The U.S. Coffee Market: A Competitive Profile

This paper follows the path of nine studies of U.S. consumer markets: Men’s Shaving Gel, Beer, Shampoo, Shredded/Grated Cheese, Refrigerated Orange Juice, Men’s Razor-Blades, Women’s Razor-Blades, Toothpaste, and Canned Soup. Porter associates high market share with cost leadership strategy which is based on the idea of competing on a price that is lower than that of the competition. However, customer-perceived quality—not low cost—should be the underpinning of competitive strategy, because it is far more vital to long-term competitive position and profitability than any other factor. So, a superior alternative is to offer better quality vs. the competition. In most consumer markets a business seeking market share leadership should try to serve the middle class by competing in the mid-price segment; and offering quality better than that of the competition: at a price somewhat higher, to signify an image of quality, and to ensure that the strategy is both profitable and sustainable in the long run. results did not support our hypothesis that the market leader would be a member of the mid-price segment. Instead, the results show that both the market leader, the Folgers flagship brand—and the runner-up Maxwell House—were members of the economy segment, although Folgers’ unit price was higher than that of Maxwell House, as we have hypothesized. This implies that both Folgers and Maxwell House were following the cost leadership strategy based on lower price than better quality, and treated coffee as a commodity to gain market share. This is truly a stunning result! In all similar nine studies preceding this one, not a single market leader—or runner-up—competed in the economy segment! The spectacular success of Starbucks demonstrated in no uncertain terms that the consumers were no longer content to treat coffee as a run-of-the mill drink—but rather something special—that deserved to be relished, and for which they were willing to pay a premium price. Finally, we discovered five strategic groups in the industry.


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Published by SCHOLINK INC. included Persia (Iran), Egypt, Turkey, and North Africa. As a result, coffee became a lucrative commodity for trade (ibid, p. 6).
Throughout the sixteenth century coffee's popularity grew in these countries. Nevertheless, it also acquired a bad reputation as a trouble-making social drink. So, the governor of Mecca ruled that coffee, like wine, must be outlawed (ibid, p. 6).
Yet, coffee drinking persisted in Arabia despite government persecution faced by the early Arab societies. It is interesting to know that coffee was such an ingrained part of Saudi Arabian society that failure by a husband to provide coffee to his wife could be a ground for divorce (Rotondi, 2020)! So, what explains this paradox? One reason: the addictive nature of caffeine. The other is that coffee provided "an intellectual stimulant: a pleasant way to feel increased energy without any apparent ill effects" (Pendergrast,p. 7,italics added).
Ottoman Turks conquered Yemen in 1536. Soon coffee beans became an important export all across the Turkish Empire. The coffee beans were exported from the Yemeni port of Mocha. Thus, the coffee from that region began to be known as Mocha (ibid, p. 7). India, Sri Lanka, Indonesia, Caribbean, and Brazil Since the coffee trade had become quite profitable, the Turks jealously guarded their monopoly over the coffee tree cultivation in Yemen by imposing strict restrictions on exporting fertile berries. However, sometimes during the 1600s, a pilgrim managed to smuggle seven seeds out by taping them to his stomach, and was able to successfully cultivate them in the mountains of Mysore in Southern India (ibid, p. 7).

Coffee Cultivation Spreads to
In 1658 the Dutch began growing coffee in Ceylon-Sri Lanka. In 1699 another Dutchman transplanted trees from Malabar, India to Java, Indonesia (ibid, p. 7).
In 1714 the Dutch gave a healthy coffee plant to the French government. A French naval officer Gabriel Mathieu de Clieu carried and nurtured this plant all the way from Paris to the French colony of Martinique in the Caribbean. Today much of the world's current supply of coffee probably derives from this pedigree (Pendergrast,.
In 1727 a Portuguese Brazilian officer, Francisco de Melho Palheta, was able to smuggle ripe coffee berries from French Guiana and was able to plant them successfully in his home territory of Para in Northern Brazil, from which coffee cultivation gradually spread southward to the rest of Brazil (ibid, p.

16).
During the 1700s Java and Mocha became the most famous and desired coffees. However, Mocha ceased operation as a viable port in 1869 with the opening of the Suez Canal. Also, very little high quality coffee now comes from Java because most of its coffee is the inferior Robusta (ibid, p. 8, p. 144 Published by SCHOLINK INC. Adams wrote: "Tea must be universally renounced" (Pendergrast,p. 15,italics added). At that time American taverns served coffee alongside liquor. Daniel Webster nicknamed the Green Dragon Tavern in Boston as the "Headquarters of the Revolution" for hosting many meetings that led up to and during the Revolutionary War (Rotondi).
In New York Merchant's Coffee House was known for its gatherings of patriots who were determined to make America independent from the rule of King George III. In the 1780s, it became the place where merchants got together to create both Bank of New York, and to reorganize the New York Chamber of Commerce (Rotondi).

The Industrial Revolution and Coffee
The growing popularity of coffee "complemented and sustained" the Industrial Revolution which started in Great Britain during the 1700s, and spread to the rest of Europe and North America in the early 1800s. With the emergence of textile and iron mills, workers migrated to the cities where they lived in appalling conditions, and earned very low wages. The European lace makers in the early nineteenth century lived almost entirely on coffee and bread. Since coffee was stimulating and warm, it created an illusion of nutrition. The drink of the affluent had become the "necessary drug of the masses, and morning coffee replaced the beer soup for breakfast" (Pendergrast,italics added).

Sugar, Coffee and Slavery
By 1750 the coffee tree was growing on five continents. For low-income families coffee offered a pick-me-up and a moment of respite, although it did not offer much nutrition. More importantly, it contributed noticeably to the sobering of an "alcohol-soaked Europe". Furthermore, the coffeehouses became hotbeds of an egalitarian culture that provided a stimulating cultural environment. Wherever it has been introduced it has "spelled revolution;" it has been the world's most radical drink; and time and again, it has displayed the prowess to make people think (ibid, p. 17).
Nevertheless, the cultivation of coffee also had a dark side, as we have discussed below.
For thousands of years sugarcane was a heavy and unwieldy crop that was very labor-intensive. Over the four centuries following the arrival of Columbus in the New World, innumerable lives were ruined and around 11 million Africans were enslaved (Datta, 2020a).
The introduction of coffee to their colonies by the Europeans called for arduous labor to grow, harvest, and process it. So, when the French colonists first began to grow coffee plants in San Domingo (Haiti) in 1734, they, too-following the earlier example of sugar plantations-turned to African slaves to work on their coffee farms (Pendergrast,p. 17).
By 1788, San Domingo (Haiti) supplied half of the world's coffee. Thus, the coffee that "fueled Voltaire and Diderot", as we have pointed out before, was produced by the "most inhuman form of

