Table Of Contents

Acknowledgement……………………………………………………3

Research Topic……………………………………………………….4

Aim and Objective……………………………………………………5

Methodology……………………………………….…………………6

Report…………………….……………………………...……………8

Presentation of Data…………………………………………………..11

Analysis of Data………………………………………………………16

Evaluation…………………………………………………………….18

Recommendations…………………………………………….………19

Conclusion……………………………………………………………20

Appendices……………………………………………………………21

Bibliography……………………………………….…………………28

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 Acknowledgement

We would like to thank our parents for assisting us and encouraging us to keep going

when we thought we would never complete the project.

Also, we would like to express our most sincere gratitude to all the café owners who

allowed us to interview them about their businesses, and also to all the people who

responded to our questionnaires.

Lastly, our completion of this internal assessment could not have been accomplished

without the support of our teacher, Mr. Renaldo McCreath. Thank you for guiding us in the

right direction and providing prompt feedback whenever we had questions about our

project.

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Research Topic

Assessing the nature of competition among the major coffee shops in the Liguanea area.

4
Aim and Objectives

General Objectives

• To analyze the market structure of the different coffee shops in the Liguanea area and to outline
some of the measures taken by these producers to deal with the level of competition.

Specific Objectives

1. To define monopolistic competition

2. Factors affecting demand for coffee for the different brands of coffee shops

3. To investigate the methods of competition used by these producers

4. To explain how their sales have been affected by the Covid-19 virus

5. To ascertain the elasticity of demand for specialty coffee and its revenue implication

6. To explain how product differentiation will affect the elasticity of demand for coffee

7. To assess the pricing strategy that these companies used to increase their revenue.

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The Methodology

In order for the researcher to collect the data necessary for the completion of this report,

both primary data sources and secondary data sources were employed. By means of primary data,

the research used a questionnaire and conducted interviews. Secondary data sources include the

use of newspaper articles, websites and textbooks.

A questionnaire consisted of 17 questions was administered to 20 people via Google Forms

between November 22, 2020 and November 26, 2020. The questionnaire contained primarily

closed questions however a few gave the chance for the respondents to provide their own answers.

The sample consisted of both males and females who were aged 15 and over. It was targeted and

constrained to those who usually get coffee in the Liguanea Area (if they drink coffee). Using the

questionnaire was simple and effective as it did not take long to do and most adults were very

appreciative of its simplicity. It also allowed for more authenticity in the results of the study due

to the anonymity of a questionnaire. It bore no cost unto the researchers. One advantage as it

relates to using Google Docs to administer the questionnaire was that Google Docs was able to

generate the results of the questionnaire into pie charts and tables.

In addition to the questionnaire, Simone Chan Pong, owner of Brew’d Awakenings, Jason

Sharp, owner of Café Blue, Laura Chandley, owner of Cannonball, Eleni Toupikov, owner of

Eleni’s and Ian Dear, representative for Starbucks were interviewed via email between November

22 and November 24, 2020. The interview had 13 questions. The interviews proved to be very

useful as it gave light unto the view of the market from the perspectives of the suppliers and not

just the consumers. These primary sources to the market gave a great deal of insight as they have

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direct access to the competitive coffee market. Not only did the interviews prove useful as they

were suppliers, but they were also some of the main coffee shops being researched.

Textbooks and websites were used as the secondary sources. Another secondary source

used was newspaper articles. All the sources used contributed relevant information to the research.

All the information retrieved can be deemed reliable as it was from trustworthy sources.

In order for the data to be analyzed, it will be presented using graphs, charts and tables.

Several economic theories and models will also be used to interpret the data.

It can be verified that the information used in the analysis is both true and ethical as the

interviews took place over email and there is therefore a physical copy of each interviewee’s exact

words as well as those who responded to the questionnaire knew it was anonymous and therefore

gave truthful answers.

One limitation of the study is that the questionnaire took place online and is anonymous so

whether the respondents were honest or not could no be controlled. Another limitation was that we

could not find statistics showing the consumption of coffee nationally.

Data will be presented using graphs, charts and diagrams.

THE REPORT

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 Monopolistic competition is the type of market structure, which consist of a relatively large

number of small firms selling differentiated products. The relatively large number of small firms

is due to limited barriers to entry. The task of establishing a coffee shop requires not much capital

and would not be daunting to the average entrepreneur.

Coffee is said to be close to a homogeneous product but the quality of the product, the

customer service, the location of the establishment will all play a part in making the product more

differentiated and will make demand more inelastic. Many of the shops engage in activities to

differentiate their products. Two examples are Café Blue’s “Coffee Date” every two months and

Cannonball’s “Paint N’ Sip” at the end of every month (Pre-Covid-19).

