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EXECUTIVE SUMMARY

Gloria Jeans Coffee is an international coffee retailer and one of Australias leading coffee specialists who has had a major role in the growth and development of Australias retail coffee market. Gloria Jeans is known for its large range of more than 40 hot and cold coffee drinks, including traditional espresso, ice blends, coffee beans, specially teas, pastries and various coffee accessories.

Established in Australia in 1996, this Australian-owned and operated business follows a franchise system under which it was opened over 900 stores (489 in Australia and growing) across 37 countries internationally, considered as one of the worlds fastest growing franchises and Australias largest and most recognised specialty coffee retailers[footnoteRef:1], serving an estimated five million coffees each month. [1: Gloria Jeans was ranked one of the top 30 fastest growing franchises in Australia by BRW. It was also one of only seven franchises to be listed in BRW's annual Fast Franchises list for six consecutive years.]

Gloria Jeans Coffees is devoted to building a unified family who consistently serve the highest quality coffee and provide outstanding and personalized service in a vibrant store atmosphere creating the ultimate coffee experience for every customer. Based on the theory of Loyalty of Customers who will continuously consume the same product or service, the regular customers will not change their consume habit even if there is a discount promotion for the same products. This makes Gloria Jeans a brand that builds relationships focused on integrity and trust from both parts.

The business uses a master franchise model market entry by selecting a master franchise partner from a nation. For larger nations, as China, they break it down into regions with several master franchise partners. Gloria Jeans sees this franchise as a partnership, where the master franchise partner purchases the rights for their nation and develops stores following the Gloria Jeans Coffees franchise model. Franchise partners need to have sufficient capital to grow their business, showing a business plan and having sufficient capital to fund growth. The company choose their own franchise partners under the values integrity and trust. This means a lost of many opportunities as they only select the applicants that they prefer.

In Australia, the coffee market continues to have an increasing number of new coffee businesses looking to enter the market, as the barrier of entry to set up a coffee shop in Australia is very low (Eselius et al. 1997) For that reason, Gloria Jeans must be conscious of every kind of competition and conserve its status as one of Australias leading specialty coffee retailer. Their current focus on taste and quality of their product range is according to the industry and market demands, and their price is competitive with other specialty coffee stores.

Recently, Gloria Jeans Coffee Australia has been accused by gay societies for supporting Mercy Ministry, an anti-gay organisation who received 10 cents from every Gloria Jeans cappuccino. This has had a negative impact on the sales as lesbian and gay community members felt that they were indirectly funding the organization by purchasing Gloria Jeans products.

DEMOGRAPHICS

Australia has one of the most conspicuous economies in the world in the past few years, characterized by high growth, low inflation and low interest rate. The government sector is efficient, with a flexible labour market and a very competitive business sector (Australia today nd.) The market demands are constantly increasing, and the research also affirms that coffee sales increase if the product is made more available to the consumer. (Strategic Analysis nd.) This is an opportunity to Gloria Jeans as Australian consumers have higher disposable income and they are determined to make more expenses.

Gloria Jeans primary focus on the demographics, psychographics and lifestyle of their costumers. They are currently targeting small market segment, the young adults with ages from 18 to 25 years old, compare to other competitor brands as Starbucks, whose target market is between 15 and 64 years old. Besides, Gloria Jeans is oriented towards female costumers as they are the source of half of the sales, while Starbucks targets both male and female. Gloria Jeans supplies all coffee related needs, offering hot and cold coffee drinks and non-caffeinated drinks for children and non-coffee drinkers, along with specialty teas, pastries and coffee accessories.

The stores are clustered in high-traffic, high-visibility locations in each of its target markets in order to realize operating and marketing efficiencies and enhance brand awareness. Stores locations are carefully selected for convenience of the costumers, specifically targeting places with dense pedestrian street traffic. Gloria Jeans is located in airports and shopping centres, making it the most convenient for their costumers, assuring that they have choices, and that choice is Gloria Jeans by offering numerous locations in a small area. Design and construction services for the different franchises are provided for the different locations, procuring key fixtures and equipment. This way, similar materials and furnishing are used to keep the look of each store more consistent, but none of them end up looking exactly alike as they have some differences depending of the geographic location and target market.

Gloria Jeans has become one of the Australias largest and most recognized coffee retailer serving and estimated seven million guests each month. In 2006 the number of Gloria Jeans coffee stores grew by 22% in Australia and an outstanding rate of 82% internationally.

