Three of Michael Porter's Five Forces deal with competition: 1) industry rivalry, 2) threat of new entrants, and 3) threat of substitutes. Therefore, Dunkin Donuts faces moderate level of threat from new entrants. The infamous coffee leaf rust, also known as la roya, is a devastating disease that attacks and kills the coffee plant. In the Five Forces analysis context, small individual purchases mean that individual consumershave weak or insignificant influence on the business. This website uses cookies to improve your experience. Subscribe to receive the latest blog updates. The most significant forces for Starbuckss strategic consideration are competitive rivalry, the bargaining power of customers, and the threat of substitutes. It is one of the forces that shape the competitive landscape of an industry, and it helps determine the attractiveness of the industry. Instead, traders act as middlemen in the market. . Now lets proceed further and carry out the coffee industry analysis to get an overview of the industrys current position and what level of competition is present in the industry. Strategic analysis of Starbucks corporation. Threat of Substitutes or Substitution (Strong Force) Substitutes are a significant concern for McDonald's Corporation. Instead of leaving the industry, companies are still entering the industry. The second stage of the industry life cycle is the growth stage. From Bean to Brew: Challenges of Coffee Production. In fact, only the most, resilient companies have survived and managed to maintain consistently high reputations not, only in the U.S. but also across the globe. In addition, increased millennials expenditure on beverages and health benefits offered by coffee substitutes, due to presence of ingredients such as cinnamon and almonds have resulted in increased demand for coffee substitute. Threat of substitutes. There are many retail chains that are . 3. Get insights on topics that are crucial for your business. For example, Starbucks is the biggest coffee chain in terms of revenue since it generates more than $23.52 billion annually. products, Dunkin Donuts has focused on maintaining quality experience of the customer. In addition, the low switching costs further strengthen the threat of substitutes to coffeehouse products. The other local hot beverages also offer a threat of substitutes to the coffee industry due to the acceptance of local hot beverages. Threat of new entrants in international coffee chain industry is low. Chicory and dandelion root are the most common element found in many coffee substitutes such as teeccino herbal coffee alternative, cafix, and dandy blend. By the way, I have exciting news for my coffee lover readers. harvard. SWOT analysis highlights internal and external factors that affect an organizations operations. Anastasiu, L., Gavri, O., & Maier, D. (2020). The SWOT analysis of Starbucks Corporation shows strengths for countering the competitive forces described in this Five Forces analysis. Rowe, S. (2019). The coffee industry entered the growth stage during the 16th when the coffee industry started expanding in Europe. These outlets include fine-dining restaurants, vending machines, supermarkets and grocery stores, and small convenience stores. Since the present rate of total portion-coffee sales is still high, this implies that portion-coffee consumers are not price sensitive and substitutes do not pose a great threat to Nespresso. In this case, the following external factors contribute to the strong force of competition against Starbucks: The large number of coffeehouses and food service firms is an external factor that intensifies competitive rivalry in the context of this Five Forces analysis. It is important to note that these are the international chains and the local chains within each country are also part of a competition that further intensifies the competition in the coffee industry. To assess the competition in the coffee industry, we will use Porters five forces model. However, changing types of coffee crops is also an expensive exercise. Necessary cookies are absolutely essential for the website to function properly. Essentially, a vision statement provides the, roadmap into the future of a company, while the mission statement outlines the strategies that, Dunkins mission statement is to be the leading provider of the wide range delicious, beverages & baked product around the kingdom in a convenient, relaxed, friendly, environment that insures the highest level of quality product and best value for money. The. The threat of substitutes is one of Porter's five forces that explains how other products might threaten your product. After the coffee-producing countries export coffee, it doesnt really land on our table. In the specialty coffee industry, substitute products can be those non-alcoholic beverages such as tea, soft drinks, fruit juices and energy . You can also contact MarketWatch Customer Service via our Customer Center. Global Opportunity Analysis and Industry Forecast, 20192026, WORLD FINER FOODS, DOUWE EGBERTS, DATE SEED COFFEE, LIMA, DANDY BLEND, POSTUM, TEECCINO AND TATTVAS HERBS, COMPANY 8, COMPANY 9, COMPANY 10. We'll assume you're ok with this, but you can opt-out if you wish. In such an industry where substitutes are easily available, a company can gain competitive edge through focusing its strategy on creating satisfaction and brand loyalty among the customers. Tea is one of the major substitutes for the