Coffee And Coffee Stores

Published Date: 02 Nov 2017

Andreea K

http://espressos.nl/wp-content/uploads/2008/11/bages-beans-espresso.jpg

Business plan – introducing Bagels and beans in Novosibirsk, Russia

Stenden University

International Business and Management Studies

M10 – International business plan

Tutor: Eelco Galama

Group 3E

Students:

Konstantin Grusnewitsch

Andreea Kovacs

Shiqi Li

Okke –Jorn van der Meulen

Table of Contents

Executive summary

Project background

Coffee and coffee stores have become a large trend around the globe reaching almost every country. Especially high quality coffee brands with a sustainable image, such as Starbucks, have succeeded to grow and attract customers, who are willing to buy a premium price. Although Starbucks already has been established in Russia as a coffees provider, there is still room. By focusing on sustainable and high quality coffee and accessories, it is possible to offer premium products and service at a higher price than regular coffee shops. Especially the growing wealth of Russian’s citizens is a reason to buy luxurious and premium products, to treat themselves. Introducing a warm and friendly chain of coffee store in the Novosibirsk would fit to the upper- and middle-class of today’s Russian people.

Due to the fact, that tea is the traditional warm drink in that country, it is also advisable to offer a blend of high quality tea from exotic countries. Coffee accessories, such as cups, coffee beans and mills are a preferred addition to the service.

Russia’s main hot drink still remains tea, due to the fact that coffee is mostly offered in instant tea packages. And even instant coffee was rare in times of the Soviet Union, which is why coffee only slowly gained popularity in the largest country of the world. Due to urbanization and influence from the west, brewed coffee slowly gained an entrance into Eastern Europe and Asia. Even though Russia places 56th in coffee consumption per capita (In comparison, The Netherlands is number 5), the growth however of coffee demand is rising by 20%. (Hecht, 2012) Another reason is the rising wealth of the upper class in Russia, which has doubled in terms of wealth, who is paying to pay a higher price, especially for luxury items. (Robertson, 2011)

Therefore, considering the wealth of the Russian potential customers, the high demand for luxury products and the increasing coffee consumption, opening stores and coffee corners on the Russian market would be very favorable.

As well, Russians like purchasing western European products of very good quality. Furthermore, opening specialty coffee stores/coffee corners which provide high quality west European coffee would be very profitable.

image - Bagels and Beans logoTherefore, considering the increasing demand of high quality coffee and tea, the most suitable coffee concept to introduce in Novosibirsk is Bagels and Beans.

Bagels and Beans is a fairly new concept and company, started in Amsterdam in 1995. According to the welcome text in their menu, the first shop was two lovers’ attempt at entrepreneurship, started "out of coincidence". Bagels and Beans puts quality over quantity, which is reflected in their relatively high prices for the products they offer. Bagels and Beans does not concentrate much on coffee. Its focus turns upon the food products they offer, the bagels, which are found in many dough varieties, toppings and spreads.

Over the last 6 years, Bagels and Beans expanded in the Netherlands, opening 53 stores. Bagels and Beans would like to expand on the Russian market, since it considers that the Russian coffee market is not yet familiar with coffee-to-stay coffee corner combined with lunchroom. http://imagene.youropi.com/restaurant-bagels-beans-aken-restaurant-ake(p:restaurant,13911)(c:0).jpgC:\Users\Andreea K\Desktop\collage1.jpg

Image - bagels and Beans food and drinks

Image - an oasis of peaceThe Bagels and Beans store wants to bring to its customer an oasis of peace, harmony and human attention in such a busy, high-tech and restless time.

The shops are inspired by the product, colors and flavors you can get in the area of South – France, respectively Nice.

The Bagels and Beans stores/coffee corners are offering high quality fair trade coffee and tea, as well as other coffee derivates and dry coffee and tea. It is to be mentioned that Bagels and Beans main focus remains on bagels not on coffee. Therefore, they offer breakfast and lunch menus based on bagels. The coffee corner also offers cakes and pies and fresh juices.