The coffee industry by itself could be regarded as oligopoly but the presence of several

coffee shops in Liguanea, a small area in the corporate area, would make it monopolistic

competition.

The measures used by these coffee shops to foster product differentiation will tend to make

the industry less competitive or more concentrated.

Upon determining the factors affecting demand for the different brands of coffee shops, it

was seen that the major factors were price, customer service, quality/taste, brand, Wi-Fi

accessibility, location, atmosphere and whether it was a Jamaican brand or foreign brand (see

Figure 1).

The major methods of competition used by firms under conditions of monopolistic

competition are price competition, improving product quality, advertising, improving customer

service, Wi-Fi access and leveraging the location. Since products are differentiated, firms can raise

their price to reflect the higher quality, in this case the higher margin of utility obtained from the

consumption of coffee. They could also lower their prices to increase their market share at the

8
expense of those firms that cannot lower their prices. These coffee shops may also emphasize the

fact that product quality has improved both materially or by means of advertising gimmicks which

may convince the consumers of a higher product quality. Consumers may also be drawn to

establishments having a central location, good customer service and the presence of certain

comforts such as internet access, television sets etc.

As it pertains to Covid-19, the general consensus was that all firms have seen a decrease in

sales since the virus, at least 50%. Fear of the virus and lack of income were the two most common

assumptions as to why there was less demand3. The representatives from each firm believe that

after the pandemic has passed, sales will slowly start to increase and go back to normal, as the

factor that affected demand is not permanent, such as entry of a new firm into the market. The

pandemic has left the general public in fear and most people are not going to risk their health for

a cup of coffee, nor do they have the excess income to do so as many firms have had to decrease

the salaries of their workers.

Despite the fact that these coffee shops may try various methods of product differentiation,

coffee still remains very close substitute. This means demand would be relatively elastic. This

means firms may face difficulty increasing their prices. Economic theory states that when demand

is inelastic, a firm can increase its total revenue by increasing its price. If firms want to increase

their total revenue, then the option is the decrease price. By definition, the percentage increase in

the quantity demanded will exceed the percentage fall in price. The total revenue will increase by

a process known as the quantity effect. This is based on the premise that the other competitors do

not lower their prices.

Like any product, product differentiation serves to convince the consumer that one brand

of coffee is superior to the other. As was mentioned, higher quality product increases the marginal

9
utility that the consumer derives from each additional unit consumed and the consumer will be

willing to pay a higher price. This means consumers may not be responsive to a price increase if

they believe that the marginal utility is still greater that the higher price. In other words, the

consumers will refrain from purchasing the product if the market price exceeds the reservation

price.

PRESENTATION OF DATA

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Figure 1: Column Chart showing factors affecting demand for choosing a coffee shop

Figure 2: Pie chart showing responsiveness of consumers to 10% increase in price of coffee

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Figure 3: Bar chart showing responsiveness of consumers to 10% decrease in price of coffee

Figure 4: Column Chart responsiveness of consumers to 10% decrease in income

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Figure 5: Pie Chart responsiveness of consumers to 10% increase in income

Figure 6: Bar chart showing substitutes for coffee

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Figure 7: Column chart showing complements for coffee

Figure 8: Pie Chart showing consumers’ favourite coffee shop in the Liguanea area

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Figure 9: Bar Chart showing whether consumers go to the same coffee shop or a variety

Figure 10: Column Chart showing which coffee shop consumers visited before Starbucks’
opening

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ANALYSIS OF DATA

The question is related to the factors affecting demand for coffee in the various coffee shops, a

total of 61.6% of the respondents stated that product quality was the most important factor. It is

surprising that only about 7% of the respondents stated the products price. Note that the product

quality also influences the price. But more so, the area is Liguanea which consists of relatively

affluent residents who would not pay much attention to price. Another 9.6% stated the brand. The

brand would be influence by a host of factors such as Wi-Fi access, location, customer service and

so forth. All these factors account for 28.2% of the respondents.

The question addresses the concept of price elasticity of demand. It assumes that the price

increased by 10%. A total of 67% of the respondents stated that the quantity demanded for coffee

will decrease by 10%. Those respondents regard the demand for coffee as being unitary elastic.

Another 22% stated that demand for coffee will decrease by less that 10%. This means that demand

is inelastic. Another 10% stated that they would go to another coffee shop. This means that the

10% increase in coffees would increase the market above the reservation price which the market

price is above the consumer’s marginal utility.

The question addresses the concept of income elasticity of demand where the dependent variable

changes from the price to consumers income. The question seeks to address whether or not the

consumer would continue to purchase coffee if income falls by 10%. At total of 71.9% stated that

they would purchase less coffee. To these respondents, coffee would be a normal good. Another

28.1% stated that they would purchase more. To those respondents, coffee is an inferior good.