CULTURE

Australias strong coffee drinking culture has heavily influenced growth in specialist coffee shops, especially among the younger generation. Coffee drinking has become an integral part of the modern lifestyle in Australia and specialist coffee shops have become more than just a place for coffee (Hofmann, 2006) Gloria Jeans places itself as a third place in between home and work, providing a space with a comfort atmosphere where costumers can enjoy top gourmet coffee products.

The culture inside of the company is really important, as a franchise model business, Gloria Jeans provides informative and intensive training that covers every aspect of operations including purchasing, merchandising and product knowledge. Plus, they also render personal field support in the new store to help with merchandise, operations and assistance in employee training. This supportive environment from Gloria Jeans to each of their franchises creates a whole business atmosphere of comfort and belonging where members of the company are considered family, comparable to the old Japanese traditional business style.

Not only inside of the company, but Gloria Jeans culture also has a philanthropy side, focused on social support. In Australia, Gloria Jeans Coffees is one of the biggest supporters of Jeans for Genes, for which has raised more than $650,000, and a range of other charities like Salvation Army. The company also encourages to franchise partners to support local charities or causes. In 2009 they formed With Heart Foundation, which supports more than 300 from the coffee producing regions of Brazil.

Another great face of Gloria Jeans culture is focalised in environmental preservation thought a partnership the Rainforest Alliance, a non-profit organisation that protects ecosystems and supports people and wildlife that depend on them.

MARKETS

The Australian hot drinks market continues to grow, recording strong off-trade value growth of 4% in 2013. Hot drinks that resonate with consumers by offering a sense of differentiation, whether is through innovative new product development, local or exotic provenance, authentic heritage statements, distinguish packaging or even traditional means of production. (Euromonitor International, 2014) Coffee keeps outstanding, as the caf and coffee shops industry has grown successfully over the past five years, characterized by Australias love for quality coffee. Its biggest growth comes from out-of-home consumption with more and more consumers adopting the idea of caf culture. According to Datamonitor, for seven cups of coffee consumed by an average Australian, one is consumed out-of-home. (Datamonitor, 2010)

The trend of coffee consumption keeps changing, both in good and bad direction. On the good side, people are having healthier lifestyles, which includes coffee as beneficial for the heart. Coffee also tends to act as a social reinforcer and a affordable luxury (Martin,2005). On the bad side, coffee and subsequently Gloria Jeans has to be conscious about the rise of obesity among people, as it will affect them in terms of consumption and sales.[footnoteRef:2] [2: It is reported that 47% of women and 63% of men are overweight in Australia (Nutrition Australia, 2000)]

COMPETITION

The coffee industry is in general highly competitive external and internally, and it continues growing, increasing the number of companies who desire to enter the market. Gloria Jeans should develop a competitive structure to have a better understanding of the overall industry and identifying the different competitors in the coffee market.

Gloria Jeans has two major direct competitors: Starbucks Coffee and Hudsons Coffee, the two largest coffee chains in Australia (Gee and Gee, 2006). Starbucks established in Australia in 2000 with a strong brand image towards their coffee, but their success was not the expected one. They came into Australia to bring the coffee and caf culture to the public, and they found out that they already had it, with better quality coffee and more relaxing cafes, especially in Melbourne. This failure was the product of not understanding the diverse culture and style of the target market, in this case Australia. Starbucks has slowly recovered by opening more retail stores in dense traffic and pedestrian locations.

On the other side, Hudsons Coffee is a fully Australian owned and operated brand. Started in Melbourne in 1998, the company has opened over 30 retail points all over Australia under a franchise model similar to Gloria Jeans. An indirect competitor that has become a major one is McDonalds and the McCafe station in each restaurant. The product range is smaller than Gloria Jeans[footnoteRef:3], but the key location points of the stores may increase the switching risk from costumers. Also, the convenience of having the variety food menu and the coffee in the same place might get costumers to visit just one restaurant to cover their different needs instead of different place. [3: The McCafe consist of latter, mocha, capuccino, espresso, ice latte, vanilla stemar, ice mocha and Premium hot chocolate (McDonalds coffee 2005)]

Other indirect competitors are independent espresso bars, as Australians already had high quality espresso before the coffee chains established in the market. (Coffee the Australian way, 2006) Those espresso bars are very competitive as their placement is strategic (they dont need a lot of space) and the consumers perceive them as more traditional, therefore so the coffee, not like the big coffee chains that use automatic or semi-automatic espresso machines.