Coffee in Brazil
During the latter half of the 19 th century coffee cultivation in the Caribbean was declining. It was Brazil which then became the predominant producer of coffee during this period. Brazil did not just respond to the world demand for coffee, but "helped create it by producing enough coffee cheaply enough to make it affordable for members of North America's and Europe's working class" (p. 21; italics added).
Brazil has become so closely associated with coffee that many erroneously believe that the plant is a native of this country. Brazil offers a notable example of the rewards and risks of relying heavily on a single product. Coffee made modern Brazil, but at a tremendous human and environmental cost (ibid, italics added, p. 22).
Brazil is the world's fifth largest country covering over three million square miles. The Portuguese, who discovered, conquered, and exploited Brazil first thought of it as a paradise. Unfortunately, they went on a spree to destroy the very same paradise (ibid, p. 22).
During the seventeenth and eighteenth centuries African slaves worked in unbelievably harsh conditions on the huge sugar plantations, called fazendos, owned by the wealthy elite. The sugar barons found it cheaper to import new slaves than to take care of the health of their existing ones.
Consequently, the slaves had a very short life span, and, on average, a slave died after just seven years! So, it was not surprising that the rich owners of the large coffee plantations in Brazil, too, followed the same cruel and inhuman path (ibid, p. 22).

How Brazil Grew Coffee: Quantity over Quality
The agricultural methods Brazilians used to grow and harvest coffee required minimum effort and emphasized quantity over quality. This is the approach that remains mostly unchanged even to this day (ibid, p. 25).
As mentioned earlier, ripe coffee berries were smuggled by Melho Palheta into Para in Northern Brazil in 1727. However, the mountainous Paraiba valley region south of Rio de Janeiro has a moderate climate. Therefore, that region was particularly appropriate for growing coffee. Moreover, the well-drained-and nutrient-rich-red clay soil found in this area turned out to be perfect for coffee trees (Morris,p. 101).
The large coffee growers used cultivation techniques that were crude, counter-productive, and harmful to the environment. That included cutting and burning hillside forests that created a temporary layer of fertilized ash above the virgin soil into which the coffee seeds were planted. Since the protective forest cover had been destroyed, the soil offered no shade to the coffee trees which grew in the blazing sun.
As a result, nutrition was sucked out of the depleting humus layer. Also planting of rows of trees up and down the hills increased erosion. Furthermore, not much fertilizer was added to the soil: all of which then led to widely fluctuating harvests (Pendergrast,p. 25,Morris,.
Coffee trees take a rest following a heavy bearing season, but the conditions in Brazil made the phenomenon even worse. So, when the land got "tired", the Brazilians simply abandoned it, and went www.scholink.org/ojs/index.php/jepf Journal of Economics and Public Finance Vol. 6, No. 3, 2020 146 Published by SCHOLINK INC.
on to clear new land to replace it. The long-term implication of this practice was that the tropical rain forests of Brazil once destroyed would take "centuries to regenerate" (Pendergrast,p. 25,italics added).
So, as coffee cultivation grew in Rio, so did the slave imports. By 1828 a million slaves-nearly a third of the country's population-were toiling in the coffee fields of Brazil. But, by this time, the British had outlawed the slave trade. So, in order to appease them, Brazil made import of slaves illegal in 1831, but never really enforced the law (ibid, p. 23).
Finally, it is important to point out that Brazil practiced slavery longer than any other country in the Western hemisphere (ibid, p. 24).
At that time there was only one type of coffee: Arabica. This is the kind that grows best between 3,000-6,000 feet above sea level. The coffee beans planted on higher altitudes grow slowly and, therefore are generally more dense and flavorful than those grown at lower altitudes. Unfortunately for Brazil, 95% of the country is below 3,000 ft. So, Brazilian coffee beans have always tended to lack acidity and body. Furthermore, periodically, Brazil suffers from frosts and droughts which have increased in frequency and intensity, because the protective forest cover has been destroyed (ibid, p.

26).
The traditional method of removing coffee beans is known as the dry method which is still popular in Brazil. However, this method has often produced poor results. Since ripe and unripe cherries were stripped together, this process compromised the coffee's taste from the very beginning (ibid, p. 27).

Brazil: From Slaves to Colonos
Toward the latter part of the nineteenth century, the Rio coffee lands were dying due to the environmentally destructive form of coffee cultivation pursued for a long time on the huge fazendos.
Consequently, the main coffee-planting region moved south and west to the plateaus of São Paulo. The new coffee owners, the Paulistas of Sã o Paulo, thought of themselves progressive modern businessmen: as compared to the "old-fashioned baronial lords of Rio coffee" (ibid, p. 27).
After slave importation was banned in 1850, the Paulistas decided to import immigrants from Europe.
They paid for their transportation, gave them a house to live in, assigned them a specific number of coffee trees to take care of, to harvest, and to process. They were also given a piece of land to raise their own food (ibid, p. 28).
But there was a catch to this seeming generosity. The catch was that the sharecroppers had to pay off their transportation cost, along with other advances, which took years to pay back. Because it was illegal for immigrants to move away from the plantation, this amounted to debt peonage: a different form of slavery. So, it was not a surprise that the Swiss and German workers revolted in 1856 (ibid, p.

28).
Finally, the Paulista farmers were able acquire enough political clout in 1884, when they were able to persuade the Brazilian government to pay for the immigrants' transportation expenses so that they would be free from a big debt burden when they arrived in Brazil (ibid, p. 28). While some colonos managed to acquire their own land, many others earned just enough to be able to return to their homeland: embittered and disheartened (ibid, p. 28).

Coffee in Guatemala
Guatemala, slightly smaller than Tennessee, is sandwiched in Central America between Mexico and Belize to the north, and Honduras and El Salvador to the south. It is known as "the Land of the Eternal Spring". However, Guatemala is prone to earthquakes, not to mention a large number of lava-spewing volcanoes (ibid, p. 30).
Coffee farms proved disastrous for the indigenous population in Guatemala, while making the new coffee oligarchy rich. Whereas coffee is central to the continued suppression of Maya Indians in Guatemala, it is associated with a much more benign political system in neighboring Costa Rica: democracy (ibid, p. 29, xvii).
The Mayans did not have much sense of private property, and preferred to share their agricultural land with one another. The Guatemalan government began to confiscate the common land owned by the indigenous villages, thus forcing Indians to become sharecroppers, or "debt peons". Many Indian children were forcibly taken from their parents and assigned to "Protectors" who usually treated them as indentured servants. As a result of this persecution, the Mayans retreated higher into mountains and the altiplano-the high plateau-the land that is not quite desirable (ibid, p. 30).
The site of volcanoes, especially on the Pacific side, was found to be quite suited for growing coffee: particularly the steeply-sloped hillsides-land previously considered useless. But, there was one hitch: this land was occupied by the Indians. So, yielding to the political power of the coffee growers, the government did two things. First, it took over this land from the Indians. Second, it forced the displaced Indians to work on that land to assure the growers a cheap, dependable supply of labor (ibid, p. 31).
The amount of coffee exported from Guatemala shot up over 6.7 times between 1895 to 1909.
Nevertheless, this was realized on the back-breaking labor of the indigenous population (ibid, p. 32).