This question looks at the availability of substitutes for coffee. That data shows that coffee has a

great deal of substitutes. This is one of the reasons why demand for coffee is relatively elastic. A

total of 57.5% of the respondents believes that tea is a good substitute for coffee. Another 12.6%

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believed that coco is a good substitute for coffee. Products such as water, juice, beer etc. are not

close substitutes as these are cold beverages. Nevertheless, they represent the views of 29.9% of

the respondents.

The question addresses the concept of compliments. Compliments are those products that

are consumed together. Compliments will vary from person to person. A total of 39.8% of the

respondents stated that pastries are good compliments of coffee, another 20.3% stated that prefer

sandwich with their coffee. Another 35% stated that they only consume coffee. The remaining

percentage stated that they would consume coffee with breakfast, chips, orange kiss cake and so

forth.

The question addresses the favourite coffee shops of the respondents. A total of 43.3%

stated that Cafe Bleu was the preferred choice. Another 20% stated that Star Bucks was their choice

and another 12% said that they would choose Eleni. The remaining 4.9% stated that they would

go to Cannonball or make their own coffee.

EVALUATION

17
 • It was agreed that the coffee shops in Liguanea would be an example of monopolistic

competition but much if the information presented was addressing oligopolies.

• Price was featured by only 7% of the respondents as a major factor affecting demand. This

is because the patrons represent the wealthy citizens of Liguanea who would not pay much

attention to minor difference in prices.

• Consumers pay more attention to other factors such as product quality, brand quality and

the access to certain services such as Wi-Fi capabilities, location quality etc.

• The researcher attempted to gauge the price elasticity and income elasticity of demand.

This was a logical consequence of the fact that the consumer pays little attention to price

differences and demand would be inelastic.

• The residents of Liguanea are quite affluent and the demand for coffee would be quite

elastic. The respondents would purchase less coffee as their income falls and more as their

income rises. This means coffee would be a normal good.

• The substitutes for coffee that were alluded to were not close substitutes as some are cold

beverages. Milo, herbs like Cinnamon, Mints and Ginger would have been substitutes.

• The firms could use stable prices as a method of competition, however if the cost of the

factors affecting production change, they would have no choice but to. They could also

establish distinct colour codes and use catch phrases.

• It is argued that the license to import coffee should be granted only to coffee producers.

However, such a policy could decrease local coffee production as some coffee producers

may find it easier and more profitable to import coffee.

RECOMMENDATIONS

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 • Since demand for coffee is quite elastic, firms should lower price to increase their revenue

assuming that their competitors cannot lower price.

• Since Jamaican Blue Mountain Coffee is regarded as the best in the world, theses coffee

shops should encourage coffee manufacturers to incorporate Blue Mountain Coffee in their

products.

• These coffee shops should use advertisements to sensitize consumers about the health

benefits of consuming coffee.

• The firms could advertise to inform the public and to educate them about the health benefits

of consuming their coffee. They could promote the coffee to the public to increase sales.

For example, they could host a ‘Happy Hour’ on a Friday afternoon or occasional special

activities to encourage people to come out with their friends/family (When Covid-19 is

under control).

• The government the duties on imported coffee. This would also encourage greater

production of local coffee and the government’s revenue would increase.

• It is argued by some pundits that any license to import coffee should be destined to

coffee producers only. This means that coffee will only be imported when there is a

shortage in coffee.

CONCLUSION

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 The main factors affecting demand can be concluded to be price, customer service,

quality/taste, brand, Wi-Fi accessibility, location, atmosphere and whether it were a Jamaican

brand or foreign brand. The ones that have the most impact are quality/taste, atmosphere, Jamaican

brand and price. The one that has the least impact in Foreign brand.

With respect to price elasticity, when there is a price increase, the responsiveness is more than

when there is a price decrease. With a price increase, the other firms will not follow, however with

the decrease they will drop their prices. This shows that coffee is more elastic when there is a price

increase than when there is a price decrease. With respect to income elasticity of demand, it can

be concluded that a decrease in income has a more powerful impact on the quantity demanded than

an increase in income. A decrease in income would make people buy less, however an increase in

income would not necessarily make them buy more. The situation with a decrease in income shows

income elasticity of demand however the increase in income shows income inelasticity of demand

due to the lack of response.

Degree of competitiveness in the market is not much. Though there are few firms, the market

is big enough so that it is not necessary to collude. Only by branding or by word of mouth does

one firm get more business.

