strong

customer service if you want to keep having repeat business from regulars” (B. Bax, personal

communication, November 9, 2016). Competing in a highly-saturated market like the coffee

industry requires a company to differentiate their products if they want to succeed. That is

exactly what Scooter’s has done with their products and services. They strive to have not only

the best tasting drink, but to also have the most convenient business in the industry. During

another interview with Brendan Bickert, a devoted Scooter’s fan, he stated “I commute when I

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go to school every day, and that’s why I choose Scooter’s because I know they will give me a

great drink and they won’t keep me waiting long” (B. Bickert, personal communication,

November 6, 2016)

What Resources & Capabilities Are Required?

Many resources are required to create an expansion of this level. First, capital is

necessary if Scooter’s is going to continue to grow.  The company has been franchising since

2001, and only about 20 percent of their businesses are company-owned (Entrepreneur, 2016).

Franchising is a unique style to run a business and comes with a lot of benefits. Franchising

allows Scooter’s to save massive amounts of capital and still receive royalties back from the

separate businesses. Scooter’s will need the ability to supply newly made stores consistently and

cost effectively. The distribution centers they use are both centrally located in the country. Since

these new locations are close to the distribution centers, shipping expenses will remain low.

How Will Scooter’s Sustain Their Competitive Advantage?

Sustaining an advantage is the most important and most difficult job for most companies.

There is plenty of room for this company to grow, and the demand for coffee is only

intensifying. Scooter’s should continue to implement their business motto into the franchisees so

that they can maintain the company culture that they aspire to have. Scooter’s must also be

willing to create more company-owned businesses in the future. Building a strong and successful

franchise is challenging, but also very rewarding, if it is done correctly.

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The Five Forces

By using the five forces model, we can perform an analysis of how competitive an

industry is and develop a strategy that will further your business. There are five factors that are

included in this model the first one is competition. Scooter’s Coffee faces an uphill battle

amongst their competitors. This force pertains to the influence that your competition has on your

company and the rest of the industry. In Scooter’s Coffee case, the following external factors

play a role in determining how strong the completion is in their industry.

Large number of firms

Low switching cost

Variety of firms

This shows that competition is always present and possess a challenge to any company in

the specialty coffee industry. The company faces many competitors, which have different sizes,

specialties, and strategies. For example, Scooter’s has to compete with the likes of Starbucks and

Dunkin Donuts. Competition is also high because there is a low switching cost for the

consumers. That is a result of there being a plethora of competition in the specialty coffee

industry. Thus, based on this component of the Five Forces analysis, competition should be

among Scooter’s Coffee top priority in their strategy moving forward.

The next force is the bargaining power of Scooter’s customers. Scooter’s Coffee is faced

with a high bargaining power from their customers since there is a plethora of companies to buy

from in the specialty coffee industry. In Scooter’s Coffee case, the following external factors

have a role in determining the customers bargaining power.

Low switching cost

Substitute availability

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Customers can easily shift from Scooter’s to other brands because it is affordable to do

so. Customers can also stay away from Scooter’s if they want to, because there are many

substitutes, such as instant beverages and drinks from restaurants. This goes along with their

being plenty of competition in the specialty coffee industry it leads itself to having a low

switching costs because a consumer can choose to stay away from a particular brand if they

wanted to. This is another top priority for Scooter’s moving forward.

The next force is the bargaining power of Scooter’s supplier. Since coffee is considered a

commodity which tends to lower the power of the suppliers. Since Scooter’s has only one

supplier, it does help them because they have built a trustworthy relationship with their supplier.

Some of the factors that affect the bargaining power of the suppliers are the

High variety of suppliers

Large overall supply

Moderate size of individual suppliers

This part of the Five Forces analysis model shows that suppliers do not have much

impact on Scooter’s. The large overall supply lessens the effect of any single supplier on the

company. The bargaining power of suppliers is a moderate concern right now because if the

company expands having more than one supplier and having contracts with those suppliers will

prove to be beneficial.

The threat of substitutes is the next force we will examine. Scooter’s Coffee along with

the other competitors in the industry face a high threat of substitutes. This is a result of the

amount of competition in their industry. This force plays into the bargaining power of customers

because there are different substitutes to drink coffee and high competition in the specialty coffee

industry. The following are the factors that contribute to the threat of substitutes being high.