Corporate values

The company’s values are the best products and the best service. The company is fully oriented on the quality and the attention for its clients. The company offers biological products and high quality and fair trade coffee beans. As well, Bagels and Beans is very much involved in the lives of the people who supply the store with their products.

Mission statement

"Bagels and Beans wants to see that everyone leaving its stores are leaving happier than they came in the store! "

As already mentioned above, Bagels and Beans wants to bring to its customers an oasis of peace, by offering a cozy and family like atmosphere for all its customers. The superior quality and organic food and drinks offer a unique experience to the customers. By doing so, the customers will leave happier than they came in the store.

Market analysis and marketing strategy

Pestel analysis

Political

Russia established a federal republic after a long period of communism. In the Russian life, the communist influence can still be felt; the distance between ranks is very big, the highest in rank determines everything and unfairness by these persons is somewhat accepted. Companies reflect politics and the general culture.

The influence of bribery and the mafia is still big in Russia. A company is bound to have a visit from the mafia at some point in time, due to the fact that governmental control is minimum and not optimized for supporting foreign businesses.

The financial times, on their site on June 12, 2012, spoke about the difficulties concerning opening a business in Russia. An entrepreneur interviewed by the Financial times said that buying materials was very difficult and could only done by big amounts, after showing corporate status, paperwork and bank account before the companies even thought about selling goods.

This accurately presents the Personal Distance Index and Masculinity of Russia according Geert Hofstede; status is everything and people are only taken seriously when they have reached the height of the other.

Therefore, to make a successful start in Russia a partner needs to be found. An industrial player with government links, a strong financial position plus an iron reputation would be ideal to enter the Russian market.

The Rusteacoffee Association, an association linked to the ministry of agriculture, manages and maintains the coffee and tea industry in Russia and supports businesses in this market. Besides this, the Rusteacoffee Association is a member of the International Tea Committee and is planning to become a member of the International Coffee Organization. In this way, there is no room for bribery, assault and unfair practices.

In order to receive accurate information about the coffee and tea marker in Russia, Bagels and Beans can collaborate with the Russteacoffee Association. Therefore the company will be supported by this association, will eliminate the risks of bribery and unfair practices. Moreover, through the Russteacoffee association, Bagels and Beans can find its perfect Russian partner to collaborate with.

Economical

Since the USSR period that changed in 1999, the Russian Economic climate drastically changed. Russia became richer and started to attract lots of businesses and had at some point a corrupt atmosphere. Rich people grew richer and poor people grew poorer.

According to the GDP-rate on indexmundi.com, Russia has a GDP of $2.400 billion in 2011 and had a GDP of $2.200 billion in 2010. When comparing this to the situation in 1999, when Russia´s GDP was only $ 600 billion, a huge growth can be seen. It can also be seen that, despite a severe drop in 2009, the GDP growth rate is gradually increasing. The same site claims that Russia has an increase of Purchase Power Parity per Capita over the years.

The PPP per capita would be $17.000 per year in 2011 and seeing that it was $15.900 in 2010, the growth is quite high. This potential growth can become profitable in the whole Russian industry. The total labor force was 75.410.000 people in 2011 and has declined a bit in comparison with 2010 when the total labor force was 75.550.000 people. From the 75 and a half million, 6,6% is unemployed in 2011 which was almost 1% higher in 2010.

When having a range of products, these need to be investigated separately as some products have an increasing trend and other products a decreasing trend. About offering coffee, as Russia is a tea-drinking nation, a research of the KPMG says that the growth in the coffee industry is expected to be very small. It is even stated that possible growth will only come from premium offers, in which case people try to boost their status with the products. In figures, the growth of the coffee market was 3-5% in 2012 and is expected to decrease to a maximum of 4% by 2015. Perhaps a focus on coffee should not be the main issue.

