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中 華 大 學 碩 士 論 文

印尼的咖啡市場分析

Coffee Market Analysis in Indonesia

系 所 別:企業管理學系碩士班 學號姓名:M09819057 強 尼 指導教授:王 瑜 哲 博 士

中華民國 102 年 8 月

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摘要

印尼是在世界上最大的咖啡生產國之一。然而,在印尼的咖啡消費量仍然非常 低。由於印尼有著大量的人口,所以咖啡消费產業的市場潛力非常龐大,因此咖啡 生產商應制定一些銷售策略,以增加其咖啡產品的市場佔有率。本研究嘗試以印尼 咖啡商業市場為基礎,用SWOT分析影響印尼咖啡商業環境,從而制定市場的經營 與銷售策略。並以三家印尼的咖啡公司为分析范例,根據它們的年產量把它們分為 三個等級,小、中和大规模分析結果發現,印尼的咖啡公司需要推廣并教育公眾認 識飲用咖啡的好處、增加咖啡產品的種類、增加它們在各種媒體上的廣告和宣傳及 擴大咖啡的銷售網絡。

關鍵字:咖啡、SWOT、印尼、產業分析

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ABSTRACT

Indonesia is one the largest coffee producer in the world. However coffee consumption is still very low in Indonesia. The size of population is good market potentials for improving sales in coffee. Marketing strategies should be studied and implemented to increase coffee sales. Coffee industry needs to make strategy to increase absorption level of its coffee production. This study tried to analyze the factors affecting coffee consumption in Indonesia and to formulate strategies that coffee industry can use to reach that large number of consumers. The SWOT analysis was used as part of research tool for Indonesian coffee companies. Three 3 Indonesian coffee companies were used as case companies for this study. These three companies were classified by its size, small, medium and large, based on their annual production capacity. The research results show that company needs to promote to the public about the healthiness of consuming coffee;

introduce more coffee products; increase their advertising and promotion using different media channel to expand their distribution networks.

Keywords: Coffee, SWOT, Indonesia, Industry Analysis.

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ACKNOWLEDGMENT

First of all, I want to say “Alhamdulillahirabbil ‘alamin” for Allah SWT my Omnipresent God. And I would like to express my gratitude to the following people for their support and assistance during writing this thesis.

First, I would like to acknowledge the great contributions of my thesis advisor, Dr.

Jerry Wang, Who provided guidelines and materials for this thesis. Without his guidance and enormous patience, I can’t overcome many challenges to finish this thesis.

I would also like to express my appreciation to my other graduate advisory committee members, Dr. James and Dr. Yung for their contribution and insightful advice.Thank you for the suggestions and valuable tips that helped to enhance this thesis.

I have to acknowledge to all my beloved family in Banda Aceh who give me a lot of encouragements and care. Especially to my wife Rilla for your extraordinary love and patience.

And of course, I would like to extent my thanks to all my Acehnese friends, especially for the all members of Ranub Lampuan and all of my Indonesian and international friends here in Taiwan.

Finally, I would like to acknowledge the support of the Department of International Business Administration at Chung Hua University, It is definitely my honorable to study in Chung Hua University and be one of the alumni.

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TABLE OF CONTENTS

摘要 ... i

ABSTRACT ... ii

ACKNOWLEDGMENT ... iii

TABLE OF CONTENTS ... iv

LIST OF TABLES ... vi

LIST OF FIGURES ... vii

CHAPTER I Introduction ... 1

SECTION 1. Background ... 1

SECTION 2. Coffee Types ... 2

SECTION 3. Consumer Demographics ... 2

SECTION 4. Competition ... 2

SECTION 5. Instant Coffee in Indonesia ... 3

SECTION 6. Problem Statement ... 3

SECTION 7. Purpose of Study ... 4

Chapter II Literature Review ... 5

SECTION 1. Domestic Coffee Consumption ... 5

SECTION 2. Coffee in Indonesia ... 5

SECTION 3. Indonesia ... 6

SECTION 4. SWOT Analysis ... 6

SECTION 5. Business Strategy ... 8

SECTION 6. Marketing Mix ... 8

SECTION 7. Consumer Behavior ... 9

SECTION 8. Consumer Involvement ... 10

SECTION 9. Previous Research ... 10

Chapter III Methodology ... 12

Chapter IV Results and Discussion ... 14

SECTION 1. Results ... 14

SECTION 2. Individual Company SWOT ... 14

SECTION 3. Whole Company SWOT Analysis ... 16

SECTION 4. Strengths and Weaknesses Analysis ... 17

SECTION 5. Opportunity and Threat Analysis ... 19

Chapter V Conclusions and Recommendations ... 20

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SECTION 1. Conclusions ... 20 SECTION 2. Recommendations ... 21 REFERENCES ... 24