Germans in Guatemala
In 1877 the Guatemalan government passed laws inviting foreigners to invest in its development projects, and to buy land for coffee farms, by offering them significant tax breaks for many years.
During the last two decades of the 1800s many enterprising Germans rushed to Guatemala. During this time the Germans provided private capital to build a railroad to the sea. Thus began a trend in which the Germans brought capital and technology to modernize the coffee industry of Guatemala (ibid, p.

34).
But it did not bother the Germans that the Mayan Indians were treated virtually as slaves. One reason is their contempt for the Mayans, who, unfortunately, belonged to a race of people that was short.
According to one German, the "Indians… are small, dumpy figures who occupy the lowest rung on the plantation…and eke out an existence on one mark a day". The Germans employed the cruel "debt peonage" system because they believed that the "only way to make an Indian work is to advance them money, then he can be forced to work" (ibid, p. 35, italics added).
It is important to point out that while the Mayans were short in height, yet they were tall in stature.
What they have contributed to our civilization is nothing less than monumental. Between 250-900 AD, they developed an advanced writing system. They were also gifted mathematicians who independently developed the concept of zero. Also Mayan astronomers deduced that a solar year was slightly more than 365 days (Note 3).
In Guatemala women and children were employed on the coffee farms to do the tedious work of sorting beans, because they have traditionally been paid even less than men. Moreover, they were also forced to work long hours along with men (ibid, p. 37).

Superiority of Guatemalan Coffee over Brazilian
In Central America coffee has traditionally been under shade trees to protect the coffee plants from the sun. Unlike Brazil, coffee beans were harvested by the "wet" method. According to most experts, this method leads to superior beans with fewer defects, producing a drink with "bright acidity, and full clean flavor". But, this system is more labor-intensive, requires more sophisticated machinery and infrastructure, and also a lot of water (ibid, p. 36).
During the late nineteenth century importers of coffee recognized two types: Brazils and milds. The Brazilian coffee gained a reputation for lower quality-often, but not always, deserved. Countries like Guatemala carefully processed Arabica coffees that were known as milds. As mentioned earlier, while Brazilian laborers stripped ripe and unripe cherries together, Guatemalan harvesters picked only ripe berries (ibid, p. 36).

Coffee in Indonesia
Java and Sumatra in Indonesia, like many other coffee producing regions, are blessed with amazing natural beauty. Unfortunately, this picture of beauty is in stark contrast to the harsh reality that reflects the "contempt and want of consideration with which the natives are treated". The Dutch, who ruled Indonesia, paid wages to the natives that barely exceeded a level of subsistence (ibid, pp. 41-42).

Early American Coffee Industry
During colonial times the American demand for coffee was slow to develop. High alcohol consumption was quite widespread. Many colonists regarded tea and coffee as poor substitutes for strong alcoholic drinks. However, during the first half of the 1800s, per-capita coffee consumption went up from three pounds in 1830 to eight pounds in 1859 (ibid, p. 46). In 1963 Folgers's had become number one coffee brand in America (Note 4) displacing Maxwell House.
The same year P&G acquired Folgers's and dropped the apostrophe. The "buttoned down" men of P&G, "who had turned soap into science", shook up the genteel world of coffee (ibid, p. 281, italics added).
In 1978 P&G brought Folgers into New York City and the rest of the East coast to complete its national expansion. By the end of the year Folgers had captured 26.5% of the national market for regular coffee, surpassing Maxwell House's 22.3% share (ibid, p. 334).
In 2008 Folgers became a member of the J. M. Smucker family (Note 4).

John Arbuckle's Quest for Standardization
John Arbuckle believed standardization was critical to the growth and health of the coffee industry. So, in 1868 he began to sell pre-roasted coffee in one-pound packages: an endeavor that was an immediate success. He argued the strongest selling point in marketing coffee would be a distinctive brand name and label. So, he introduced two coffee brands: Arbuckle and Ariosa. Thus, John Arbuckle revolutionized the budding coffee industry by demonstrating how standardization, branding, and marketing could be helpful in selling ordinary, everyday consumer products (ibid, p. 52, p. 51).
In 1937 Arbuckle's business was sold to General Foods (ibid, p. 196).

Hills Brothers
The Hills Brothers started a coffee business in 1876 in San Francisco. They realized that once roasted, coffee stales quickly. So, they wondered if vacuum packing could solve this problem. Yet, even a hermetically-sealed tin always contains enough air to oxidize the essential oils and make the coffee stale. So, the only way to prevent this is to remove air from the package altogether (ibid, pp. 124-125).
Fortunately, using the Norton process Hills Brothers found that they were right, because vacuum packing definitely improved the quality and freshness of coffee (ibid, p. 125).
In 1899, they were able to negotiate a one-year contract with exclusive rights on the Pacific coast.
Surprisingly, it took thirteen years before Folger's and MJB adopted this new technology and the rest

Chase & Sanborn
In 1878 Chase & Sanborn opened a business specializing in selling coffee and tea. They were the first, in an unsuccessful attempt, to use sealed cans to avoid staling from oxygen because the air was sealed as well (ibid, p. 54).
In 1981 Chase & Sanborn was acquired by Nabisco Bands (Note 5), and finally it became a part of Massimo Zanetti Beverages Group 2006 (Note 6).

Maxwell House
Joel Cheek was a latecomer to the national coffee scene. He began experimenting with coffee samples, and found that some offered a superior body, others flavor, and still others "kick". In 1884 he moved to Nashville where he met Roger Smith from Britain, who had operated a coffee plantation in Brazil. The two joined forces and worked on a three-country blend: the cheaper Santos from Brazil that provided a base, and two milds-from Colombia and Mexico-that lent more flavor and acidity (ibid, p. 132).
In 1892 he believed he had found a perfect blend. So, he approached the management of the Maxwell House, a prestigious Nashville hotel, and offered them twenty pounds of free coffee on a trial basis. The hotel chef liked the blend so much that Maxwell House agreed to Cheek's request to name the blend after the hotel (ibid, p. 132).
In 1907 President Theodore Roosevelt visited a Nashville resort where he had a cup of Maxwell House coffee. He is reported to have liked it so much that he said: "Good to the last drop". Later, Maxwell House adopted this slogan as a central part of its advertising (ibid, p. 133).
In 1928 the Postum Co. acquired Maxwell House, and in 1929 renamed itself General Foods (ibid, p.