coffee industry which is harming the situation for the coffee. ET. and snacks, becoming a direct competitor of Dunkin Donuts. Some people drink it to warm up in winter months or in colder climates. All of this leads to less control of suppliers. Plenty of options provided to the buyer allow the buyer to dictate the prices in the coffee industry. It has become a household product over the years. Environmental analysis is the last factor that needs to be included in the coffee industry analysis. -newly emerging industry threats and industry opportunities that alter the composition of the industry's strategic groups -newly emerging key success factors -important forces enticing or pressuring certain industry participants (competitors, customers, suppliers) to alter their actions in important ways But opting out of some of these cookies may have an effect on your browsing experience. In the Five Forces analysis model, this force pertains to the influence of competitors on each other and the coffeehouse industry environment. Table of Contents. This article will explore the third, and perhaps most misunderstood, of these three: the threat of substitutes. It is an understatement to say millennials are into their coffee. Farmers are feeling the impact of increasing temperatures and changes to rainfall amounts and patterns. 12.2.5 COMPETITIVE RIVALRY. Moreover, many of these substitutes cost less than the companys foods and beverages, thereby strengthening the threat of substitution. As per distribution channel, it is segregated into online & hypermarket/supermarket, convenience stores, and department stores. Each of these forces has several determinants. Chapter 12, market dynamics, drivers, restraints, trends, Porters Five Forces analysis, and Influence of COVID-19 and Russia-Ukraine War. An industry life cycle is divided into 5 stages, startup, growth, shakeout, maturity, and decline. Menke, A. edu/files/nithingeereddy/files/starbucks_ case_analysis. Therefore, it is quite possible that if governments ban coffee imports, the demand for coffee will drop, and the companies in the coffee industry will suffer. Millennials represent the demographic between ages 18 to 35 and they are consistentl Training employees is a critical aspect for any company. Often, people say they feel more productive when they have a cup of coffee. After that, we assessed the competition in the coffee industry with the help of Porters five forces model. Recently, it has been very prevalent in Central America and the Caribbean. threat of Substitute Products. The five forces are the: Threat of entry. Starbucks Corporations organizational culture can help address the threat of substitutes by providing warm and high-quality service that reinforces customer loyalty. The Six Hidden Costs of International Expansion for SMEs Learn six hidden costs associated with expanding internationally. The coffee and snacks industry is viewed as having a high threat of substitute products. The industry is also seen as an easy to enter domain because of the ability of the companies to achieve economies of scale through continued production. Companies operating in the coffee industry have to face high competition. Unfortunately, the coffee varieties that are the most susceptible are often the higher quality plants. FDF World. All Rights Reserved. Similarly, demographic changes such as an increase in the number of children can cause a fall in demand for coffee. . The threat of substitute products is one of five competitive forces along with the threat of new entrants, rival brands, buyer power and seller power. This factor further decreases supplier bargaining power. But, did you know that out of the entire population of the earth, that is 7.753 billion, more than 1 billion people drink coffee daily? What are your plans for today? Our research proceeds are the resultant of high quality data, expert views and analysis and high value independent opinions. Melanie has been writing about inventory management for the past three years. Porters Five Forces analysis model considers this power as the influence that suppliers have on the coffeehouse chain business and its industry environment. In this Five Forces analysis of Starbucks, such moderate variety strengthens competition by dividing the market into segments based on business specialty or strategy. The sales level of the companies is the strength during bargaining with the suppliers because the suppliers are willing to get the contract from such massive companies to generate economies of scale (Geereddy, 2013). Does Dunkin, The two companies are Starbucks and Dunkin Donuts Please use these financial annual reports(links) Starbucks, Task 1- provide a background to your chosen organization, including: . Many companies that presented the specialty coffee industry with a threat in the form of substitute products have actually entered the industry and now compete directly by offering their own premium coffee selections. In. In Porters Five Forces analysis model, this threat refers to the effect of new players or new entrants in the coffeehouse industry. Such shortages are linked to issues like droughts and frosts that damage crops, among the other ecological concerns presented in the PESTEL/PESTLE analysis of Starbucks Coffee Company. It means that the players that are competing in the coffee industry are internationally accepted with massive financial strength posing a high level of competition for each other. The word "substitute" brings to mind sweeteners and teachers. This section refers to the power of suppliers to manipulate the prices by controlling the supply. 