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LIST OF TABLES

Table 1 Export and GDP in 5 Biggest Coffee Producing Countries 2008 ... 1

Table 2 SWOT Framework... 7

Table 3 Naga Sanghie Company Profile... 14

Table 4 Naga Sangie SWOT List ... 15

Table 5 Ayam Merak Company Profile ... 15

Table 6 Ayam Merak SWOT List... 15

Table 7 Kapal Api Company Profile ... 16

Table 8 Kapal Api SWOT List ... 16

Table 9 Whole Company General SWOT Table ... 17

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CHAPTER I Introduction

SECTION 1. Background

Indonesia is presently the fourth largest producer of coffee in the world. However Indonesia ranks only 101st of coffee consumption by per capita income (http://en.wikipedia.org/wiki/Coffee_in_Indonesia/) and Indonesian coffee consumers consume only approximately 25% from total national coffee output. In comparing with other nations, Indonesian coffee consumption per capita still relatively low while people in west European countries such as Switzerland, Norway and Finland consumed 7-10 kg person/year (2010) which was also the highest in the world. Because of its heritage of coffee production and for size of its more than 240 million populations, Indonesia poses a good potential for coffee drinking rather than manufacturing.

Coffee producers in Indonesia should make a breakthrough to improve domestic coffee penetration in the local market, some efforts have been done by coffee producers, such as promotion or new product launch. However, sales in coffee drinking are still stagnant (http://finance.detik.com/read/2009/07/02/115946/1157769/4/orang-indonesia).

There is a need to do market penetration systematically through one complete set of analysis, instead of single approach such as consumer preferences or marketing. By combining current company condition, all the 4P’s, even consumer preferences in order to getting know how to reach those untouched market optimally. And one of single complete set analysis available is the SWOT Analysis.

Table 1 Export and GDP in 5 biggest coffee producing countries 2008 Countries Exported

Coffee

Total National

Export

GDP Proportion of Coffee on Total National Export

Proportion of Coffee on GDP

Brazil 4.85 225.76 1612.54 2.15 0.30

Vietnam 2.65 N/A 90.70 N/A 2.92

Colombia 1.82 41.19 242.27 4.42 0.75

Indonesia 0.94 154.32 514.39 0.61 0.18

Guatemala 0.62 7.81 38.98 7.95 1.59

Note From “A Review of the Competitiveness of Global Supply Chain in a Coffee Industry in Indonesia,” by Ibrahim, H.W. & Zailani S., 2010, International Business Management, 4(3), p. 105-115.

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SECTION 2. Coffee Types

Coffee producers continued to introduce product innovations such as introduction of 3-in-1 instant coffee (which combines sugar, instant coffee, and non-dairy cream), in addition to standard instant (black, soluble) coffee, as well as canned and packaged coffee beverages in order to reach more coffee consumers in recent years.

The products offered by the coffee industry essentially are some form of instant coffee powder. Of the two types are produced coffee products such as coffee and other three-in-one.

SECTION 3. Consumer Demographics

Research by Nielsen (2009) in 6 main cities in Indonesia reveals 76% of coffee consumers in Indonesia are male; most of them received senior high school education. 52%

of consumers have monthly income around Rp 1.500.000 (US$ 150). Younger consumers (aged 18 – 25 years) has bigger probability to consume rather than middle aged consumers (aged 26-45 years) 63% of those younger consumers did not know much about healthy side of coffee and believed that consuming coffee can introduce them to bad health or illness such as coronary disease or insomnia. While older consumers (aged 26 – 45 years) seems received balanced information about either good or bad effects of coffee consumption.

SECTION 4. Competition

The increasingly competitive condition in coffee market encourages manufacturers to embark intensive promotion and introduces new coffee products with new brands and features. Beyond promotional and diversification, producers also put some efforts to learn and understand about the diversification of consumer behaviors and buying habits, either in the past, the present and the future, as well their decision making for purchasing of instant coffee powder (Sumarwan, 2004).

Such competitive situations yielded vast availability of many brands, types, and a sense of instant coffee powder that is offered by manufacturers in ways to attract consumers. (Engel, 1994).

Such structure of the coffee market is closer to perfect competition. Coffee producers are constantly challenged by other competitors over market shares. These situations suggest that competition among coffee producers in the fight over a considerably large market in Indonesia will be tighter.

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SECTION 5. Instant Coffee in Indonesia

Major Instant coffee brands distributed across Indonesia are usually non-mixed (conventional black coffee) and premixed types (containing coffee, sugar and creamer) Below are some of the popular coffee brands:

1. Kapal Api (PT Santos Jaya Abadi) 2. ABC (PT ABC President Enterprise) 3. Nescafe (PT Nestle Beverages Indonesia) 4. Torabika (PT Eka Torabika Universe) 5. Indocafe (PT Sari Incofood Corporation) 6. Ayam Merak Brand (PT Ayam Merak) 7. Naga Sanghie (PT Naga Sanghie)

Because of its widely distribution and heavy promotion strategy made some brands of instant coffee powders already successful and popular in Indonesia. However, some of coffee products experienced difficulties to obtain larger marketplaces. Such situation challenged producers to find out what are the determining factors of consumer preferences in choosing coffee brand/type.