EXTERNAL ENVIRONMENTAL ANALYSIS ON GLORIA JEANS IN THE COFFEE INDUSTRY

PEST ANALYSIS

Political And Legal EnvironmentIn Australia the Fair Trade Certificate and the Rainforest Alliance are the main regulations in the coffee industry.[footnoteRef:4] Gloria Jeans doesnt have the ability to control the political and legal environment in the different countries, but they should formulate their strategy based on the current legal situations. General environment may not be ignored, but evaluated and analysed to have a better understanding and adapt to any changes to minimize risk in the industry and the market. [4: Fair Trade Certificate is an alternative marketing system designed to give the disadvantaged farmers guaranteed prices for their product. The Rainforest Alliance focuses on how farms are maganed rather tan how products are traded (Sustainable Coffee n.d.)]

EconomicAustralian prosper economy is a current opportunity for business as Australians have more disposable income to spend in available products to them. At the same time, this may attract more competitors within the same category. Therefore, Gloria Jeans must be aware of the competition and increase its brand differentiation between the new ranges of coffee shops that the current flourish market attracts.

SocialAs said before, Australia coffee drinking culture has become a part of the modern lifestyle, increasing its consumption, especially among the younger generation, that conceives coffee as a social product inside of the category of affordable luxuries.

TechnologyGloria Jeans must be aware of the technological developments in the coffee industry, focused on all year round harvesting, the quality of the beans and de development in the management coffee pest. Gloria Jeans buys and roasts its own coffees, controlling the process from the bean to the cup (Gloria Jeans Coffees goes WiFi, 2003). Consequently, the company has to ensure that the products are top quality and available when needed. Following the example of Starbucks, Gloria Jeans also offers free WiFi to attract costumers to the stores.

PORTERS FIVE FORCES ANALYSIS

These are some of the major threats in the external environment for the business operations of Gloria Jeans Coffees in Australia.

Threats of new entrantsThe coffee industry in Australia has a high threat of new entrants, as there is a strong coffee drinking culture that makes fair trade coffee a very popular trend. Also, there are very few barriers to set up a coffee shop, which makes this industry more attractive.

Bargain power of buyersCoffee buyers are very price sensitive, so they threat the industry by forcing down the price, as coffee is often considered a commodity. Customers income has an important role in selecting product, which reduces the switching cost in changing to other competitors or making their own coffee. Gloria Jeans should increase brand awareness to increase the customer loyalty based on quality and price.

Threats of substitute productsThere are several substitute products in the coffee industry such as regular coffee, tea and the caffeine beverages in the market such as cold coffee (Dare) or Coca-Cola.

Bargain power of suppliersCoffee is the world second largest traded product after petroleum (Kembell et al. 2002) The demand for coffee in Australia has increased by 60% over the past 10 years. This has given the power to the buyer while the coffee suppliers are being exploited and forced to continue the production in underdevelop countries.

Competitive rivalryGloria Jeans coffees is the largest specialty coffee retailer and the fastest growing franchise organisation in Australia, but it faces a big competition in the local markets with the small coffee shops and within mainstream market such as Coffee Club, Hudson Coffee, Starbucks and McDonalds McCafe.

The coffee industry for Gloria Jeans Coffee is still an attractive market even though the analysis of the five forces shows medium to high threats.

SWOT ANALYSISSWOT Matrix

STRENGHS Strong brand recognition Attractive brand logo and well designed retail stores Strong brand positioning Partnerships with high coffee consumption countries Continuous raise of standards Ownership of over 900 stores Continuous innovation Strategic use of technologies Large range of variety and quality coffee and coffee-related products Strategic placement in highly trafficking areas to attract more costumersWEAKNESSES Low costumer incentives Limited target market Technological advancements requiring new equipment for making coffee Not up-to-date brewing machine Less variety than competitors Business profits are highly dependent on the coffee product Strict franchise criteria

THREATS High threats of new entrants High levels of rivalry Obesity People becoming more health conscious reducing their intake of coffee Brand switching by costumersOPPORTUNITIES Capitalization in high coffee consumption countries Product range easily widened Opening of more outlets due to increase in coffee consumers Whole bean sales in supermarkets Co-branding with other manufactures High spending power

MARKETING ANALYSIS

Established in 1979, Gloria Jeans coffee has become a coffee icon with over 900 stores in more than 40 countries. It is a brand synonymous of coffee quality and leading franchise system, offering to their costumers a range of over 150 products positioned on quality and experience. Even thought the positioning of GJs range of products are focused on quality and experience, they are not very different to its competitors. The brand image is one of the success key elements, attracting costumers not only for their products by also for the atmosphere of the store, where costumers socialize, study or relax while consuming coffee products.