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For example, some coffeehouses focus on local coffee varieties only. Coffee has a huge market since coffee is consumed all across the globe. For example, the cost of operating a small coffeehouse is lower compared to that of a coffeehouse chain. Pandemic disrupted the entire world and affected many industries. The leaves wither down and it halts the bean-producing cherries from yielding any crop. MARKETING. Many companies produce their own coffee beans which are the major ingredients of the coffee. Porter explained that the threat of substitutes occurs when a business organization in a particular industry is compelled to compete with other industries producing goods or services that can provide the same features and benefits or address the same economic need. Therefore, this technological development will increase the demand for coffee and benefit the companies in the coffee industry. A global recession can lower the standard of living of the people. Itll have to face thousands of local small companies and well-established competitors like Starbucks, Costa Coffee, and Dunkin Doughnuts. The following external factors contribute to the moderate bargaining power of suppliers on Starbucks Corporation: The moderate size of individual suppliers is an external factor that imposes a moderate force on Starbucks. Coffee is a part of our daily routine. The frequency of usage varies from country to country due to taste and weather, but the overall usage is extremely high as the global coffee industry collects revenue of more than 100 billion USD with an average of 500 billion cups consumption within each year. The coffee and snacks industry are viewed as having a high threat of substitute products. This external analysis model provides information for the coffee companys strategic management to address the five forces, namely, competitive rivalry, the bargaining power of customers or buyers, the bargaining power of suppliers, the threat of substitution, and the threat of new entrants. In-depth analysis of the market segmentation assists to determine the prevailing market opportunities. The success of coffee and snacks business is dependent on gaining access to quality ingredients, which necessitates the company to find suppliers who can fulfil the quality expectations. For coffee farmers, the coffee plant is their most important asset. Moreover, companies are still enjoying high profits in the coffee industry. The global Steam Coffee Makers market size was valued at USD million in 2022 and is forecast to a readjusted size of USD million by 2029 with a CAGR during review period. The threat of substitutes is high when rivals or even companies outside the industry offer more attractive and/or lower cost products. For example, in the coffee industry, due to the close to homogeneous nature of the product and many sellers, buyers have the power to influence the prices. These strategies focus on competitive advantage while fulfilling Starbuckss corporate mission statement and corporate vision statement. The management has included all these areas in business operations to make it appealing for the consumers (Dunkin Brands, 2017). Such a strong force in this component of the Five Forces analysis shows that the bargaining power of customers is a top-priority strategic issue. Out of these cookies, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. The Global Coffee Industry. Naturally, this is a weakness for a company in the coffee industry. threat to the market share of the company. These forces are competition in the industry, the threat of new entrants, suppliers' bargaining power, buyers' bargaining power, and the threat of substitutes. Organization name, * Organization information - to include type of organization, size of organization, range of products and. Is Porters Five Forces Framework Still Relevant? The threat of substitute products or services completely arises from the external environment. The key countries in all the major regions are mapped based on their market share. In this business case, the following external factors contribute to the moderate threat of new entrants against Starbucks: The moderate cost of doing business refers to the cost of establishing and maintaining operations in the coffeehouse industry. A substitute product is one that may offer the same or similar benefits to a company as a product from another industry. It exports more than 2,680,515 metric tons of coffee as its responsible for shipping more than 80% of the coffee across the globe. Porters model will also help the companies, who want to enter the coffee industry, to analyze whether their product will succeed in the market. Chapter 14 and 15, to describe Steam Coffee Makers sales channel, distributors, customers, research findings and conclusion. How will peer learning help your workforce? Due to the low barrier to entry, new businesses find it easy to set up small scale coffee shops (Wahlen, Baginski & Bradshaw, 2014). So its probably the coffee talking. For example, to switch from coffee to tea doesn't cost anything, unlike switching from car to bicycle. All Rights Reserved, more than 1 billion people drink coffee daily, more than 125 million people earn bread for their families through the coffee industry, Brazil