The growth in the health-organic food market, however, is a lot bigger and still growing. As healthy food is also not traditionally Russian, Russians did take up that trend gradually by using the huge agricultural power already available. The total turnover in this market was $3 billion in 2008, $4 billion in 2011 and expected to be $5 billion in 2013. In other words, a growth of 8% per year on this market is calculated which is a very big growth, offering many possibilities.

Socio-cultural;

When seeing the markets Bagels and Beans operate in, it can be noticed that what Bagels & Beans offers is a collection of products. The main focus is on organic food, but they also offer coffee, tea, fresh juice and other organic beverages.

For a long time, Russia had typically traditional fatty food according to Bordbia.ie. A high fat percentage characterized the Russian cuisine, but after seeing the trend in the West, this habit became criticized upon. Eating healthy is nowadays accepted in Russia and the traditional fat foods start to belong to the far distant past.

Coffee is something completely different. Coffee was rarely used anyway, as Russia has a tradition in drinking tea. Drinking coffee is now seen as a premium feature not everybody can afford, but is not found back in the Russian roots. Offering tea with some snacks in Russia would be possibly a very good idea, because of the connection to the roots. This trend would be good to exploit, as it gives sound opportunity to.

Technological;

Currently, Russia is going through a major technological advancement. It is open to receive companies from other countries and makes itself ready. Together with its Economic growth, appropriate measures to effectively process materials were developed. On another note, a pursuit to increase the digital infrastructure to a 4G network covering the whole of Russia has been made evident by the Government.

The mentioned trends of the Russian government show that there is a huge drive to increase the image of Russia to a height comparable to Japan. In a few years it might be possible to understand Russia as a synonym to high-tech gadgets, as Japan is colloquially mentioned. Furthermore, business development also shows to be a trend as Business incubators have been emerging rapidly. All with all, the signs show a preference in Russia towards Innovation, Technological Advancement and Prosperity.

Concerning the Western trends, they suit perfectly to the state Russia is currently in. In the organic and coffee market the increased demand is already showing, as explained in the Economic part, and will take on a new image. With this technological advancement, new and innovative businesses might sprout in all directions.

There is an upside and a downside to this information for Bagels & Beans. The ‘downside’ of this trend for Bagels & Beans might be that more agile competitors in many fields might emerge, taking on market opportunities not yet inhabited. The biggest upside might be that Bagels & Beans is seen as ‘the new way to go’ and becomes a big understanding in Russia. People recognize the healthy lifestyle and start to realize moreover that Bagels & Beans helps them with exactly that.

Ecological;

Looking to the overall attitude of polluting in Russia, it can be seen that this becomes an issue with severe governmental consequences. In an article on RT.com dating 8th of June 2011, President Medvedev spoke out his dissatisfaction about the indifferent attitude companies showed concerning protection of the ecology.

What Medvedev made clear is that any company or any person committing crimes to the environment or environmental organizations will be trialed despite of their acquired wealth. Modernrussia.com speaks about an increase in public interest for environmental organizations such as Greenpeace and WNF. It seems that the trend is catching on from the government to the people. The president demands better commitment and the public get more interested in corporate social responsibility as well.

If this is applied to Bagels & Beans or any other organic company, it can be seen that it is connecting seamlessly to the growing environmental demands of the president as well as the public. People will start to wonder, as is happening in Western Europe, what happened to the animals and how they are treated. The public gradually starts to grow interested in organic, biological and even sustainable products for the sake of the environment. The Corporate Social Responsibility image needs to be like iron with clear believes towards taking on responsibility for the environment as much as possible.

Since Bagels & Beans buys, sells and processes many types of food, separation of trash might be the starting point. In a later stage, it can be considered to only close deals with companies who also share the same respect for the environment as Bagels & Beans does. The price might be higher, but the reputation remains clean. A credible and strong brand name will be the result.

Legal;

In the legal aspects, Russia might be one of the most notorious countries known. Russia is tightening the control of ecological legislations despite ones wealth, declines at a gradually increasing rate bribes and is opening up in the field of business development.