SECTION 6. Problem Statement

With the development and consumption patterns of the present time, there has been shifted and changed in consumer behavior and buying habit. Price wise, despite their loyalty, largest portion of them are price sensitive, this means with their bargaining power towards many choice of coffee brands they may consider to switch to other brands according to their financial situation. (Sumarwan, 2004).

Such situation forces producers not only will need to find out new ways in marketing but also must oriented their efforts towards the interests of consumers by knowing the taste and needs of consumers, their purchasing decision, while introspectively knowing company’s own capacities and potentials.

SWOT analysis provides an opportunity for companies to find out what are constraints and factors that can provide opportunities for the implementation of corporate strategy both internally and externally. By using SWOT analysis problems discussed here can be formulated as:

1. What are the factors of strengths, weaknesses, opportunities and threats for instant coffee producers in Indonesia?

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2. What is the competitive strategy that should be applied by coffee producer in Indonesia in order to capture coffee market shares in Indonesia that is still largely open?

SECTION 7. Purpose of Study

The Purposes of study as below:

1. To discover the strength and weakness of Indonesian coffee products.

2. To discover the threat and opportunity for current instant coffee producers in Indonesia.

3. To formulate and suggest business strategies to coffee manufacturers in Indonesia to capture present and future market opportunities.

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Chapter II Literature Review

SECTION 1. Domestic Coffee Consumption

Sihombing (1997) found that coffees are quite popular in most households of Indonesia, both in cities and villages consume coffees on regular basis. Yet the level of coffee consumption in Indonesia is relatively low when it is being compared to the level of consumption in European countries.

The average level of household consumption of ground coffee consumption per month, in Cilacap district is 233.38 g/capital. The majority of consumers consumed instant coffee daily. Those majorities of consumers determines the brand before making a purchase, not all consumers only consume ground coffee, but also they want other variety of coffee as a refreshment drink (Hifni, 1995).

SECTION 2. Coffee in Indonesia

The coffee industry in Indonesia can be traced back to its colonial history, and has played an important part in the growth of the country’s economic development. Indonesia is located within an ideal geography for coffee plantations. The ideal locations of the country makes its island well suited for its geographical location and its favorable climates

further enhance the growth and production of coffee

(http://en.wikipedia.org/wiki/Coffee_in_Indonesia/).

In the early days, the prominent coffee productions under Dutch rule were Coffea arabica. The coffee was introduced to Indonesian archipelago via Ceylon (modern day Sri Lanka). The Dutch Colonial Government initially planted coffee around Batavia (Jakarta), and to the far south as Sukabumi and Bogor, in the 17th century. Coffee plantations were also established in East, Central and West Java and in parts of Sumatra and Sulawesi (larger islands in Indonesia) Coffee at this time was also grown in East Indonesia-East Timor and Flores (smaller islands). Both of these islands were originally under Portuguese control and the coffee was also Coffea arabica.

Nowadays, Indonesian coffee products mainly exported to more than 120 countries around the world. The largest market for Indonesian coffee in 2008 was Germany, absorbing 17.55% of total Indonesian coffee exports in 2008 with a value of US$ 174.0 million. It was followed by the United States, absorbing 17.51% with a value of US$ 173.5%. The third most popular country for Indonesia coffee import was Japan, absorbing 12.49% with a value of US$ 123.8 million. (Export News Indonesia, 2008).

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SECTION 3. Indonesia

Population wise and market wise, Indonesia is one of most highly populated country in the world, with a population of more than 240 million inhabitants (2010 census) occupying approximately more than 13,000 large and small islands in Indonesia.

Indonesia is a multi-ethnic country with many different languages and diverse cultures, with wider regional differences, fast changing political environment and economic circumstances. In addition, modern day internationalization in Indonesia also creating some similarities of coffee consumption among other countries, despite such similarities, there are still remains some unique features which makes Indonesia diverse in its coffee industry, the diversity signifying that its people are in eating habits of defying any neat categorization associated with Muslims faith, adhering them strictly to halal food rules (halal meaning allowed edible food for Muslim people).

SECTION 4. SWOT Analysis

SWOT analysis known as an internal analysis for market, business and management researches to improve market share, it stands for Strengths, Weaknesses, Opportunities and Threats. It’s involved with the gathering information in a sophisticated way both internal and external factors associated the business goals. SWOT analysis is especially important during strategic planning process of the organization, when it needs to decide the strategies of what it’s to be taken. After identified these factors, strategies are developed which are built on the strengths, to eliminate the weaknesses, and exploit the opportunities and counter the threats (Dyson, 2004).

SWOT analysis is a simple framework for generating strategic alternatives for situation analysis; it is applicable at either corporate level or at business unit level and it frequently appears in marketing plans. The SWOT analysis framework was described in late 1960's (Irwin, 1969) and later used by General Electric Growth Council in the 1980's.

It was concentrated on the issues that potentially have the most impact; the SWOT analysis is useful when a very limited amount of time is available to address a complex strategic situation.