APPENDICES

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Questionnaire

1. I am:
a. Male
b. Female

2. I am:
a. 15-17 years old
b. 18-25 years old
c. 25-49 years old
d. over 50 years old

3. Do you drink coffee?

a. Yes
b. No

4. How often do you consume coffee?

a. Once Daily
b. More than once Daily
c. Weekly
d. Occasionally
e. Not at all

5. How often do you visit coffee shops?

a. All the time
b. Often
c. Sometimes
d. Rarely
e. Never

6. What is your favourite coffee shop in the Liguanea area?

a. Brew’d Awakenings
b. Café Blue
c. Cannonball
d. Eleni’s
e. Starbucks
f. Other, please specify _______________

7. Do you usually go to the same coffee shop or a variety of different ones?

a. The same coffee shop always
b. The same coffee shop mostly but I change sometimes
c. I go to a variety of different coffee shops

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8. If Starbucks, prior to their opening, which coffee shop did you visit?
a. Brew’d Awakenings
b. Café Blue
c. Cannonball
d. Eleni’s
e. Other, please specify _______________

9. On average, how much do you spend daily in a coffee shop?

a. $0 - $499
b. $500 - $749
c. $750 - $999
d. Over $1000

10. If the price of a cup of coffee in your favourite coffee shop were to increase by
10%, would you:
a. Buy less coffee
b. Buy more coffee
c. Buy the same amount of coffee
d. Visit another shop

11. If the price of a cup of coffee in your favourite coffee shop were to decrease by
10%, would you:
a. Buy less coffee
b. Buy more coffee
c. Buy the same amount of coffee
d. Visit another shop

12. If your income was to increase by 10%, would you buy more coffee?
a. Yes
b. No

13. If your income was to decrease by 10%, would you buy less coffee?
a. Yes
b. No

14. If coffee was not available, what else would you drink?
a. Tea
b. Cocoa
c. Water
d. Juice
e. Soft drink
f. Other, please specify ______________

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15. What other items do you buy with your coffee:
a. I don’t buy anything else
b. Sandwich
c. Pastry
d. Chips
e. Other

16. On a scale of 1-5 (5 being the most crucial), how crucial are the following when
choosing a coffee shop?
a. Price 1 2 3 4 5
b. Taste/Quality 1 2 3 4 5
c. Customer service 1 2 3 4 5
d. Brand 1 2 3 4 5
e. WiFi accessibility 1 2 3 4 5
f. Location 1 2 3 4 5
g. Atmosphere 1 2 3 4 5
h. Jamaican brand 1 2 3 4 5
i. Foreign brand 1 2 3 4 5

17. Do you prefer your coffee to be:

a. 100% Jamaican Blue Mountain Coffee
b. Jamaican Blue Mountain Blend
c. Imported from overseas

18. At which coffee shop would you be willing to pay the most for a cup of black
coffee?
a. Brew’d Awakenings
b. Café Blue
c. Cannonball
d. Eleni’s
e. Starbucks

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 Interview Sheet
1. How long has this coffee establishment been open?
2. Is the coffee that you serve homegrown or imported?
3. How heavily does the answer to question above affect the prices you sell your products
for?
4. How often do you adjust your coffee prices?
5. When you do, what are the factors influencing the adjustment?
6. When there is a decrease or increase in price is there a notable difference in the
consumption of your products?
7. Are your coffee based products the most consumed in the store or do the non-coffee
products do better?
8. Is there a lot of advertising done for your store?
9. What are some measures taken to beat rivals in sales?
10. What would you say makes your coffee different from your competitors?
11. How would you describe the nature of competition in the specialty coffee market?
12. What are some of the challenges your business faces in light of the competition?
13. How have your sales been affected by the Covid-19 pandemic?

24
MENUS

25
26
Interviews conducted with:

1. Laura Chandley, Cannonball Café

2. Simone Chan Pong, Brew’d Awakenings

3. Ian Dear, Starbucks

4. Jason Sharp, Café Blue

5. Eleni Toupikov, Eleni’s

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BIBLIOGRAPHY

Baumol/Blinder (2006) Economics Principles and Policy

Beardshaw (1992) Economics A Student’s Guide

Coffee Start Up Shops : https://coffeeshopstartups.com/the-true-costs-of-starting-a-coffee-

shop-explained/ (accessed. Apr. 8)

Food Tank: https://foodtank.com/news/2017/10/bcfn-jamaica-climate-resilience/

Jamaica Observer: www.jamaicaobserver.com/opinion/the-coffee-industry-and-its-60-m-

gift_144636?profile=1096

Jamaicans.com : https://jamaicans.com/startabizjamaica/ (accessed April 8)

The Gleaner: http://jamaica-gleaner.com/article/entertainment/20170730/get-artify-ed (accessed

Mar. 16)

The Gleaner: http://jamaica-gleaner.com/article/social/20180518/cafe-blue-launches-coffee-date-

series (accessed Mar. 16)

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