Russia is getting ready for being a serious competitor in the global economy. What gives reliability on the global market is the fairness and constancy of law control in a country. Since Russia has been accepted to the World Trade Organization, some parties have taken Russia serious, as Russia is trying harder than ever to establish a reliable character for the world.

For big contracts Arbitration is an option, but for small enterprises concrete law control really is still in development. To be legally safe, a reliable Russian partner, such as the Rusteacoffee Association explained earlier, needs to be held dearly.

Laws and Regulations

To introduce the Russian legal system, State power is combined between the presidential regime and the decisions of the Parliament. The power of the President is quite expansive, as he can appoint and dismiss government officials, judges, the prosecutor general and head of the bank. Moreover, the president also has a big legislative right and can approve or veto legislation.

In Russia, the government is called the Federal Assembly and is divided in two chambers; the State Duma and the Federation Council with each having distinct responsibilities. The Federation Council needs to check all bills passed from the State Duma concerning budgetary issues, tax, other fiscal issues, decision about war and needs to ratify treaties.

Local courts are the first level of the judicial body, Federal district courts the second level and the Supreme court as the highest level. The tasks and requirements of the Russian judicial body is of the same nature as the judicial body of the European Union.

For fighting unfairness, arbitration courts are most useful, as these are especially founded to solve commercial and economic disputes. Decisions concerning unfairness by governmental organs are also treated by Arbitration courts.

Several regulations will apply to Bagels & Beans. Bagels and Beans will have work under the environmental, labor, retail and organic regulations of Russian Federation.

Environmental regulations

Russia is a land with numerous strict regulations, but with a bad control system. There are two laws, Federal Law No.7-FZ, 10/1/2001 (the ‘Environmental Protection Law’) and the Federal Law No.174-FZ, 23/11/1995 (the ‘Environmental Expert Review Law’), which ask for a State Environmental Expert Review (SEER) before any company is allowed to do anything.

After a positive SEER a company may start. For the reputation of Bagels & Beans it is important to know that Russia singed the ‘Convention on biological diversity’ in 1983, the ‘Vienna convention for the Protection of the Ozone Layer’ in 1985, the ‘Montreal protocol on substances depleting the Ozone Layer’ in 1987, the ‘Convention of the Control of Transboundary Movements of Hazrdous Wastes and Their Disposal’ in 1989 and the ‘Convention on the Transboundary Effects of Industrial Accident in 1991. In other words, Russia is well represented on a broad legal note. Since Bagels & Beans is not directly involved in polluting the environment so much, it is important to know when looking for perhaps local suppliers.

Labor regulations

The Moscow Times writes on 4th of July 2012 about the Russian Labor Code. It is said that only people who are registered as employees have protection, self employed individuals have no employee protection and are all by themselves. A written contract is not needed in first instance, but needs to be arranged within three days after an employee is admitted to work somewhere. Not living up to this rule results in a fine.

The Labor code covers name, details of employee, details and name of employer, function, start date, terms of remuneration, working hours and holidays and insurance. If things are missing, they are not considered invalid, just missing. Any additional provisions, such as a non-competition provision or a non-solicitation provision, can be put in the contract as well.

At the end of 2011, some new amendments have been introduced. Amongst all, there are positive changes in social insurances, medical tests become mandatory and a special category for underground working employees have been created. In 2012 they are expected to implement offering a guarantee to parents of a child with a disability, a declaration of compliance to govern occupational safety, a guarantee when a business goes bankrupt, a compensation for a delay in the payment of salary, stricter penalties when rules are violated and implementing remote work opportunities.

Retail regulations

As said before, regulations are quite strict. This is also applied to the regulations concerning the retail market. On the site of the Federal Antimonopoly Service of the Russian Federation, a complete overview of retail laws are given. Since it is quite comprehensive, an outline of the most important regulations is presented:

Consumer rights are protected in Federal Law No. 2300-1

Local municipals can pass legal acts to appoint conditions for trade services.