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Table 2 SWOT framework

Strengths Core competence or competitive advantage to build its strategy upon.

Weaknesses What makes the company vulnerable and what efforts are made to prevent this from happening.

Opportunities What opportunities exist within its surroundings and can the company utilize these with its resources.

Threats What threats are in its surroundings that are dangerous for the existence of the company?

The aim of any SWOT analysis is to identify the key internal and external factors that are important for achieving the objectives. SWOT analysis specifies key pieces of information into two main categories:

1. Internal factors – The strengths and weaknesses internal to the organization.

2. External factors – The opportunities and threats presented by the external environment to the organization. The nature of company’s environment consist of internal environment and external environment, therefore, companies need to consider external and internal factors affecting their marketing circumstances.

Internal influence on company’s strength is not unilateral, but company as an individual and the groups of industries also has an impact on the external environment.

External environmental analysis is necessary to determine the factors that could influence the opportunities and threats of marketing their products. Internal environmental analysis is necessary to know the strengths and weaknesses of the company.

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organization's objectives. What may represent strengths to one objective may be weaknesses for another objective. The factors may include all of the 4Ps, as well as personnel, finance, manufacturing capabilities, and so on. The external factors may include macroeconomic matters, technological change, legislation, and socio-cultural changes, as well as changes in the marketplace or competitive position.

The strengths and weaknesses are determined by an internal appraisal of the organization and the opportunities and threats by an external appraisal. The internal appraisal examines all aspects of the organization covering; personnel, facilities, location, products and services, in order to identify the organization's strengths and weaknesses. The external appraisal scans the political, economic, social, technological and competitive environment with a view to identifying opportunities and threats.

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Analysis of the position of products or business unit assists the company in determining which products or business units should be developed, maintained, or abolished. Position of the product or business unit that has been achieved is influenced by the state of the marketing environment. Once companies know the condition of their marketing environment, both external and internal, competitive strategy could be drafted from both environments. The approaches of selecting an alternative marketing strategy that will be applied based on the systematic identification of strengths, weaknesses, opportunities and threats (SWOT) that are owned and faced by the company.

SWOT Analysis is necessary for the company in this industry to decide and define the future strategies is to analyze the present situation using SWOT Analysis that helps to show the present position of the commodity on the market (Baker, 1999) Furthermore, Johnson et al. (2008) note that a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis is a useful tool to generate strategic options and assess the future actions of a company.

SECTION 5. Business Strategy

Business strategy focuses on improving the competitive position of a company or within the specific industry or market segment that the company serves. Business strategy is extremely important because research shows that business unit effects have double the impact on overall company performance.

Business strategy can be competitive (battling against all competitors for advantage) and/or cooperative (working with one or more companies to gain advantage against other competitors). Just as corporate strategy asks what industries the company should be in, business strategy asks how the company or its units should compete or cooperate in each industry (Wheelen & Hunger, 2006).

SECTION 6. Marketing Mix

Marketing mix in marketing is a set of implementation tools that used by the company to reach the target in the market. Instant coffee brands can show his existence by maximizing their own 4P marketing mix element (Product, Price, Place, and Promotion).

The products (1st P) variation preferred by the consumers shall have a more affordable price (2nd P) that covered by all the segment levels, the availability that shall be well distributed at almost all market places (3rd P), as well the educative and creative promotion (4th P) that could attract the consumers to gain market share.

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SECTION 7. Consumer Behavior

Consumer behavior is the study of how and why people consume products and services. All behavior can broadly be attributed to three classic influences—the particular characteristics of the individual, the environment that surrounds the individual, and the inherited genetics that constitutes the biological makeup of the individual. The characteristics of the individual consisting of; their personality, perceptions, attitudes, needs, and individual motivation. The environment of the individual consists of the culture, subculture, family, friends, and institutions that the individual lives in. (Chaudhuri, 2005).

Consumer decision-making process cannot be self-occurred, but rather influenced by several other factors. According to Kotler (1991) that these factors are:

1. Consumer Culture

Culture is a symbol that represents the attitudes, opinions, beliefs, values and complex facts created by people from generation to generation with desires and behavioral determinants. Culture is a character that is most important from social status that set it apart (Kotler, 1991).

2. Social Class

Social class is a group of people who are equally considered closely together on the status or communities that are continue to socialize among them both formally and informally. This is in accordance with Kotler (2005) who stated that social class division of the society is relatively homogeneous and permanent, arranged in a hierarchical manner, where members held values, interests, and similar behavior. Social class does not only reflect the income, but also other indicators such as employment, education, and shelter.

3. Individual Characteristics

Individual decision of buying is influenced by personal characteristics by the unique requirements of each individual, which includes age characteristic and life cycle stage, occupation, economic circumstances, lifestyle, and personality and the concept of self- purchasers.

In relation of lifestyle and marketing, Nescafe uses emotional appeals in the German and Argentine; it uses both emotional appeals and rational appeals in the U.S. market. For the emotional appeals, Nescafe tries to get knowledge about behavior of coffee drinkers.