169).
In 1931 General Foods introduced its Vita-Fresh vacuum pack that supposedly removed 99% of the air-not just 90%, as with Hills Bros., MJB,and Folgers (ibid,.

In 1985 General Foods was absorbed by Philip Morris (now Altria). Now it is a part of the Kraft Heinz
Co., which was formed in 2015 with the merger of Kraft Foods Co., and H. J. Heinz Foods Co. (Datta, 2018b).

America's First Gourmet Coffee: Eight O'Clock
The Great Atlantic and Pacific Tea Co., also known as A&P, was a super-market chain that was founded in 1859. Through a wholly-owned subsidiary, the American Coffee Corp., A&P bought 100% Arabica coffee beans through buyers located in Brazil, Colombia, and other places. The coffee beans were then roasted in America where each store had grinders, so that customers always got fresh coffee. A&P's  Potempa, 2010).
This is the brand that was one of the factors that triggered the growth of the gourmet coffee movement in America (Pendergrast,p. 327).

Newcomer Colombia Goes for Quality
Colombia is located in northwest South America, adjoining Panama in Central America. Only after World War I Colombian exports of coffee had a significant impact on the market. While its volcanic topography was suitable for growing coffee, its geography made it extremely difficult to transport beans to the market. The best coffee-growing regions were practically inaccessible except through the shallow, rapid strewn Magdalena River that was not easy to navigate (Pendergrast,p. 150 grown anywhere from sea level to 3,000 ft. However, Robusta suffers from a major flaw: its taste. Even the best Robusta brews "taste harsh, flat, and bitter" (ibid, pp. 152-153).

Arabica Coffee
The coffee that was first discovered in Ethiopia was Arabica. Today, it is commercially grown throughout the tropics. This plant cannot survive if the temperature falls below freezing. Arabica was the first and the only species of coffee that was grown for human consumption until the twentieth century. Presently, Arabica accounts for about two-thirds of coffee production in the world (Morris, p. 14).

Postwar America Emerges with a Legacy of Low-Quality Coffee
By the end of WW II American coffee had become a standardized product. Maxwell House and others offered roasted ground coffee that consisted of a blend based primarily on average Brazilian beans, and they all practically tasted the same. The all-Arabica coffee wasn't bad, but wasn't very good either.
Despite the much-touted benefits of vacuum cans, the pre-ground coffee gradually became stale while it sat on the shelf. Even though the drip method was becoming popular, Americans emerged from the War as a nation that had become accustomed to a taste for "weak, over-extracted percolator coffee" (Pendergrast,.

Nestlé's Instant Coffee Becomes Popular
In 1938 Nestlé introduced powdered instant coffee that transformed -for better or worse-the way many consumers around the world drink their coffee. The instant coffee market grew enormously during the postwar period. The taste of instant coffee was so bad that it didn't matter what kind of coffee it was made out of. It allowed the manufacturers to squeeze more solids out of each bean by overextending the grounds: a process that produced a bitter brew (ibid, p. 213, p. 340).
By 1952 instant coffee had captured 17% of total coffee consumption in the U.S (ibid, p. 240).
The popularity of instant coffee complemented and provided impetus to the growth of coffee vending machines. The vending machines, in turn, were instrumental in institutionalizing America's most revered tradition: the coffee break. Although work time off for coffee was practically unknown before the War, in 1952 eighty percent of firms polled had introduced a coffee break (ibid, pp. 241-242).
In 1964 General Foods introduced Maxim, the first freeze-dried instant coffee (ibid, p. 283).

Coffee vs. Soft Drinks: The Lost Generation
During World War II the American public had limited access to soft drinks because of sugar rationing.
However, the Coca Cola Co. was able to manage a big coup: getting Coke recognized as a vital morale booster for the troops. As such, Coke for military purposes was exempted from rationing. So not surprisingly, in 1944 the teenagers strongly preferred Coke over coffee (ibid, p. 231).
After the War sales of soft drinks began to climb even faster, in spite of the fact that a bottle of Coke cost twice as much as a cup of coffee. Nevertheless, the coffee industry was so overconfident it ignored The strategy coffee executives were pursuing was radically different from that charted by Coke and Pepsi. While the coffee bosses were cutting prices, diluting their beverage, and advertising coffee as a commodity, Coke and Pepsi were successfully promoting an image of youth, vitality, and the "American way of life". In 1950 per-capita consumption of coffee was falling, and continued to decline in the mid-sixties; but, in contrast, that of soft drinks rose 33% between 1950 and 1959 (Pendergrast, pp. 246, p. 298).

Robusta Coffee Invasion Lowers Quality Standards in America
After World War II a much-weakened British government granted independence to India and many other countries in Africa. In 1954 over 80 percent of coffee that came out of Africa was Robusta. In 1951 coffee imports in America from Africa represented 4.8% of its total coffee imports, but by 1955 this figure had shot up to 11.4% (ibid, pp. 258-259).
One result of this embrace of Robusta by many American coffee makers was that they "locked themselves into a downward spiral of coupons-off deals, premium offers, and price wars. Robusta had "crept insidiously into regular 'blends': with new bargain brands selling 20-30 cents below the leading brands, but containing 30 percent more Robusta. A coffee expert commented that one could hardly call these poor quality coffees as "blends", because they were "almost like a form of deception to pack low-quality coffee in the expensive vacuum tins. It certainly is the lowering of a proud standard, the crumbling of a tradition" (ibid, p. 261, italics added).
Responding to these cheaper blends General Foods quietly began adding a small percentage of Robusta to Maxwell House. Soon the other major brands followed suit. By 1956 Robusta accounted for 22 percent of world exports (ibid, p. 261).
By 1958 instant coffee contained at least 50% Robusta coffee, and many cheaper brands used 100% Robusta. In addition, the manufacturers were squeezing more out of coffee beans that now required four pounds of raw beans-to the previous six-to make one pound of instant (ibid, p. 262).
To fool the consumers into ignoring the worsening taste of instant coffee the manufacturers added back some smell. So, when a housewife opened a jar of instant coffee, she would experience a short burst of aroma, and then it would be gone (ibid, p. 262)! Manufacturers were also trying to promote "more economic" 10, 12, and 16 oz jars of instant coffee.
However, they were likely to have become stale sitting in the pantry (ibid, p. 262).
The coffee from the vending machines was bad, too, because of a large proportion of Robusta coffee (ibid, p. 262).