The complete list of regulations can be found on the site of the Federal Antimonopoly Service.

Organic Regulations

The enormous increase in demand in Organic products, regulations had to adapt to the upcoming trend. Before, organic products were unknown in Russia and the label did not exist. Some farmers claimed to have organic products and got into trouble because of health violations. The government does not even have a clear system to govern organic products, but only one regulation.

Regulation No.26 issued on 21st of April, 2008, by the Chief Health Officer of Russia states that there are special sanitary requirements for organic products. This document abstained, however, to include a certification obligation, a certification procedure and a control measure. In other words, due to the lack of these regulations, organic farming and production is impossible.

It would be better for Bagels & Beans to consider importing materials from the distribution networks of Bagels & Beans in the Netherlands with the help of the Rusteacoffee Association. It is possible for a farm to get an internationally renowned certification from the Swiss company Bio.Inspecta labeling a farm officially organic. When the looseness of the understanding of the word Organic is observed, it proves to be quite a job to convince people Bagels & Beans is the ‘real-deal’ whilst there are so many cheaper competitors claiming to be organic.

Supply chain

Because of the connection with Bagels & Beans, a supplier network has already been established. It might be that the boss of Bagels & Beans decides to use different suppliers for the Russian market, but this is not certain.

The chains where everything is dependent upon are the suppliers of coffee, tea and organic products to the Russian market. It would be best if one exporter, but preferably importer, has a wide variety of products that can be bought, when Bagels & Beans give the freedom.

However, when multiple suppliers are employed, a business is more agile and can be more flexible which results in offering products for a more independent price. If the relationship between bagels & Beans and mr. Janson from the Panamanian coffee plant Bagels & Beans goes bad, everything will stop in a matter of weeks. More willing suppliers can give the flexibility the new business needs in this circumstance.

The following chain is the transport. The coffee beans, tea bags and organic products need to be delivered to the store. Since there are many different transport companies, how can this best are done? What is sure is that the organic products need an official certification which is internationally recognized and that the truck, boat (when dealing with a foreign exporter) or train needs to be cooled. It is known that there are only 12 truly organic farms in Russia and can be used for making organic dishes.

The next chain is the Bagels & Beans shop itself. How are the connections with other companies arranged? How free is the franchise in making decisions? The connections can be imagined as tentacles which are reaching to several parts of the supply chain to take what is needed in the quantity it are needed.

The subsequent chain is the customer. Bagels and Beans has to find out which is the actual target group of the company in Russia, how large this is and what exactly the customer needs. If only one target group is accessed, the methods for earning significant revenue decline rapidly. Aforementioned strategy can also, however, create a high-end, premium product, solely mentioned for one type of people. With the organic products and the increasing trend to stand with these kinds of products, the product will most likely get a high-end status.

Throughout the whole course of action, the Russian partner needs to assess which suppliers are most needed to offer the best possible product to the best possible price fitting the target group. E.g.: it might mean for Bagels & Beans that it intentionally sets a high price to attract the rich Russian elite. In that case, the best products are bought from the best supplier, under the best conditions. This is not necessarily the cheapest, but is most often very authentic from one important region

Concerning the ‘export strategy’, which partners in which way are most useful for which cause? This might be a joint venture with an organization the Rusteacoffee Association recommends for this market. The company needs to be a well established retail / producer of organic products who will lend its distribution network to do business together with their name perhaps.

Moreover, for the whole supply chain needs to be viewed from an important perspective in foresight: How can the Cash Conversion Cycle of the Bagels & Beans subsidiary in Russia be as short as possible? The Cash Conversion Cycle is the cycle in which cash is gotten and held as long as possible with a small inventory which is just enough. In short, it means the following; suppliers need to be paid as late as possible, customers need to pay as soon as possible and the inventory should be just big enough so decay cannot happen and there is enough for a long time.