However, the specific appeals were different in the German advertisement where the ads were geared to the appealing of a personal need for a break from his/her busy life, the ads

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in Argentine is focused on starting the day on a positive note with the help of a tasty coffee.

The emotional appeals are similar in that Nescafe wants to be a part of their consumer daily life.

SECTION 8. Consumer Involvement

Consumer Involvement is an involvement of consumers with an understanding from the experiences of an activity related to consumption. Involvement of adoption of high yield strength level by consumers and the power is directed towards activities consumption.

A consumer with high involvement is usually feels more powerful. Low involvement occurs when consumers invest a little strength into thoughts or feelings (Wilkie, 1990)

High involvement usually occurs in typical purchase when the product characteristics such as its expensiveness, raises serious personal consequences or reflect social image. To this extend, the consumer through the stages of searching for information, consider the many attributes of product’s brands, shapes attitudes and promotion (Berkowitz et al., 1969).

SECTION 9. Previous Research

Younger consumers are more likely to consume coffee in compare to older consumers.

Increasingly the ratio of household members who consumed coffee on total household are as a result of environmental influence which encourages consumers to purchase coffee (Cranfield, 2010).

Varun (2008) found similar pattern between coffee and tea consumption in Karnataka.

While they are both in high position of export, local domestic tea consumption is still relatively lower in compare to Japan Similar with coffee, tea consumption suffers small growth rate.

Hamer (2006) found out that people are suspicious about the negative effects of coffee. So it is surprising that latest researches indicates that consumers are consuming 2-4 cup of coffee daily and shows a good benefits for health, such as reducing risk of intestine cancer to 25% (decreasing risk of kidney stone occurrence, reducing risk of liver cirrhosis and lessening risk Parkinson’s disease, in compare with those who do not consume coffee at all).

Hu (2007) discovered that coffee is no longer an unknown beverage for many Chinese consumers. On the other hand, actual coffee consumption may still be low for most Chinese consumers, especially for those in remote or largely rural areas. Thus, it will be

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more descriptive to study consumers in an urban environment.

Veedhi (2008) found efforts of coffee marketers in promoting the beverage as a lifestyle drink via cafes and vending machines has added more visibility to the beverage.

This visibility, in essence, is the business opportunity and help in targeting areas for future growth.

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Chapter III Methodology

This study makes use of an exploratory descriptive research design with SWOT (Strength, Weakness, Opportunity, Threats) analysis. The aim is to get an overview and understanding of the coffee industry in Indonesia.

The methods being used are secondary data analysis carried out by means of literature studies, books, journals and secondary data collection of magazine articles, newspapers and the internet. The data was obtained from various related official sources such as the Central Bureau of Statistics, Ministry of Industry and Commerce, and other references relating to research problems.

The word SWOT comes from the initial letter of the words: Strength; Weaknesses;

Opportunities; and Threats. SWOT analysis is an assessment the strength and weaknesses of internal and external company conditions. This takes place in the form of the opportunities and the threats, which are expected to provide information on whether the company's overall situation is in good health or not. This analysis is considered a simple but effective tool for measuring the capabilities and deficiencies of a product, opportunities that exist in the market, as well as external threats to the welfare of a future company (Thompson et al., 2005). SWOT Analysis becomes a necessity for a company to use when deciding and defining a future strategy.

For the purpose of this study, SWOT Analysis of three Indonesian coffee producers were combined. These three companies were chosen based on their production capacity which is divided into a three level scale (small, medium and large) and it is expected to represent a complete spectrum of coffee industry in Indonesia.

First stage:

The three respective companies were analyzed by means of a separate SWOT Analysis. These companies were each assessed and analyzed by using Internal Factor Evaluations (IFE) and External Factors Evaluations (EFE). In the SWOT case, IFE is used to identify the company’s strength and weakness and EFE is used to identify the opportunities and threats. After these factors had been determined, they were then analyzed by using SWOT Matrix to get an individual company’s SWOT analysis.

Second stage:

The three company’s SWOT analysis was then compiled to get a more general list of SWOT. After the desired list was obtained, it was analyzed again by using the entire

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conducted in the first stage. The SWOT industrial analysis was further enhanced with descriptive research and data from secondary sources such as previous research, journals, news and other sources. After the analysis, the final Industrial SWOT Analysis is provided on chapter 4 (Result and Discussions).

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Chapter IV Results and Discussion

SECTION 1. Results

The result of SWOT analysis from three Indonesian coffee companies divided into three levels of categories. Those three categories based on yearly production capacity.

Small size for less than 500 tons/year, medium size for 500 – 5000 tons/year and large size for more than 5000 tons a year respectively.

1. Naga Sanghie by PT Naga Sanghie - small size coffee company 2. Ayam Merak by PT Ayam Merak - medium size coffee company 3. Kopi Kapal Api by PT Santos Jaya Abadi - large size coffee company

With these assumptions, the three companies are selling their products in more than 5 large major provinces, including the capital city of Indonesia. The SWOT analysis will give an overview of the opportunities and threats imposed by coffee companies in Indonesia. This analysis also illustrates the strengths and weaknesses of the companies.