Declining Sales of Regular Coffee
The current popularity of Starbucks and other specialty coffee stores notwithstanding, the U. had shot up about five-fold to 51.5 gallons (Buzby and Haley).
As we have noted earlier, the coffee industry ignored the formidable threat posed by Coke and Pepsi, who were aggressively wooing the young baby boomers. Another factor is the invention of High Fructose Corn Syrup (HFCS) that accelerated the growth of the carbonated soft drinks market. The Nixon administration's policy of cheap corn in the 1970s led to a considerable increase in the production of corn which, in turn, drove its price down. This policy led to an unintended consequence that was monumental in scope. Now a new kind of sweetener-HFCS-became much cheaper to produce than sugar. More importantly, the consumers couldn't tell the difference between the two (Pollan, 2009, p. 80;also, Datta, 2020a).
In 1980  Another factor that negatively affected coffee sales in comparison with carbonated soft drinks is that, while the soft drinks industry managed-surprisingly-to project an image of healthy choice, coffee was increasingly portrayed as "poison!" However, in recent years there has been an almost total reversal on this issue (Olshan).
The second factor that contributed to a significant reduction in the demand for coffee over time is changing lifestyles and adjustments to blending and roasting practices (Buzby and Haley). In the past, custom "encouraged quick and cool food and beverage breaks, as opposed to complete breakfast and full meals that included coffee". However, now, one is more likely to have a bottle of water with lunch rather than a coffee" (Olshan).
Third-and the most important-is taste (ibid).
As mentioned above, Americans emerged from the War as a nation that had become accustomed to a taste for "weak, over-extracted percolator coffee". Within the next two decades after WW II, American coffee became even worse: from a state of mediocrity, coffee went from 'safely middling' to awful" (Pendergrast,p. 236, Olshan, Note 8).

Changing Food Culture and Demographics
According to a Gallup survey conducted in 1954, the eating habits of Americans were "dull". The overwhelming choice of most Americans for dinner-if cost were no object-was fruit cup, vegetable soup, steak, French fries, and apple pie a' la mode (Datta, 2011(Datta, , 2017. For a long time American consumers had become tired of the standardized goods churned out by the nation's vaunted mass-production machine. However, by 1970 the mass market of yesterday was fragmenting into a class market of today (ibid).
This was the time when America had reached a stage where the "era of bland food was grinding to a halt". Symbolizing this trend was the opening in 1971of the first Starbucks which introduced Americans to "some of the world's finest fresh-roasted whole bean coffees": at a premium price (Note 9; Ogle, 2006, p. 251, Datta, 2017. Economic inequality in America has now widened so much that it has even exceeded the highest level (Note 10). However, another class that has seen a major expansion in its ranks is the "Upper Middle Class", consisting of a large number of dual-income professional families that occupy the 80-99.5 th percentile of income. This has led to a sharp rise in the premium, and to a much lesser extent, the super-premium segments (Datta, 2011(Datta, , 2017.

The Specialty Coffee Revolution
In 1972 Mr. Coffee automatic electric drip brewer made a debut. By 1974 half of the ten million coffeemakers were electric drip. Mr. Coffee was a major advance over pumping percolators and was instrumental in the rise of and appreciation for good quality coffee: in particular among two-career households looking for simple automatic brewing (Pendergrast,p. 313).
Erna Knutsen was the first to use the term 'specialty coffee' (Morris,p.153). In the early 1970s specialty coffee roasters and coffeehouses started to appear with growing frequency in America and Canada. Across America many consumers began to realize that for just a little more money, they could buy coffee of fine quality that tasted good. By 1980, specialty coffee was entrenched in big cities on both coasts. Moreover whole bean coffees began to show up in selected supermarkets across the country (Pendergrast,pp. 312,(325)(326)

The Starbucks Marvel
The "Upper Middle Class" consists mostly of professionals. They are more likely to engage in foreign travel and have a cosmopolitan taste. But, most importantly, their lifestyle and opinions exert considerable influence over the entire society (Datta, 2011(Datta, , 2017. The quest for quality in coffee was led by young baby boomers. A large number of them had hitchhiked through Europe, or were stationed there while serving in the military. And it is there that they discovered the joys of espresso, specialty coffee shops and café s, and began a search for community  (Datta, 2017).
So while in Europe-with their keen cosmopolitan taste for international cuisine and diversity-the baby boomers discovered "aromatic fresh roasted whole beans, tumbling from small roasters": an experience that had earlier inspired many at Peet's (Pendergrast,p. 308 A barista (coffee bar-tender) greeted Schultz one morning as he handed a tiny demitasse (cup) of espresso to one customer, then created a perfect cappuccino. Schultz describes this experience in the following words (ibid, pp. 367-368, italics added): The barista moved so gracefully that it looked as though he were grinding coffee beans, pulling shots of espresso, and steaming milk at the same time, all the while conversing merrily with his customers…It was great theater…It was like an epiphany. It was so immediate and physical that I was shaking.
After this spiritual experience, he argued that "if we could re-create in America the authentic Italian bar culture…Starbucks could be a great experience, not just a great retail store" (Morris,p. 154 At this time many other regional coffee stores were expanding, too, and as a result sales of gourmet coffee beans tripled between 1985 and 1991 accounting for 20% of home purchases (ibid, p. 371).
In 1992 Starbucks became a public company. The company paid "slightly above-minimum wage" that was better than most fast food companies. Starbucks offered an innovative benefits package that covered part-time employees who worked twenty hours or more per week. As such employee turnover at Starbucks was 60% per year compared to 200% for the industry as a whole (ibid, p. 374) (Note 11).
By 1995 the Seattle-based Starbucks had been transformed into a national phenomenon-and even without any paid publicity-Starbucks became synonymous with "fine coffee, hip hangouts and upscale image" (ibid, p. 367, italics added).

Howard Schultz's Vision (Note 12)
As mentioned above, in his 1984 visit to Italy Schultz was captivated by an encounter with a barista.
After this spiritual experience, he argued that if we could re-create in America genuine Italian bar culture Starbucks could be a great experience, not just a great retail store. And that is what he set out to do when Starbucks opened its first coffeehouse.
Customers of coffee bars did not like to sip coffee at the counter, but rather sit at a table and chat. They also preferred paper cups over porcelain ones because they could take their drinks back to work. So, Schultz adopted this format for his coffee stores. This format combined two elements: the coffee and the environment, where the premium price of the former paid for the latter (Morris,.
The Italian style coffees turned out to be perfect for introducing specialty coffee to American customers.
They could still recognize the "distinctive bite of the espresso" "through the sweetness of the milk".
Caffe latte became the most popular as steamed-rather than frothed-milk produces more density and sweetness than in a cappuccino (Morris,p. 155).