Porter’s five forces

Suppliers

Due to the nature of the products, climate conditions play a big role in supplying tea leaves, coffee beans and cocoa beans, which usually stem from Africa, South-America and Asia. The power of suppliers is limited, as most suppliers only have low economic level and the number for the independent growers for the usually undifferentiated products is high. (MarketLine, 2012)

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image - bargaining power of suppliers

The major suppliers of coffee products are Vietnam, Brazil and India (Chanturiya, 2011) and for tea, however, Sri Lanka, India and China are the biggest suppliers (Chanuriya, 2012). See annex 12.1.1 suppliers.

The overall supplier power can be described as moderate, although experts are predicting a 5% price increase by the end of the year 2012, which might leave the Russian market with lower quality coffee beans, as the preferred buyers are China and Brazil. The increased overall demand and low supply might give suppliers a temporary, but higher power. (Kakhelina, 2012)

Buyer Power

Russia’s supermarket chains and hypermarkets are exerting a major force in the Russian market, as they are the main distribution channels and account for 47.3% of the total market value. The low product differentiation of the two main products (coffee and tea) and switching costs account for the overall moderate buyer power. (MarketLine, 2012)

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image - bargaining power of buyers

When looking at end-consumers, it is important to note, that consumers "have no problem switching to a product of lesser quality" or stop buying the product, if prices increase. Russians perceive coffee more as a "a beverage to wash down sandwiches" with a relatively low appreciation for high quality coffee. (Kakhelina, 2012)

Threat of New Entrants

Distinction in the Russian coffee and tea market is done by advertising of taste, quality and health benefits; however consumers are very price sensitive. Easy access to suppliers’ distribution chains and few regulations make it easy for new companies to enter the market, however it is also dominated by few large multinational brands, which make use of economies of scale and the ability of existing product differentiation. (MarketLine, 2012)

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image threat of new entrants

In addition, laws regarding import duties and green beans have been made easier, but remaining complex shipping regulations and the barely existing specialized machinery make it more difficult for new entrants to succeed. The overall threat can be described as moderate. (Roast Magazine, 2012)

Substitute Products

Within hot drinks, tea and coffee products are the most popular, lowering the threat of substitution. Because of the increased health awareness, there might be reasons for consumers to switch to healthier drinks, but barely impacting overall sales. (MarketLine, 2012)

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image threat of substitutes

Russia is the world leader in instant coffee consumption with 57,000 tons per year, which is very high compared to the UK with 30,000 tons. Although the consumption is quite high, it has shrunk to 68% in recent years and it is expected that natural coffee will be the driver for further growth in the market. (Kakhelina, 2012)

Half of all coffee consumed is soluble coffee, while the other half consists of a mix of commodity and specialty coffees. Overall the level of substitutions is very low. (Roast Magazine, 2012)

Rivalry among competitors

The rivalry in the Russian market is moderate; however it can be described as fragmented. The top three in hot beverages, Nestle, Orimi Trade and May Company hold about a third of the total market volume. International and major companies make use of economies of scale and the existing position increase rivalry. As mentioned above, low switching costs and limited possibilities of product differentiation make it hard for small and new companies to succeed. The number of premium and gourmet coffee brands is increasing. (MarketLine, 2012)

Coffee production and sales on their own are accounted for by the majors Kraft Foods, Nestle and Paulig Group, however the image of coffee is still associated with the country Brazil. (Kakhelina, 2012)Domestic production accounts for more than 80% of ground roasted coffee, and for more than 50% of instant coffee. Shokoladnitsa and Coffee house dominate retail market with many outlets, but lack quality standard of Western coffee. (Roast Magazine, 2012)

Figure shows the summary of the five forces. In general it can be said, that substitute is relatively low, while all other forces are moderate on the Russian hot drinks market.

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image - rivalry among competitors

Market information - Novosibirsk

Novosibirsk is one of the most populated cities in Russia after Moscow and Saint Petersburg. The city is located in the Asian Russia, in the south-western part of Siberia and has a total population of 1.473.754.