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Availability of substitutes

Low switching cost

Low cost of substitutes

As we can see substitutes and low switching cost for consumers play a major factor in there

being a high threat of substitutes that Scooter’s faces. Another factor that plays a role in the high

threat of substitutes is that the substitute products are cheaper than Scooter’s so consumers can

get a cup of coffee down the street and probably pay a lower price.

The last force is the threat of new entrants. This force is a concern for Scooter’s because

they have a low brand recognition. When you think of specialty coffee, you think of Starbucks

and Dunkin Donuts. The factors below influence the effect of new entrants.

Moderate cost of doing business

Moderate supply chain cost

High cost of brand development

The threat of new entrants is a concern for Scooter’s Coffee due to the lack of brand recognition

and the moderate cost of owning a specialty coffee company. This is something that Scooter’s

should focus on moving forward is working on brand recognition.

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Recommendations

After an in-depth analysis of this industry, surveying current and potential customers,

interviewing Scooter’s employees, and observing the strengths and weaknesses of Scooter’s

through primary and secondary research, our team is prepared to give the company multiple

recommendations:

1. Lower prices of all coffee beverages by 15%.

2. Introduce a social media marketing team.

3. Create an advertisement to be placed on all delivery trucks used by Scooter’s.

4. Begin construction of two corporate-owned coffee shops into each of the following

states: We picked cities that have the largest populations and that are home to many

colleges and universities.

Illinois: Aurora and Rockford

Wyoming: Cheyenne and Casper

  Kentucky : Louisville and Bowling Green

Tennessee: Nashville and Memphis

Mississippi: Jackson and Gulfport

Our strategic growth plan will allow Scooter’s to build a brand that will not only take them to the

top of the industry, but also allow them to maintain success in the future.  There are three

different parts to this plan, which include: price, marketing strategy, and the installation of a new

growth model.

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Research Behind Recommendations

Price

In the survey that we conducted with consumers we asked one open-ended question:

If you could make any improvement you want with your current coffee supplier, what

would it be and why?

53 percent of the responses we received were all about lowering the price. This is

important for Scooter’s to keep in mind. This question was directed not towards one coffee

company, but it was a response to the specialty coffee industry as a whole. When talking about

profit margins with Shawn Bouwens he said Scooter’s is pleased with their current profit

margins, especially with their beverages.

If you look at the image above, you will see another question from our survey. What this

image shows is that 89 percent of customers are fully committed to doing business with other

coffee shops if the product is of high-quality and the price is lower. In an interview with Josh

Brown, an avid coffee consumer that currently goes to Starbucks only, he stated: “Sure I love the

flavor Starbucks has to offer, but I am not at all pleased with their high prices” (J. Brown,

personal communication, November 6, 2016).

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Scooter’s has the right products and the level of service needed to compete with big businesses

like Starbucks and Dunkin Donuts. The only thing the company is missing is the brand

recognition. A simple way to compete with these bigger brands is to do what the consumers

want, which is to sell these quality drinks at a more affordable price.

Marketing Strategy

Building a strong brand requires a well-structured and focused marketing strategy. Before

developing a new strategy for Scooter’s, we looked at their current strategy. In our survey, 22

percent of the respondent stated they have not ever heard of Scooter’s. Also, 86 percent of the

people surveyed said they had not seen a Scooter’s advertisement ever. Considering that 44% of

coffee consumers are millennials, we also looked at how their social media stacked up to the

competition. Starbucks has posted over 80,000 tweets, and Dunkin Donuts has posted a little

over 60,000 tweets. After looking at Scooter’s Twitter account, which has been around since

2012, we found that they have less than 300 tweets. Notice how we did not even mention

followers because that is not entirely in Scooter’s control. The number of tweets a company has

demonstrations just how much time they allow for social media in their marketing plan. This is

tremendously important to recognize because social media is the most cost efficient way to reach

not only all consumers, but specifically millennials which consume almost half of the worlds

coffee.

During our interview with Cole Bouwens, the general manager of the Warrensburg

Scooter’s location, we asked him what issues he saw with Scooter’s current marketing strategy.

Aside from social media, he talked to us about their delivery trucks. The delivery trucks used to

supply Scooter’s around the nation do not have the brand’s name or image on it at all. These

trucks going around the country are going without any advertising messages or even the

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company name. Of those who saw an advertisement of Scooter’s, none of them saw a television

ad. During the interview with Shawn Bouwens, he stated that he would like to at least see one

T.V. ad for Scooter’s

within the next year. The

statistics from our survey

can be viewed in the chart

below:

A New Growth Model

Franchising has done a lot for Scooter’s. They have been franchising for 15 years now

and have received a lot of benefits from it. Right now, Scooter’s owns less than 20 percent of

their coffee shops. The process of finding franchisees for this company is extremely selective

and takes a lot of time to find the right fit. Scooter’s is franchising correctly as a business. “Fast

and furious” is not the way to franchise, according to an article posted by The Franchise King.