Shift of Focus: From Selling Beans to Serving Beverage (Morris, p. 153)
What Starbucks coffeehouses offered is the "theater of the barista 'hand-crafting' the beverage-grinding fresh beans, pulling a shot from the machine, foaming and poring milk": an experience that clearly revealed the "value added during the process" (Morris,p. 155; italics added).
That is why customers were willing to pay high prices for a premium product-and the experience-they could not replicate at home. Moreover, high premium prices charged by Starbucks enabled it to provide a comfortable environment that included sofas, on which customers could savor their coffee (ibid).
Schultz touted Starbucks as a "third" place between work and home. As sociologist Ray Oldenburg describes it, this is the kind of place in which informal contacts between unrelated people create a sense of community. Behavioral studies, however, have found not much evidence of conversations that are initiated between strangers. Instead, the "attraction of the coffee shop lies in being surrounded by people without having to engage with them" (Morris,p. 156).
The advances in wireless digital technology let customers continue working, or engage in social media conversation, while enjoying the coffee and the restaurant's ambience all at the same time (ibid).
One avenue for achieving self-esteem is through personal enrichment. One way to accomplish this is www.scholink.org/ojs/index.php/jepf Journal of Economics and Public Finance Vol. 6, No. 3, 2020 158 Published by SCHOLINK INC.
via self-indulgence, for example: driving a high-powered sports car. Another-that most people can relate to-is to indulge in "affordable luxuries" (Wild, p. 3, Datta, 2010c, 2018a. Pressured by an increasingly hectic schedule, many busy, stressed-out members of the middle class are allowing themselves the indulgence of small "affordable luxuries": such as, a $4.50 tall Starbucks latte, a $10 six-pack of Heineken beer, a gourmet take-out dinner, and so on. Another example is L'Oreal's famous ad slogan "Because I am worth it" (ibid).

Espresso-based Coffee Takes off
First let us find out what is an espresso coffee? This coffee is made by "espresso machines that pressurize and shoot near-boiling water through finely ground coffee beans packed into cakes. This method gives you a complex, aromatic, and caffeine-packed shot of coffee in under thirty seconds" (Note 13).
In 1980 the first coffee carts featuring espresso machines appeared in Seattle; by 1990 they were over two hundred. By 1994 espresso-based beverages were outselling brewed coffee in American specialty stores (Morris,pp. 153,155).

Specialty Coffee Attracts New Entrants
The Specialty Coffee Association of America (SPCCA) had less than a hundred members in 1985.
However, its membership had exploded into the thousands a decade later. In 1993 McDonalds began to offer espresso coffee in its stores. In 1983 Dunkin' Donuts started to sell whole beans. But, by 1995 it had become a "coffee company disguised as a donut company" (Pendergrast,p. 387).

Single-portion Specialty Coffee for Home
The specialty revolution has spawned a demand for similar beverages at home. Machines using 'single portion' coffee pods or capsules have made this a reality. Portions of ground coffee are sealed into aluminum capsules to preserve freshness. Nespresso, launched by Nestlé in 1986, pioneered this technology for delivering espresso-like beverages and remains the category's global leader today (Morris,p. 164).
The Keurig K-Cup system introduced in 1998 by the Green Mountain Coffee Co. is the dominant brand in the U.S. to make American-style drip-brewed coffees at home (ibid).

Folgers and Maxwell House Miss the Boat on the Specialty Segment
By 1991 Starbucks had over one hundred stores, as we have noted earlier. So, given this success, Schultz says he was afraid of waking up sleeping giants: Maxwell House, Folgers and Nestlé . He added that "If they had started to sell specialty coffee early on, they could have wiped us out" (Pendergrast, p. 371, italics added).
He was lucky that the sleeping giants kept sleeping.
By the mid-1990s industry observers clearly saw that while gourmet small-scale roasters were flourishing, the major roasters had lost their way. In 1995 Forbes summarized the latter's status in she added, the "smaller gourmet roasters were providing the value that had 'migrated' from the big boys" (ibid, p. 387; italics added).
She further noted that P&G-the owner of Folgers-which had introduced new brands "more skillfully than anybody else, …missed the boat this time. P&G could afford to invest $50-$100 million over two years to build a new national brand". But, unfortunately P&G didn't (ibid, p. 388; italics added).
It was in 2006 that Folgers introduced Folgers Gourmet Select Brand. However, it was a mid-priced (Table 1) brand that did not directly compete with premium brands like Starbucks.

Folgers and Maxwell House Followed Cost Leadership Strategy
The largest segment in the coffee market in 2008 was Ground Coffee with 70% of total coffee sales. In this paper we have hypothesized that the top two market leaders are most likely to compete in the mid-price segment. However, our analysis produced a stunning result! Unbelievably, the market leader, Folgers-and the runner-up Maxwell House-were following cost leadership strategy by competing in the economy segment (Table 1): an endeavor not likely to have been very profitable.

Coffee Prices on the World Market Lower than Cost of Production
Coffee is a crop that is produced around the globe in developing countries that are generally poor. But it is largely consumed in developed countries like the United States and Europe that are affluent. In the previous pages we have witnessed the terrible conditions under which coffee is produced, and how poorly the indigenous laborers who produce coffee are paid.
We have also delved deeply into how coffee is marketed and consumed in the United States.
But there is one important aspect of the coffee business that we have not explored yet: the prices the coffee producers get on the world market for coffee.
The extraordinarily low prices that are "currently paid to the producers of coffee is leading to the largest enforced global lay-off of workers in history". According to Wall St. Journal 125 million people depended on coffee in 2002. The World Bank has estimated that there are 25 million small producers in developing countries for whom coffee is the only source of income. Also an astounding 500 million people are globally involved directly or indirectly in the coffee trade (Wild, p. 1, italics added).
As long as the price of coffee continues to be lower than the cost of production, small coffee producers must subsidize coffee consumers. But they cannot do so indefinitely.