The region in which Novosibirsk is located it has a humid continental climate, which means that the region has warm summers and very cold winters. Although the summer temperatures range from 15° to 26° Celsius, the winters are extremely cold, ranging from -12° to -30° Celsius.

Novosibirsk is the first Russian city in which a metro system has been developed (1985). The city is mainly supplied by Novosibirsk Tolmachevo Airport, which has regular flights to Europe and Asia, as well domestic flights, but is has also a secondary airport, Novosibirsk Elitsovka Airport and a smaller field for general aviation at Novosibirsk Severny Airport. (Wikipedia, 2012)

As well, Novosibirsk is located at the interaction of the major Highways of federal and international importance. This also contributed to the rapid development of Novosibirsk, nowadays being one of the country’s largest logistics center. (Knight Frank, 2012 )

Novosibirsk has a growing economy and is considered one of the largest industrial centers in Russia. The city’s industry is composed of 214 large and average sized industrial enterprises, which produce more than two thirds of all industrial outputs of Novosibirsk region. The leading industries in the region are the power industry, gas supply, water supply, metallurgy and metal working and mechanical engineering. Furthermore, other segments are trade and services, transport, construction, and science and scientific services. (PWC, 2012)

According to the Forbes raking in 2011, the Novosibirsk region is the TOP-7 list of Russian regions favorable to invest. (Knight Frank, 2012 ).

The share of working-age population is 64%, with an unemployment rate less than 1% in May 2012. The average monthly wage, in rubles is 25.937, equivalent of € 654 [1] . The turnover in the retail sector is 286.4 billion rubles, equivalent of € 7.228.926.897.

According to the Russian Statistics center, most of the population in Russia has a monthly between 10.000 rubles and up to 35.000 rubles and more. This accounts a total of 68.6 % of the population. This can also be considered in the city of Novosibirsk and therefore can be assumed that approximately 68.6% of the population have a between 10.000 and up to and more than 35.000 rubles. (GKS, 2012) However, Bagels and Beans is considering its prices to range from € 2.5 to € 4.5 (99.05rub and respectively 178.33 rub). So, the target group would be considered as being the population earning more than 15.000 rubles a month and therefore affording to purchase the Bagels and Beans products. This would be a percentage of 47.6% of the population, representing 701.506 citizens.

The total registered official organizations in Novosibirsk is 11.350, from which 67.6% are successful organization, having a profit of more than 316.000.000 RUB (794.447 Euros) (GSK, 2012). The number of small and medium businesses in Novosibirsk is 6.400. These small and medium enterprises create approximately 176.200 jobs, and have a total investment in fixed assets of 7.919.800 RUB (199.833 Euros). The annual turnover for the small and medium sized enterprises in the Novosibirsk region is 162.200.000.000 RUB (4.093.630.635 Euros), from which 103.600.000.000 RUB (2.614.592.479Euros) are made in the wholesale and retail trade, auto, household goods and personal effects. (GKS, 2012) This means that an average turnover for the small and medium enterprise in Novosibirsk region is approximately 378.926 Euros.

The turnover for the catering sector in Novosibirsk is 11.700.000.000 RUB (295.315.729.Euro) and there are in total 1.725 stores. (RBC, 2012). The majority of the businesses in the hospitality sector are 29.2% canteens, 23.4% coffee corners and coffee pubs, and 18.1% are snack bars. As well, in 2011 Novosibirsk noticed a dynamic growth in cafes, restaurants and fast food companies. However, the highest increase was observed in the coffee segments. As for 2012, Novosibirsk has only five major coffee house chains: Travelers coffee, Coffee Cup, Coffee House, Grinder and Chocolate (Novosibirsk ).

For one of the competitors, Travelers coffee, the annual turnover is approximately 520 -530 million RUB. This is for a store which has a showroom area of 150-220 square meters. The daily revenues of the competitor are between 50.000 RUB and up to 70.000 thousand RUB, with monthly revenue of 1.8 to 3.3 million RUB. (gorn.ru, 2012).