Therefore, they can strategize and further maximize the coffee consumption among the local consumers and in order to get more consumers.

Each company analyzed separately with their own SWOT analysis. After each SWOT analysis were obtained, the analysis then combined as the whole coffee industries SWOT analysis for coffee industry in Indonesia, with references from secondary sources such as previous researches, news and statistics as addition. The final result is the entire coffee industry SWOT analysis in compared with first individual company SWOT analysis.

SECTION 2. Individual Company SWOT

SWOT of Small Sized Company (Naga Sanghie)

Table 3 Naga Sanghie company profile

Category Small Sized Coffee Company (Capacity > 500 Ton / Year)

Company Name PT Naga Sanghie

Product Name Kopi Naga Sanghie

Production Capacity/Ton/Year 375 Ton / Year

Location North Sumatra

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Table 4 Naga Sangie SWOT list Kopi Naga Sanghie SWOT

Strength 1. Only focused on coffee production 2. Low price

3. Well established in it is own local market

4. Although small but has good and loyal distributors and sellers Weakness 1. Small variety of products

2. Prices seems too low raises concern about low quality image 3. Low brand recognition to mainstream market consumers 4. Small marketing distribution budget

Opportunity 1. Loyal customer base

2. Market expansion opportunities SWOT of Medium Sized Company (Ayam Merak)

Table 5 Ayam Merak company profile

Category Medium Sized Coffee Company (Capacity 500-5000

Ton/Year)

Company Name PT Ayam Merak

Product Name Ayam Merak, Dua Ayam, Jempol

Production Capacity/Ton/Year 4800 Ton / Year

Location North Jakarta

Table 6 Ayam Merak SWOT list Ayam Merak SWOT

Strength 1. Advanced manufacturing technology 2. Competitively lower price

3. Gift coupons inside package

4. Well established distribution channels Weakness 1. Not full production capacity usage

2. Prices not differentiated on several market area

3. Using less effective media (Sales Promotion Girl or Billboard) rather than more effective promotion media (such as TV or radio) 4. Less intensive distribution outside Java Area

Opportunity 1. Large retail market development

2. Potentials for market expansion outside Java Threat 1. Coffee image still viewed as unhealthy

2. Strict competition from above (larger companies) and from bottom (smaller companies) as for medium sized company

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SWOT of Large Sized Coffee Company (Kapal Api)

Table 7 Kapal Api company profile

Category Large Sized Company (Capacity > 5000 Ton /Year)

Company Name PT Santos Jaya Abadi

Product Name Kopi Kapal Api, ABC, Exelso, Bintang Production Capacity/Ton/Year 11.640 Ton / Year

Location East Java

Table 8 Kapal Api SWOT list Kapal Api SWOT

Strength 1. Largest production facility in Indonesia 2. Affordable price for target consumers 3. Powerful image for taste and flavor 4. Wide distribution channels

Weakness 1. Company expansion seems too wide (also manages hotels and machinery companies) besides coffee

2. Price seems high for lower income consumers

3. Too focus on television and radio promotion and not tried other media such as newspaper or magazine 4. Distribution still not reach smaller area outside Java Opportunity 1. Good brand awareness therefore easy to introduce other

new variant of products

2. Wide range of consumer segment base

Threat 1. More newer competitors

2. Their main advantages (taste and flavor) are easy to be duplicated by other companies using technology

SECTION 3. Whole Company SWOT Analysis

In this matrix, the similar or identical weaknesses and strengths and the factors identified as similar opportunities and threats were placed in a matrix based on 4P (Product, Price, Promotion, Place) and Internal/External Factor order. Then, by combining all those weaknesses, strengths, opportunities and threats which has similarities, new strategies were invented. The SWOT matrix below is shown for all three companies above as whole coffee industry SWOT analysis.

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Table 9 Whole company general SWOT table

Strengths: Weaknesses:

1. Product: Good production process and output

2. Price: Prices are well adjusted to fit with target consumers

3. Promotion: Wide diverse of promotion way (using all media)

4. Place: Good distribution channels

1. Product: Not optimally using their actual production capacity and has many focuses

2. Price: Prices need several readjustments 3. Promotion: advertising media usage not

balanced

4. Place: Need to be more distributed across the country

Opportunities: Threats:

1. Internal Opportunity: Indonesian has large potential market for coffee and future growth of retail sectors

2. External Opportunity: Might be also considered export if domestic market unable to fully absorb

1. Internal Threat: With technological advancement, make easy to duplicate taste and flavor

2. External Threat: Stream of news and information about health side effects of coffee

SECTION 4. Strengths and Weaknesses Analysis

Table 9 shows the combination of strengths, weaknesses, opportunities and threats owned by those coffee companies as a whole coffee industry. All companies already have good production facility. Especially for Kapal Api, they have largest coffee processing machine in Indonesia with 5 tones/hour output capacity.