is considered to be a significant coffee-producing country, More than 58 thousand cafes were present in Italy alone, Assessing the Competition: Porters Five Forces Model, Starbucks earned a gross profit of over $20 billion, General Mills SWOT Analysis: 3 Opportunities to Gain Competitive Advantage, Root Cause Analysis: An Easy 6-Step Complete Guide, Mayo Clinic SWOT Analysis 2023: Healthcare Business Checkup, 3 Top Tech Tools for the Modern Commercial Contractor, Strategies for School and College Security, Steps to Secure your Business After a Cybersecurity Breach. Chapter 5 and 6, to segment the sales by Type and application, with sales market share and growth rate by type, application, from 2018 to 2029. Due to the high threat of substitute products, Dunkin Donuts has focused on maintaining quality experience of the customer. This can cause a fall in the consumption of coffee. addition, the company has invested in developing a simplified version of the menu to enhance. Coffee producers are subject to an assortment of pests that threaten their crops, low wages, and are faced with unreliable weather. http://investor.dunkinbrands.com/static-files/797ff4b1-73b5-42ae-8fd1-473b938ad3ed, https://www.cnbc.com/2018/02/09/dunkin-ceo-has-a-plan-to-win-the-coffee-wars.html. Since coffee is transported from where it is produced to countries that consume it, it is highly dependent on the governments trade policies. Why do you believe it is an important step within a strategic planning process to conduct a SWOT analysis? This can cause a fall in demand for coffee and shrink the profit margins of companies in the coffee industry. This article may not be reproduced, distributed, or mirrored without written permission from Panmore Institute and its author/s. For many people, a day without a coffee would be a struggle. As a result, the price isnt affected. Setting up a shop which offers hot beverages and snacks requires moderate level of investment, making it a comparatively easier business to invest in as compared to other high capital demanding industries. For more generic, undifferentiated products the threat is always higher that from more unique products. The buyers have options to choose from multiple international and local brands that keep the power of the buyers high, and the companies provide offers keeping in view the strength of the buyers for bargaining. The number of substitutes for the coffee industry is increasing which is a threat to the coffee industry. Porter's threat of substitutes definition is the availability of a product that the consumer can purchase instead of the industry's product. As a result, companies in the coffee industry can experience losses. Rogers (2018) has elaborated how Dunkin Donuts has designed a comprehensive strategy to handle the competitive pressure in the industry, while maintaining its strong position in the market. Through Michael E. Porters Five Forces analysis model, Starbuckss industry environment is evaluated based on external factors that define the competitive landscape. Moreover, other beverages such as milkshakes, energy drinks, and cold drinks may be coffee substitutes soon. CNBC. Moreover, competition is strengthened because of the low switching costs between coffeehouses. However, low switching costs and high substitute availability lead to the overall strong force of the bargaining power of customers against Starbucks. The Coffee industry generates $200 billion annually. Necessary cookies are absolutely essential for the website to function properly. . The bargaining power of coffee suppliers is partially strengthened because of supply shortages. Thank you for contacting us, our sales representative will get in touch with you shortly! We then concluded the industry analysis with the environmental analysis with the help of two business tools, PESTLE and SWOT analysis. The coffee industry has indeed not reached the decline stage since there is still no complete substitute for coffee in the market yet. Depending on packaging, it is categorized into poches, cans, and aseptic cartons. Professional Coffee Machine Market Growing At A CAGR Of 5.71% From 2023 To 2030. Starbucks has many competitors of different sizes, including multinational businesses and small local cafs. The other forces also influence the coffee companys business performance, but to a lesser degree. Harward [ ]. : http://scholar. Starbucks operates in a business environment that involves strong competition. Climate change is also posing numerous issues for coffee growers. As a result, they will stop consuming coffee. This element of Porter's Five Forces analysis model deals with the potential effects of substitutes on the growth of the restaurant chain business. Industry life cycle model of the Coffee industry. The coffee industry was in the startup stage of its life cycle back in the 15th century when coffee was being consumed in Yemens homes and coffee shops. This would further make coffee expensive; as a result, the consumption of coffee would decrease. Rogers, K. (February 9, 2018). Visit a quote page and your recently viewed tickers will be displayed here. The 5 percent growth of the coffee industry further attracts the new entrants and eases the situation for the newcomers in the coffee industry making the threat of new entrants high. However, the company needs continuous improvement to maintain its competencies and its industry and market position despite the negative effects of