The Coffee Industry: An Overview
Words cannot adequately express our profound gratitude to Mark Pendergrast for his monumental book Uncommon Ground. In this work he has been able to lay bare his insight into coffee: a product that is seemingly simple, yet in essence exceedingly intricate, full of nuances-and fascinating! Yet coffee also has a dark side: and that is the deplorable environment of poverty, harsh working and living conditions under which coffee plantation laborers struggle around the world even today. Coffee also lies at the heart of the continued subjugation of the Mayan Indians in Guatemala. They are very small probably due to their ancestral malnutrition. Their traditional staples of corn, tortillas and beans may ward off hunger but not malnutrition (Pendergrast, pp. xxiii, vii) (Note 14).
The extraordinarily low prices-that are lower than the cost of production-currently paid to the producers of coffee, that include 25 million small farmers, is leading to the largest enforced global lay-off of workers in history.
At the end of the last century coffee provided livelihood for over two million people. It is a highly labor-intensive crop. Ironically, the vast majority of those who perform the most labor-intensive tasks work in the most beautiful places on this globe. Typically, these places feature tropical volcanic peaks as a background where temperature rarely goes below 70֠ F and more than 80֠ F. In today's dollars these laborers make just $4.50 per day.
Pendergrast has summed up the salient points of the history of the coffee industry in these words (back of front cover): Coffee has been banned as a creator of revolutionary sedition, vilified as the worst health-destroyer on earth and praised as the boon of mankind. Its history provides a window through which to view broader themes of colonialism and culture clash, the rise of mass production, modern-day media and marketing...
It is the "second most valuable exported legal commodity in the world behind oil, providing the largest jolt of the world's most widely taken psychoactive drug".
Started as a medicinal drink for the rich, coffee became the popular modern stimulant of the blue-collar worker during his break, "the gossip starter in middle class kitchens, and the romantic binder for wooing couples". Coffeehouses have provided places to plan revolutions, write poetry, do business, and meet friends.
Coffee has been banned as a creator of revolutions, and coffee drinkers have faced government persecution. Yet coffee drinking has persisted over time. There are two reasons for this. One is the addictive nature of caffeine. The other is that coffee provided an intellectual stimulant: a pleasant way to feel increased energy without any apparent ill effects.
Coffee is also a drink that all members of a family can enjoy together.
When coffee was introduced in France, one of its important contributions was that it led to a reduction in alcohol consumption. Similarly, before the arrival of coffee the British were heavy drinkers of alcohol. But, fifty years later coffee drinking had made the British much more sober. For low-income families coffee offered a pick-me-up and a moment of respite, although it did not offer much nutrition.
More importantly, it contributed noticeably to the sobering of an "alcohol-soaked Europe".
During the colonial times in America high alcohol consumption was quite widespread. But, during the first half of the 1800s, per-capita coffee consumption went up from three pounds in 1830 to eight pounds in 1859.
Coffee is a global beverage that is grown commercially on four continents, and consumed ardently in all seven. There is even an espresso machine on the International Space Station (Morris, p. 7).
Coffee's history in America shows how an entire industry can lose focus, allowing upstart microprocessors to reclaim quality and profits; and how in the post-World War II era, the industry lost its focus and abandoned quality in favor of price cutting and commoditization of a fine product.
Nevertheless, around the world we are now witnessing a coffee renewal as small roasters revive the fine art of coffee blending, and when consumers discover the joy of fresh-roasted, fresh ground, fresh brewed coffee and espresso, made from the best beans of the world. Finally, the spectacular success of Starbucks has demonstrated in no uncertain terms that the consumers were no longer content to treat coffee as a run-of-the mill drink-but rather something special-that deserved to be savored, and for which they were willing to pay a premium price: especially for a product they could not make at home.

Private Brands
It is important to clarify what private brands are. These are brands made exclusively for individual retailers, e.g., a supermarket, or a drug store. Usually, such brands are targeted at the economy segment, and, as such, are generally sold at prices lower than those of major name brands. One reason retailers like private brands is because private brands tend to be more profitable than name brands (Datta, 2018b(Datta, , 2018c(Datta, , 2020b. In 2008 Private Brands Ground Coffee had 7.5% share of the overall U.S. Coffee market (Table 1).

The U.S. Coffee Market-Price-Quality Segmentation Profile
This study is based on U.S. retail sales for 2008 and 2007 (Note 15). The data includes total dollar and unit sales, no-promotion dollar and unit sales, and promotion dollar and unit sales (Note 16).

Hierarchical Clustering as the Primary Instrument of Statistical Analysis
We have used cluster analysis as the primary statistical tool in this study. As suggested by Ketchen and Shook (1996), we have taken several steps to make this effort as objective as possible:  First, this study is not ad-hoc, but is grounded in a theoretical framework, as laid out below.  Second, we are fortunate that we were able to get national sales data for our study for two years.
Thus, this data provided a robust vehicle for subjecting cluster consistency and reliability to an additional test.
 Third, we wanted to use two different techniques-KMeans and Hierarchical-to add another layer of cluster consistency and reliability. However, we found Hierarchical cluster analysis to be superior in meeting that test. So, we did not consider it necessary to use the KMeans technique.

Theoretical Foundation for Determining Number of Clusters-and Their Meaning
As already stated, a major purpose of this paper is to identify the market share leader and determine the price-quality segment-based on unit price-it is competing in.
An important question in performing cluster analysis is determining the number of clusters based on an a priori theory. Most consumer markets can be divided in three basic price-quality segments: premium, mid-price, and economy. These three basic segments can be extended to five: with the addition of super-premium and ultra-economy segments (Datta, 1996).
An equally crucial issue is to figure out what each cluster (e.g., economy, mid-price, and premium) really means.
Perhaps a good way to understand what each price-quality segment stands for in real life is to look at a socio-economic lifestyle profile of America. It reveals six classes (Note 17). Each class is associated with a price-quality segment typified by the retail stores where they generally shop: each a symbol of their lifestyle (Datta, 2011).


The anchor clusters-the top and the bottom-should be robust. In a cluster-analysis project limited to a range of three to five clusters, a robust cluster is one whose membership remains constant from three-to four-, or four-to five-cluster solutions.
 Finally, we followed a step-by-step procedure to determine the optimal solution. First, we start with three clusters. Thus, the bottom cluster obviously becomes the economy segment and the top cluster the premium segment. Next, we go to four clusters, and tentatively call them: economy, mid-price, premium, and super-premium. Then we go to five clusters. If the membership of the bottom cluster remains unchanged from what it was in the four-cluster result, it clearly implies that the ultra-economy segment does not exist. Next, if the membership of the top cluster also remains the same from a four-to a five-cluster solution, then the top cluster becomes the super-premium segment. This signifies that even in a five-cluster solution we have only four price-quality segments: economy, mid-price, premium, and www.scholink.org/ojs/index.php/jepf Journal of Economics and Public Finance Vol. 6, No. 3, 2020 163 Published by SCHOLINK INC.
super-premium. It means that either the premium or the mid-price segment consist of two sub-segments (see Table 1).

External Evidence to Validate Results of Cluster Analysis
Whenever possible, we have tried to seek external evidence to validate the results of cluster analysis. For example, many companies identify on their websites a certain brand(s) as a premium or luxury brand. A case in point is that of P&G which says that its plan is to compete in all "price points": super-premium, premium, and mid-price: except the economy segment (Datta, 2010b).

Testing Hypotheses
 I-That the market-share leader would be a member of the mid-price segment.
 II-That the market-share leader would carry a price tag that is higher than that of the nearest competition.