All company makes diversified products, with Kapal Api as the most diversified followed by Ayam Merak and Naga Sanghie respectively. All those three companies covered almost entire market segments. Especially Ayam Merak which still using relatively same brand and design since established in 1965. Kapal Api is using various packaging (sachets, tin and box) and Ayam Merak only uses can and box. None of them produced ready to drink coffee (such as canned coffee) All companies are still using conventional approach regarding taste and flavor, which is only “black coffee” or

“brown/coffee with creamer” and no “vanilla coffee” or “white coffee” or “fruit taste coffee” variation which are easily found in Asian countries.

All companies also already using several stages of advanced production facilities, which enabled them to produce more precise and cleaner coffee, outputs such as in research and development department or packaging line. However all companies found that their raw material supplies are varies in quality. Nevertheless, most companies managed to put a more strict supervision to select the materials themselves after get

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supplied (Hanum, 2000).

For pricing, all companies put their prices depending on their target segment. For example Kapal Api with its premium brand Excelso, puts higher price because it’s higher quality than regular products and also expensive packaging besides it’s intended for upper level segment. In contrast, a product from Naga Sanghie priced lower even in comparison with several type of coffee in same class, it raises concern upon consumers that perhaps the quality is also low or compromised.

Promotional strategy of the company conducted in the form of the gift items on the product purchasing. Such promotion usually used by small company (such as Naga Sanghie) to reach their lower income consumers who easily attracted by direct bonuses or gift coupons given upon purchase. Promotion is also done through various media such as banners, leaflets, printed media, radio and television, although for the last types of media is very rare in frequencies because high amount of advertising budget needed.

All three companies are using both direct and indirect distribution channels for their products and give various amounts of incentives for seller or dealerships, depending on the size and financial ability of company, to stimulate selling and maintain good relationships.

For outside Java, the distribution is relatively not aggressive. For some smaller islands which were considerably populated, there are no distributions for their products at all. For example Naga Sanghie is not available in any area in eastern part of Indonesia such as Papua, although Naga Sanghie has a relatively good market in their market area (North Sumatra).

Ayam Merak also was not reached eastern part of Indonesia and rarely discovered in Sumatra (western part of Indonesia, where Naga Sanghie main market is placed) and seems solely concentrated on their own market area (Java). Only Kapal Api has a considerably good and balanced market penetration across the country although it still not optimally reached smaller islands. In fact, many smaller islands in Indonesia still do not know what is Kapal Api brand, although nationally it’s acknowledged as Indonesia’s number one coffee brand.

A good relationship with suppliers, distribution channels and retailers should be maintained in order to keep a stable selling. Growing retailers such as department stores and specialty shops in different areas are also considered as an opportunity for the company to expand its marketing.

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SECTION 5. Opportunity and Threat Analysis

The analysis of the external environment shows some opportunities as well as threat for the marketing of products. Indonesia as one of the most populated countries in the world with more than 240 million people and with only less than 25% of total coffee output absorbed by its own people is considerably being largest potential coffee market in Southeast Asia. And because the success of Family Planning Program conducted by government, Indonesia will likely have more elderly people in the future which are considered demographically as loyal coffee consumers. All supported by relatively conducive law and political situation that considered healthy for future retail business needed for distribution channels.

Despite the huge potentials of Indonesian market that has not reached yet, it still good to consider exporting instant coffee (not to be confused by coffee bean which is already as an Indonesian export commodity) to several countries. To expand or to find new market to absorb their coffee output. From those three brands, while still embracing good market position in Indonesia, Kapal Api has been exported to several countries (Europe and Asia include Taiwan).

With the advance of new technology, it is not impossible for newer company to duplicate the coffee taste and flavor. Some consumer said in certain point, they found that there is no significance difference between few brand they have been tested while there are some price differences (Sumarwan, 2004) that perhaps should considered, regarding coffee is beverage business that has its main advantage in taste and flavor.

Coffee products positioned as a drink that consumed for the whole group is an opportunity for companies to make products variety according to the target customer segment. In this wide diversity of consumers, however, it may be found some negative view from traditionally uninformed people about the harmful effects of coffee and it should be handled seriously. Such problem categorized as of threat for companies, hopefully with corrective information, such threat will overturned become a new opportunity.

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Chapter V Conclusions and Recommendations

SECTION 1. Conclusions

Indonesian Coffee market has a large potential market share both domestic and internationally, they have being opportunities for product development and business expansion. The study further reveals that there is an increasing population growth in Indonesia as a result of which must people will be consuming coffee on routine basis, majority of which will be adults and the aging population.

Analysis has shown that, the growing trend of coffee preparation will shift from the conventional methods of coffee preparation to an advance system of ready to made coffee packed in sachets for consumptions; this will give rise for growth within the retail industry.

However, despite the business growth and product development within the industry, there will be some higher considerable barriers and threats, which will hinder the coffee industry of Indonesia.

