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porters 5 forces

Porter's proposed five forces model of business analysis is a framework that analyses the

competitiveness of an industry through its micro economic traits (Rice, 2010). Applying

these forces to Gloria Jeans we can identify the attractiveness of the cafe/coffee shop

segment of the Australian market. It's clear that the risk of new entrants to this particular

market segment is high, with reasonably low costs associated with opening a cafe or coffee

shop, this means that Gloria Jeans can expect to be constantly challenged by new rivals in

the market (Alam & Nazmul, 2011). This also leads to high rivalry among competitors, as

many rivals in the market attempt to offer the best value (both in terms of service and in

terms of monetary cost) to customers (Alam & Nazmul, 2011). The cafe/coffee shop

industry would be scored high on the threat of substitutes force, as the switching cost of

changing coffee product is low and there are many alternatives such as buying a coffee

machine for home, it is also worth noting that the price elasticity of coffee is high meaningthat customer's responses to changes in the price to coffee is sensitive (Hogarty & Mackay,

1975). This results in the customers buying power also being very high, as there is no

switching costs and low product differentiation between rivals (Alam & Nazmul, 2011).

Finally the power of suppliers in the industry is low, because coffee beans are such a highly

traded commodity particularly from developing nations where the price of labour is low and

the amount of suppliers that exist in the market (Alam & Nazmul, 2011).

Analysis of Gloria Jean's strengths, weaknesses, opportunities and threats

One of Gloria Jean's biggest strengths is its supply network, despite being a franchisecompany, each franchise follows a centralised supply chain through which they can each

differentiate the products they serve in their particular area, but still have the buying power

of a large organisation (Alam & Nazmul, 2011). This gives Gloria Jeans a cost advantage over

rivals. Gloria Jeans biggest weakness is arguably that their prices are universality considered

to be on the higher side opting to serve only 'high quality' coffee, this leaves them more

open to the effects of economic trends, specifically household disposable income (Alam &

Nazmul, 2011). An opportunity that Gloria Jean's is currently faced with is to take

advantage of their largest rivals lack of expansion, Starbucks has recently been closing down

a lot of their stores and McCafe (Mcdonalds) has not really expanded into the sale of more

'specialty' coffee (Alam & Nazmul, 2011). Gloria Jeans biggest threat is the number of

boutique tea houses as well as smaller cafes that have appeared in the market, this coupled

with the economic downturn could see Gloria Jeans lose market share.

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Hogarty, T. G., & Mackay, R. J. (1975). Some Implications of the 'new theory of consumer

behavior' for interpreting estimated demand elasticites.American Journal of Agricultural

Economics, 57(2), 340-344.

Rice, J. F. (2010). Adaption of porter's five forces model to risk mangement. Defence

Acquisition review Journal, 17(3), 14-16.

Alam, Q., & Nazmul, M. (2011). Cases in Business and Management (2nd ed). Tilde

University Press, Perth.