The article stated that if you franchise too fast, you will become one of “Those Franchisees” that

disappear after the first couple years (TheFranchiseKing, n.d.).

For a business such as Scooter’s to see faster growth, they need to begin to invest more in

themselves. Scooter’s must have the confidence to spend their capital on building newer

businesses in untapped markets without the help of franchisees. The most dominant brand in the

coffee industry, Starbucks, does not even franchise in the United States. If Scooter’s continues to

franchise the way they are, while building more corporate-owned businesses, they will see an

unprecedented amount of successful growth in the company.

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Benefits

The benefits of these recommendations include:

National Brand Awareness Stronger Core Management

Increased Profit & Revenue Even More Room for Growth

To achieve a recognizable piece of the coffee market, a business must have exceptional brand

awareness. The reason Starbucks and Dunkin Donuts are currently the only leaders in the

industry is because of the lack of publicity to their competitors. One of the biggest and most

invaluable benefits that will come from these recommendations will be the ability for consumers

to identify Scooter’s on a completely new scale. Once Scooter’s becomes a nationally recognized

competitor then their product, service, and the price will do the rest. There is a whole portion of

the industry up for grabs and the potential for growth is enormous. Our recommendations will

not only end up increasing profit and revenue but it will also allow for stronger management to

come in with more corporate-owned businesses. If these recommendations are implemented, the

benefits will not stop at the end of two years. This plan is only the beginning for Scooter’s and

will set the company up for even more room to grow in the coming years.

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Schedule

The chart below is our timetable for implementation.

Tasks                                                                         Dates

January2017

April2017

July2017

October2017

January2018

April2018

July2018

October2018

January2019

Implementation of new prices

Construction OfCorporate Owned Scooter’s

Interview For Social Media Interns

Interview for positions in new coffee shops

Design all delivery trucks with company slogan

Get Social Media Team acquainted with VP of Marketing

Implement New Marketing Strategy

Research Results

Construction Is Complete

Expected Costs

Our projected expected costs for our recommendations are that we will pay our ten

social- media marketing interns $10 per hour. This annually comes out to be $208,000 per year.

We are going to look for young millennials for our social-media marketing team since they have

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their finger on the pulse of the younger age group which is our target market. The next projected

cost is the opening of the ten new Scooter’s Coffee stores. We took the average cost of opening a

drive-thru kiosk since that is the model we want to open since there is more foot traffic. The

average cost was $353,750.00 per store for a franchisee to open. If you multiply that number by

ten, we get $3,537,750.00, which is what it would cost to open ten corporate owned stores.

Projected ROI

Investment- $3,537,750.00

Current Average Store Sales (per store) - $328,235.00

Projected Average store sales after 1 year- $377,470.25

Projected Average store sales after 3 years- $475,940.75

Projected Average store sales after 5 years- $574,411.25

Projected ROI year 1- .77%

Projected ROI year 3- 14.37%

Projected ROI year 5 – 25.00%

Measurements

It is very important to measure the success of these implementations to see if they have

worked or not. Some things to pay close attention to are:

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Social-media engagement- Is the amount of tweets/posts increasing per

month?

Profits of new, corporate owned locations compared to stores owned by

franchisees

These measures should be checked every three months to check the success of the

implementations.

Conclusion

Scooter’s Coffee has been very successful with its two business models and by using the

concept of franchising. Based on our research in the coffee industry, we have brewed up some

solutions to give Scooter’s a competitive marketing edge over other key coffee shop chains. With

the implementation of lower prices, a social media marketing team, new advertisements, and new

store locations, the company will see a significant increase in revenue and profit, along with a

resonating brand image that the company can get behind.

Authorization

By signing on the line below, you agree to the following:

Lower prices of all coffee beverages by 15%

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Introduce a social media marketing team

Create an advertisement to be placed on all delivery trucks used by Scooter’s

Begin construction of two new corporate owned coffee shops in each of the following states: Illinois, Wyoming, Tennessee, Kentucky, and Mississippi.

Jamie Hamburg

Director of Marketing

x________________________________________________________

References

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