Factors considerable as threats of achieving the market objectives are: tendency of high inflation, negative perception about the effects of coffee consumption, high level of competition among producers. However, from the above mentioned threats, price discrepancy will not affect the loyal, there will be minimal consequences of losing loyal customers or them switching to other competitors.

In addition based on the average company’s own strengths, they are using advanced technology system for coffee processing with strict quality control and measures on final processing, already coffee companies had good and established distribution system in the market, the price of their products are quite reasonable compare to competitors in the market.

Factors affecting the coffee market and industry, which could be term as weakness, are based lacks of product research, lacks of product knowledge, and lacks of product innovation. However, Indonesia coffee industry has some tremendous development mostly taking places in medium and small coffee companies. Companies are not making higher spending on purchasing of materials in bulk quantities, which are, highly unpredictable in terms of quality; they are also hesitated to spend on marketing and promotion of the products.

Strategies that can be developed from the SWOT analysis are to expand the distribution of coffee to smaller cities outlets. To diversify the products in order to get new

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market share such as coffee for younger people and women, packaging more practical and more varieties of different form, sizes and quantity and as well give more incentives and rebates for small shops or retailers.

While laying strategies for overcoming these threats, they should still maintain competitive pricing system by building more awareness program and information sharing about the importance of coffee consumption, together with stricter quality controls on the coffee material suppliers and coffee related products.

To handle the weakness, company should spend more funds for product research and development. The study shows that the spending on key fundament areas such as product research but less on development. As a result, it is necessary for special budget allocation.

They needs to be more selective and consider to switch raw coffee suppliers if inconsistency of raw coffee and to increase their advertising to broader media to make more attractive promotions for wider target market.

SECTION 2. Recommendations

From the results on previous chapter, there are several recommendations for coffee companies to attract new market segments while maintain their already existing customers such achievement which will enhance them to complete the tough situation of coffee market in Indonesia; below are recommendations which they need to adhere in achieving their business goals:

1. Companies should consider introducing additional product features such as variation in tastes (by adding new variety of taste, such as vanilla, coffee with tea mix etc), formulas (consider more health aware formula such as decaffeinated coffee or less sugar), sizes (besides usual small sachet, it should be considered to sell family packages of 30 sachets in one pack that is suitable for small family uses), large quantity of package (1 kg or more with sugar), and packaging design (wider range of packaging design, such as attractive style for younger target), and consider to make coffee bag (similar with already popular tea bag).

2. Companies should considerably adjust their product pricing toward the consumers.

Before they conduct such adjustment, they should consider finding a perfect price point, which is more suitable for the purchasing power of their consumers. They need to differentiate low spending customers who look for the affordable coffee available whilst higher spending consumers have more optional choice of coffee quality and quantity in which they will be willing to buy at the prescribe price and such adjustment should

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depend on each company target consumer.

3. Companies should conduct a more aggressive advertising and promotional campaigns especially to advertise in media that effectively influences consumer interest (such as televisions or local/community newspapers), Television has long being considered as one of the most effective promotional media. And consider moving from the less effective promotional strategies (such as using Sales Promotion Girls or leaflets).

Market expansion to smaller areas such as targeting new market, they need to consider the use public figures who are famous (such as local actresses or television star, even religion leader) as brand ambassador so that they can be made visible example in using product, information and promotion simultaneously and efficiently towards new potential consumers that having less information about products.

4. Difficulties in each region or new market for accepting the instant coffee product might become an opportunity for the company, for market share in the region-specific areas.

Rather than focus to standard taste of coffee, producers should consider to make a new variety of “local taste” based on region, demographics and local preferences (such as middle eastern specific aroma or “Halal” (religious edible) emphasizing for large Islamic populated areas, lower priced, high caffeine packs for low-income workers populated area) in certain unexplored market such as islands outside Java.

5. Companies should expand their distribution network to cover areas outside Java (is the most populated and developed island in Indonesia), to smaller islands for embracing higher percentage of potential coffee consumers. There are distribution imbalances among coffee companies. Some island in outside Java (main market and most populated) are still not reached. Probably because companies are too concentrated in their own marketplace. Considering the facts that Indonesia is a large archipelago country which has more than 13.000 islands, it’s necessary to prepare reliable distribution channel for delivery by sea transports as additional way of distribution in complementary with conventional air and land transports.

6. Prepare a counter-information about unhealthy side effects of coffee. Because with recent vast streams of information, consumers seems have easy access to information about coffee and its health effects and unfortunately for coffee producers, there still do not have adequate information about coffee criticism or emphasizes about coffee about negative perceptions. There is very few supporting information about the potential health benefits of coffee. As examples, there is bias in consumers in India towards

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products containing caffeine, a substance that has gained a negative image amongst many health-conscious consumers. In other countries, coffee companies add scientific information on their advertisement. This information will be used to several target segments, particularly for teenagers, females and elderly people. They provide these information in a form of advertising, formal publications or seminars.

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