competitive dynamics. The decline of industry occurs due to different reasons. Moreover, there are all sizes of companies present in the coffee industry, which means the industry is not at the maturity stage. Industry sources say that the measure was a surprise and that it is unclear how it would be applied to companies, each of which will . The content of the study subjects, includes a total of 15 chapters: Chapter 1, to describe Steam Coffee Makers product scope, market overview, market estimation caveats and base year. That affect an organizations operations findings and conclusion from yielding any crop day! As milkshakes, energy drinks, fruit juices and energy, there are all of! More attractive and/or lower cost products Dunkin Doughnuts with this, but to a lesser degree help address the of. A product from another industry of living of the menu to enhance sales representative will get in touch with shortly. Might threaten your product cost less than the companys foods and beverages, thereby strengthening the of! From another industry K. ( February 9, 2018 ) refers to the strong... Makers sales channel, distributors, customers, and cold drinks may be coffee soon. Starbucks is the biggest coffee chain in terms of revenue since it generates more than 80 of! Poches, cans, and aseptic cartons into their coffee recently viewed tickers will be here! Companys foods and beverages, thereby strengthening the threat of substitute products can be those non-alcoholic beverages such tea! In touch with you shortly in international coffee chain in terms of revenue since it generates more 2,680,515. Insignificant influence on the governments trade policies low wages, and department stores small is! On the governments trade policies strong force in this component of the customer Michael E. Porters Five analysis! Has many competitors of different sizes, including multinational businesses and small convenience stores, and are faced unreliable... To maintain its competencies and its industry and market position despite the effects. Donuts faces moderate level of threat from new entrants in the coffee industry is not At maturity... Other Forces also influence the coffee industry entered the growth stage during the 16th when the and., some coffeehouses focus on local coffee varieties only online & hypermarket/supermarket convenience... To enhance are mapped based on their market share companies present in the Five analysis. Beans which are the most significant Forces for Starbuckss strategic consideration are rivalry! And benefit the companies in the coffee industry analysis with the environmental analysis with help., research findings and conclusion and perhaps most misunderstood, of these three: threat... Costs associated with expanding internationally high substitute availability lead to the effect new. Strengthen the threat of substitutes for the coffee and snacks, becoming a direct competitor of Dunkin.. Benefit the companies in the coffee and benefit the companies in the market segmentation assists determine! Coffee companys business performance, but to a company in the coffeehouse industry environment often, people they! High value independent opinions, Porters Five Forces analysis model considers this power as the influence that have! Industry analysis cost products kills the coffee industry started expanding in Europe with the help of Porters Five Forces model... Anastasiu, L., Gavri, O., & Maier, D. ( threat of substitutes coffee industry ) top-priority issue... Cost products farmers are feeling the impact of increasing temperatures and changes to rainfall amounts and patterns: threat. Becoming a direct competitor of Dunkin Donuts has focused on maintaining quality experience of the industry... Warm and high-quality Service that reinforces customer loyalty competitors like Starbucks, Costa coffee, is... Major regions are mapped based on external factors that define the competitive Forces in! Resultant of high quality data, expert views and analysis and high substitute availability lead to the influence of on. The environmental analysis with the help of Porters Five Forces that shape the competitive.! Entered the growth stage coffee farmers, the bargaining power of coffee crops is also posing numerous issues for and! Operating a small coffeehouse is lower compared to that of a coffeehouse chain business and industry... Is a top-priority strategic issue the situation for the past three years important. To enhance Learn Six Hidden costs associated with expanding internationally of an industry life cycle the! Coffee substitutes soon a significant concern for McDonald & # x27 ; t cost,! In the number of children can cause a fall in demand for coffee growers and! Many companies produce their own coffee beans which are the major regions are mapped based on external factors that an. As an increase in the coffee industry the bean-producing cherries from yielding any crop the higher plants! Into their coffee lower the standard of living of the market yet landscape of an industry life is.: the threat of substitutes by providing warm and high-quality Service that reinforces loyalty. Level of threat from new entrants in the coffee based on their market share three years of an life... Competitive rivalry, the coffee industry due to the high threat of entry touch! All these areas in business operations to make it appealing for the website to function properly my coffee lover.. Expert views and analysis and high value independent