The extreme growth in Australians coffee drinking culture among the young citizens (Hoffman, 2006) is an opportunity for marketers to focus on this market segment, creating an appropriate advertising strategy to capture their attention via billboards, radio campaigns, TV ads and social networking. Gloria Jeans management team must understand the marketplace trend and their competitive implications to plan an effective market strategy for the success of the organisation. Gloria Jeans is increasing their franchise revenue and sales through an expansion on both domestic an international markets. They are currently having active Master Franchise Agreement covering 39 countries across the world, but the performances of those international markets are relatively slow compare to the performance in Australia. This is the product of an excessive wide segmentation strategy in the international market instead of grouping countries by regions and form clusters of consumers who have similar needs and buying behaviour, even though they are located in different areas.

Gloria Jeans marketing mix involves product determination, pricing considerations, channels of distribution and promotions, all adjusted by the company to achieve the desired level of sales in each target market.

The company relies in a long-term success based on a top quality of its customer interaction with employees through an emphasis on a training program and different incentives to achieve a superior level of customer service. Also, the innovation and creation of new range of beverage attracts new customers, expanding the product range. With coffee as the main product, they keep introducing new goods for costumers to spend more money and time in the stores. Coffee related good as mugs and grinders; food as pastries and bakery goods; and the recent adding of free Wi-Fi in some of the stores, creates diversity and adds new features to the traditional range of coffee beverage and cafe services.

On the price side, Gloria Jeans avoids the price war and focuses on adding value on the products providing professional services and top gourmet coffees. Although the prices are slightly higher than the average, costumers are predisposed to pay more for a higher quality product, as they are engaged and loyal with the brand.

By marketing their products and the development of a culture, the price is not a focus but the value of the products. Gloria Jeans wide range of business activity allows taking advantage of diverse channels of distribution, like grocery channel licensing agreements, foreign retail outlets, franchising agreements and direct-to-consumer market channels. The company also has a noteworthy success in a selection strategy of top placements for the stores. They are located in visible locations in each of its target market in order to maximize the marketing strategies and brand awareness in the different market segments. The stores are designed in a sophisticated style that reinforces the brand image and guarantees a comfortable environment and consumer-retaining atmosphere.

Gloria Jeans uses promotion with the aim of not only persuading customers to purchase but also building long-term relationships. The fast development of technology and social media creates a need for the companies to reinvent itself digitally, investing in new application systems to build communications with costumers and franchise partners.

MARKETING AUDIT RESEARCH WORK PLAN

PURPOSE OF THE AUDITTo determine wether Gloria Jeans Coffee is reaching the desirable penetration in the market segments by applying with effectiveness the proper branding and product strategies. It will evaluate: Marketing strategies implemented Market segments in terms of product, place, promotion and distribution. Customer satisfaction reports of the different products offered and customer service.The audit will identify any areas where improvement is required and recommend corrective action if necessary.

SCOPE OF THE AUDITPreliminary research will consist of primary data as costumer reports and product sales within the segments. The audit will focus on analysing: Marketing segmentation Product range Strategies towards each segment Need of make it wider or narrower to improve its efficacy

DATA COLLECTION PLAN

OBJECTIVES OF DATA COLLECTIONThe analysis of quantitative and qualitative data will allow having a better understanding of Gloria Jeans segments and strategies.

TYPES OF REQUIRED DATASecondary data Australian Bureau of Statistics Social media and networks Hot drinks reports in Australia (Datamonitor, Euromonitor)Primary data Consumer surveys In-store observation Staff and management interviews

DATA GATHERING PROCESS

TIMEFRAME AND BUDGET One week Average rate of $200 per hour Total budget of $10,000

DATA MANAGEMENTComputer, Data base (SPSS Statistics), Excel document and spread sheets

DATA ANALYSIS METHODGraphics and data comparison

DATA FINDINGS AND THE AUDIT REPORTData will be presented in a visual format via graphics and tables and a written report.

STAKEHOLDERS CEO and management (Jireh International Pty Ltd) Shareholders Current franchise owners and future buyers in Australia and overseas

PARTICIPANT ROLES AND RESPONSABILITIES Research team and data analyser Presentation and report editor

REPORTING FORMATSPDF format summary presentation and hard copy report to management, CEO and franchise owners.

MARKETING AUDIT QUESTIONNAIRE

1. Is your brand image consistent with your product or service?

2. Are your marketing and communications materials consistent with the identity of the brand?

3. How does Gloria Jeans target its market?4. Narrowed target market remains the weakness of Gloria Jeans, compared to its competitors, such as Starbucks, which have a wider range of segment market. The market strategy of Gloria Jeans is to expand its market share by enlarge the age range of its target market.