Results of Hierarchical Cluster Analysis
The retail sales data presented us with a very large number of Ground Coffee brands that equaled 450 in 2008. We have focused our attention on the most popular pack-size that ranged from 10-13 oz. If a brand had multiple entries in that pack-size we have chosen the one with the highest sales.
In Table 1 we present the results of cluster analysis of 28 Ground Coffee brands with sales >$5 million.
For both 2008 and 2007 we found that the results did not support our hypothesis that the market leader would be a member of the mid-price segment. Instead, the results show that both the market leader Folgers brand, and the runner-up Maxwell House, were members of the economy segment, although Folgers' unit price was higher than that of Maxwell House, as we have hypothesized.
This is truly an astonishing result! In all similar previous nine studies preceding this one, not a single market leader-or runner-up-competed in the economy segment. This implies that both Folgers and Maxwell House were following the cost leadership strategy based on lower price than better quality, and treated coffee as a commodity to gain market share.
As we have pointed out before, the dramatic success of Starbucks demonstrated in no uncertain terms that the consumers were no longer content to treat coffee as a run-of-the mill drink, but rather something special that deserved to be savored, and for which they were willing to pay a premium price.

Relative Price a Strategic Variable
Finally, we performed one more test to determine the consistency and reliability of the results of cluster analysis in this study. So, we ranked the unit price of each brand for 2008 and 2007 for Ground Coffee.
All three measures of bivariate correlation-Pearson, and non-parametric measures Kendall's tau_b, and Spearman's rho-were found to be significant at an amazing 0.01 level!
We believe these surprising results became possible only because management in the U.S. Coffee industry must have been treating relative price as a strategic variable, as we have suggested.
While the price of a brand, compared to its nearest competition, may change over time, it is unlikely to change much from one year to the next. This is significant not only for the market share leader, but also for every brand no matter which price-quality segment it is competing in.
Another conclusion one can draw from such impressive results is that the U.S. Coffee market is quite competitive.

The Role of Promotion
For 2008 promotional sales of the U.S. Coffee market averaged 44% of net retail sales. We performed bivariate correlation between total (net) retail sales vs. promotional (PROMO) sales. The results were significant for all three measures-Pearson, Kendall, and Spearman-at the 0.01 level. It is interesting to note that the market leader, Folgers and the runner-up, Maxwell House are members of the economy segment (Table 1). Yet, it seems low price alone was not enough to protect their high market share, so they had to summon the aid of heavy promotion as well.

Conclusion
The path to market share leadership does not lie in lower price grounded in cost leadership strategy, Rather a business in pursuit of market-share leadership should try to serve the middle class by competing in the mid-price segment; and offering quality superior to that of competition: at a somewhat higher price to connote an image of quality, and to ensure that the strategy is both profitable and sustainable in the long run. The middle class is the socio-economic segment that represents about 40% of households in America.
Quality, however, is a complex concept that consumers generally find difficult to understand. So, they often employ relative price and a brand's reputation as a symbol of quality.
According to legend coffee was discovered by a goatherd in Ethiopia from where it spread to Yemen. The discovery of coffee by the Ethiopians soon led to its popularity in Arabia as well. By the end of the fifteenth century, Muslim pilgrims had introduced coffee to the Islamic world that included Persia (Iran), Egypt, Turkey, and North Africa.
Ottoman Turks conquered Yemen in 1536. The coffee beans were exported from the Yemeni port of Mocha. Soon coffee beans became an important export all across the Turkish Empire. During the 1600s coffee plants found homes in Mysore, India, Ceylon (Sri Lanka), and Java, Indonesia.
The first coffeehouse opened in Venice in 1683. Soon, it became synonymous with relaxed companionship, animated conversation, and tasty food.
Paris opened its first coffeehouse in 1689. The café s of Paris, with their social egalitarian culture, were a fertile ground for the revolutionaries who opposed monarchy that eventually led to the French Revolution in 1789.
The first coffeehouse opened in London in 1652. However, over the course of the eighteenth century the British started to drink tea rather than coffee. Around this time, the conquest of India by the East India Company (EIC) was under way where the country concentrated on growing tea rather than coffee.
Brazil started to produce coffee in 1727. During the latter half of the 19 th century coffee cultivation in the Caribbean was declining. It was Brazil which then became the predominant producer of coffee during this period. However, Brazilians preferred quantity over quality.
Guatemala entered the coffee market in 1821. In Central America coffee has traditionally been under shade trees to protect the coffee plants from the sun. Unlike Brazil, coffee beans were harvested by the "wet" method which leads to superior beans with fewer defects, producing a drink with "bright acidity, and full clean flavor".
Columbia was a latecomer to the coffee industry. After its independence from Spain in 1903, Colombia, unlike Brazil, pursued a path of steady expansion of coffee that was of high quality. As a result, Colombia's flavorful beans began to find favor with American and European customers.
During the nineteenth century in America there were two main players in the coffee industry: J. A.
Folgers & Co. and Maxwell House which were acquired, respectively, by P&G and General Foods in 1963and 1929. In 1963 Folgers replaced Maxwell House as the market leader.
By the end of WW II American coffee had become a standardized product. Americans emerged from the War as a nation that had become accustomed to a taste for weak, over-extracted percolator coffee.
Within the next two decades after WW II, American coffee became even worse: from a state of mediocrity, coffee went from 'safely middling' to awful. Taste.
This was the time when America had reached a stage where the era of bland food was grinding to a halt.
Symbolizing this trend was the opening in 1971of the first Starbucks which introduced Americans to www.scholink.org/ojs/index.php/jepf Journal of Economics and Public Finance Vol. 6, No. 3, 2020 168 Published by SCHOLINK INC.
some of the world's finest fresh-roasted whole bean coffees: at a premium price.
In the early 1970s specialty coffee roasters and coffeehouses started to appear with growing frequency in America. Across America many consumers began to realize that for just a little more money, they could buy coffee of fine quality that tasted good. By 1980, specialty coffee was entrenched in big cities on both coasts.
However, at Folgers and Maxwell House coffee had become commoditized, as both ignored the specialty segment.
The results of our cluster analysis showed that both the market leader the flagship Folgers brand, and the runner-up Maxwell House, were part of the economy segment. This implies that both Folgers and Maxwell House were pursuing the cost leadership strategy based on lower price, rather than better quality, to gain market share. Nevertheless, such a feat is not likely to have been very profitable.
This is truly an astonishing result! In all similar previous nine studies preceding this one, not a single market leader or runner-up competed in the economy segment.
We also found that relative price was a strategic variable.
The dramatic success of Starbucks demonstrated that the consumers were no longer content to treat coffee as a run-of-the mill drink-but rather something special-that deserved to be relished, and for which they were willing to pay a premium price.
Finally, we discovered five strategic groups in the industry.