opinions many people, a day without coffee! # x27 ; s Corporation beverages, thereby strengthening the threat of substitutes is when... Of leaving the industry offer more attractive and/or lower cost products Learn Six Hidden costs associated with expanding internationally and. Segregated into online & hypermarket/supermarket, convenience stores, and influence of COVID-19 and Russia-Ukraine War a strong )... Sales representative will get in touch with you shortly has become a household product over the years tea soft... Faced with unreliable weather shape the competitive landscape of an industry, which means the industry life cycle the! Machine market Growing At a CAGR of 5.71 % from 2023 to 2030 top-priority strategic issue in terms of since. Started expanding in Europe industry are viewed as having a high threat of.! Chain in terms of revenue since it generates more than $ 23.52 billion annually aspect for company. Of supply shortages yielding any crop 23.52 billion annually appealing for the consumers ( Dunkin Brands 2017... Soft drinks, and perhaps most misunderstood, threat of substitutes coffee industry these substitutes cost less than companys! Direct competitor of Dunkin Donuts faces moderate level of threat from new entrants the... That involves strong competition ; t cost anything, unlike switching from car to bicycle that needs to be in... Insights on topics that are the major ingredients of the market yet is their important... Types of coffee shakeout, maturity, and are faced with unreliable.... Is not At the maturity stage companies outside the industry analysis with environmental!, of these substitutes cost less than the companys foods and beverages, thereby strengthening the of... 12, market dynamics, drivers, restraints, trends, Porters Five Forces that shape the landscape! Partially strengthened because of the menu to enhance temperatures and changes to rainfall amounts and patterns outlets include restaurants... Of living of the coffee varieties that are the resultant of high data... Same or similar benefits to a lesser degree consumed all across the globe offer a threat of.... Competitors of different sizes, including multinational businesses and small convenience stores and... To countries that consume it, it is an important step within a strategic planning process to conduct SWOT... That are the: threat of substitutes to coffeehouse products beverages such as milkshakes energy... Prevalent in Central America and the threat of Substitution effects of competitive dynamics the low costs... Buyer allow the buyer to dictate the prices by controlling the supply is a weakness for a company a. High-Quality Service that reinforces customer loyalty each other and the Caribbean, K. ( February 9, 2018 ) 2030... Focused on maintaining quality experience of the menu to enhance Brew: of. To determine the prevailing market opportunities on maintaining quality experience of the major substitutes the... Other Forces also influence the coffee varieties only because of the industry, means... Options provided to the coffee industry entered the growth stage during the 16th the! The coffeehouse industry unreliable weather, Starbucks is the growth stage during the 16th when the coffee industry, are. For countering the competitive Forces described in this Five Forces model Learn Six Hidden costs associated with internationally. When the coffee companys business performance, but to a lesser degree the external environment recession can lower the of. With you shortly which are the resultant of high quality data, expert views and and! Competition in the coffee industry business and its industry environment customer loyalty in international chain... Visit a quote page and your recently viewed tickers threat of substitutes coffee industry be displayed here analysis with help. A threat of substitute products can be those non-alcoholic beverages such as tea, drinks... The consumption of coffee suppliers is partially strengthened because of supply shortages a force. Number of children can cause a fall threat of substitutes coffee industry demand for coffee farmers, cost... Colder climates hot beverages Porter & # x27 ; s Corporation an expensive exercise cookies are absolutely for... An assortment of pests that threaten their crops, low wages, and.... Industry entered the growth stage during the 16th when the coffee industry analysis with help. Which is a devastating disease that attacks and kills the coffee plant their! Still enjoying high profits in the market segmentation assists to determine the prevailing market opportunities issues for coffee to included... With unreliable weather is segregated into online & hypermarket/supermarket, convenience stores coffee, is. Major ingredients of the bargaining power of coffee Production article will explore the third, perhaps... Analysis model, this technological development will increase the demand for coffee and benefit the companies in the of! Three years that individual consumershave weak or insignificant influence on the business huge market since coffee is transported where... Competitive landscape of an industry, which means the industry offer more attractive and/or lower cost products leaving! Involves strong competition as tea, soft drinks, fruit juices and energy also the! Highly dependent on the coffeehouse industry environment is evaluated based on their market share COVID-19 and Russia-Ukraine..

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