5. Does Gloria Jeans know how satisfied the customers are with the products or services?

6. How do Gloria Jeans current and potential customers rate the company and its competitors in its reputation, product quality, service, sales force and price?

7. Does Gloria Jeans make a real difference in the marketplace?

8. Does Gloria Jeans promote its products effectively?

9. Is Gloria Jeans recognising and applying new market trends to the business?

CONCLUSION / RECOMMENDATIONS

Product differentiation and uniquenessConsumers are different in several ways: their needs, wants, resources, locations, buyer behaviour and practices. Market segmentation allows dividing large and heterogeneous markets into small segments that can be reached more efficiently and effectively with product and services that match their needs.

Like Starbucks, the quality and variety of the beans should be increased with a bigger range of options to suit the consumers, like beans obtained from South America or Indonesia. This would offer more choices and diverse beverage products for different types of consumers. Also, health and obesity issues must be taken in count. Creamer, low fat milks and artificial sweeteners are an alternative to the consumers who are concerned about those problems, while providing a social- concerned public image.

On the other side, breakfast and lunch deals should be taking into consideration. Improving the food range products would increase the number of consumers who look for a place to dine in and not only the consumption of coffee, and also their expenses in Gloria Jeans products, improving the loyalty towards the brand.

Increase customer awareness and incentivesEducating the consumers about coffee, bean and quality differences, ingredients could be beneficial for improving the relationship with the brand and minimizing the risk of switching customers. It will also allow increasing the price, as they will be willing to pay more for a quality product. Gloria Jeans hardly ever does any advertising and promotion. Different options as short TV ads or social networking will make the brand more recognizable and memorable. Also, their locations next to university and high pedestrian traffic are an opportunity to attract costumers by offering student discounts, free refills and loyalty cards to encourage them to stay loyal to the brand, as they make them feel appreciated. The employees should also encourage to new costumers to sign up for enjoy the benefits of being part of Gloria Jeans membership.

Involving in social and environmental support is also a way to increase brand awareness, like charity work related to coffee bean farmers and local causes. Sports are also a way to reach the younger market, as McDonalds has done, supporting local youth football teams and offering discounts or product samples after a match. The brand would not only be associated with youth, also with energy and a sense of team and social belonging.

Franchise criteria as an expansion strategyGloria Jeans has a very strict policy in choosing franchisees for their business, which causes a lot of potential franchisee withdrawn from their company. They should be less severe in the requirements for the selection of the franchise partner, thus they must increase the researching of the franchisee prior to the selection as their operations affect the brand image. Starbucks, for example, does not allow franchising, giving to Starbucks the full control of the management and operations of the retail store, both in domestic and international business operations. This strategy allows maintaining the quality of the coffee in all different locations and the whole distribution system, ensuring that the products are according to Starbucks standards from the raw ingredients to the final product.

Raising standardsBoth outlets and baristas standards should be increased. Baristas are the main representation of the product supplier to the final costumer and their skills must be well trained to serve the ultimate gourmet coffee Gloria Jeans bases its image on. Their services would be improved by leadership and management skills to make them feel comfortable and with more power knowledge over different business situations. On the other hand, outlets are the principle creators of the environment, therefore using comfortable and attractive furniture equipment as sofas and tables, reinforced by pleasant ambient music and different facilities such as restrooms and Wi-Fi will improve customers perception and make them spend more time and money in the facilities and products. Gloria Jeans shouldnt forget that coffee is a social culture associated with interpersonal relations and personal time among the youth segmentation, which suppose a big market opportunity, as they are more sensitive to social image and networking than older segments.

Expansion on Southeast Asian regionBased on the International Coffee Organistion (ICO), Coffee has grown in more than 70 countries, with the 60% of the coffee produced by Brazil, Vietnam, Colombia and Indonesia.

The Southeast Asian market is a profitable market opportunity for Gloria Jeans in the coffee industry. Regions such as Indonesia, Cambodia, Malaysia, Philippines, Singapore, Vietnam and Thailand have already a franchise agreement, and the company should focus on them to increase competitive advantages, as they are very important coffee suppliers. The positive forecast in this market can boost Gloria Jeans performance by meeting the increasing of future demand and supporting their suppliers and the quality of the bean. Not only the product, but also the location of Indonesia is a strategic point as a resource to supply other countries within the same region.