Considering that Travelers’ coffee has a total of 33 stores in Russia, the average turnover per store would be approximately 15.909.091 RUB, equivalent of 401.726€ a year. (Olga Koltunova, 2012)

Target group

The Russians are customarily considered as "tea drinking" nation, however, the customers’ demand for hot drinks is slowly shifting to coffee.

The target groups Bagels and Beans will focus on are the people in the middle to high class, especially the students from universities and businessmen. Russians like European products because they think these are good quality and thus are paying a higher price.

Especially people in the middle to high class income, like businessmen, think that the high quality and standard European coffee and tea can represent their status, their attitude of life and the high quality of life pursuit. Moreover, according to the salary survey 2011/2012, the average annual income in Russia is around € 654 (PWC, 2012) .It shows that within the fast growing economic in Russia, people are getting richer, so there is a large potential of target group growing in the Russia market.

Furthermore, the features of Russian people are group-activities and drinking while eating. For example, university students like to going out after school, they will organize a group of people around 3-5 to sit in a coffee shop, drink coffee or tea, and also have some refreshments. This is what the typical Russia person does in its free time. In this way the person relaxes and has fun with their friends as well.

As mentioned in the market analysis, the target group in Novosibirsk is people who have an income of more than 15.000 RUB, which accounts 47.6% of the population of Novosibirsk. The total target group of Bagels and Beans is more than 700.000 people.

Competition

The Russian coffee market is one of the largest markets in Eastern Europe. The growth of Russian coffee market is significantly in recent years, and one of the most important factors that stimulating the growth is the sales growth in some large cities. The most popular coffee type in Russia is instant coffee due to the salary rising, thus there are a lot of new sorts of instant coffee such as latte, moccachino, vanilla, Irish cream and frappuccion, which are the main sources of total sales growth. (Coffee market of Russian Federation, 2012)

First of all, the table below show that the retail sales of coffee in the whole Russia market. It described that the Russian coffee market mainly has divided between two companies: Nestle and Kraft Foods, which have control over 50% of the market. It can be said that the competition of Russia coffee market is intense, but the share of traditional European coffee is really low, and within the rapidly growth of customer demand for coffee, the market is lack of European coffee. (Review of coffee market in Russia, 2012)

Table – manufacturers present on the Russian market and their market share.

image – map with the Competition of bagels and Beans in Novosibirsk as seen in Google maps

Narrowing down the scope, a closer look to the competition in Novosibirsk has to be taken. As presented in IMAGE 9, the main areas where the coffee shops are found are the city center, the industrial area and the university area.

This matches the Bagels and Beans’s locations which is A2 and B1. Considering these locations, the competition is increasing. However, it is to be mentioned that the most of the coffee shops are local.

Thus, the biggest competitors for Bagels and Beans are the local coffee shops. As mentioned before, more and more Russian starts to drink coffee right now, so the ability to accept a new coffee concept is high and it is also followed by the traditional Russian features which are group-activities and drinking while eating. Therefore, the opportunity for Bagels and in Novosibirsk is huge and it gives success possibilities.

Market segmentation

The Bagels and Beans stores will be placed in the city of Novosibirsk. Novosibirsk has a population of 1.473.754 (Wikipedia, 2012). In order to see where the store should be placed, the market has to be segmented. Therefore, the coffee corner should be opened in the surroundings of business/industrial areas, university areas, city center and touristic points. As well, the coffee corner could be opened in the surrounding of train and metro stations where it is high population traffic.

The company shall also focus on the people who desire fair trade and sustainable and healthy food and beverages and they have a high power of purchase. As well, the company will focus on the potential customers who have a high brand loyalty and deeply consider purchasing and consuming goods produced and sold by a Dutch company.

Novosibirsk already has developed a coffee market. However, all the coffee corners to be found in the city are Russian. None of the coffee corners are international. Furthermore, considering that Novosibirsk has a growing economy and people are getting wealthier, the demand for high quality international coffee will be increasing.