Costa Coffee Strategy

MMS assignment costa umber STRATEGY 1. Identify, analyse and h anile forth Strategic issues in costa Coffee. costa has flourished in a recession which has claimed many victims in the industry, says sportsmanlikebread company. 1The reason for this success is its strategy. Using the PESTEL framework pass on help discover, analyse and discuss costas strategy. Despite the importance of political, environmental, technological and law factors, for the purpose of this quiz we will focus on the economic and social factors affecting costa Coffee. We will first see how economic factors such as the recent raise of alcoholism ining chocolate beans price influence ribs prices.We will hence use social factors such as consumer trends to identify the different trends today and explain how Costa is reacting to them. Through this essay we will lease then explained how Costa has flourished in a recession which has claimed many victims in the industry,2 The main economic factor affecting the umber market today is the raise of coffee berry beans price. Due to heavy rains brought on by Caribbean storms in the coffee producing 1 Zekaria, S. , 2010. Whitbread Says Costa Coffee Flourished During Recession. online 2010 FOX News Network, LLC. open at Accessed 23 celestial latitude 2010 2 Zekaria, S. , 2010.Whitbread Says Costa Coffee Flourished During Recession. online 2010 FOX News Network, LLC. addressable at Accessed 23 celestial latitude 2010 countries from Central America, coffee prices have growthd3. Coffee futures have kaput(p) up 35% since June 2010 to reach the highest price for a pound since declination 1997 $1. 848. 4 This is a significant problem because coffee beans argon raw materials for coffee shops. Hence if shops do non have coffee beans or not enough, their sales will plummet. As John Wolthers, a trader at coffee exporter Comexim in Santos reports Its a great time to be a producer, and a difficult time to be a roaster. 5 Because these prices are due to cancel disasters, it is possible that they will not change until at least end of 2010 or 2011. A normal consequence would thitherfore be to raise prices in order to retain m iodiny. However, Whitbread PLC, owner of Costa Coffee, announced November 10th 2010 that it has no plans to increase beverage retail prices, even as it remains concerned all over escalating wholesale costs. 6 single of the reasons for this action is because Costa had already bought many coffee beans before the storm hence has enough to provide the prohibitedlets with enough beans during this period of increased prices. This shows that Costa plans its purchases well because as we 3 Zekaria, S. , 2010. Whitbreads Costa Coffee Plans No sell Price Rises. online 2010 The Connors Group, Inc. unattached at Accessed 23 celestial latitude 2010 4 Danby, T. and Sellen, T. 2010. No reliever in Sight for the Coffee Market. online 2010 Dow Jones & Company, Inc. for sale at Accessed on 23 celestial latitude 201 0 5 Danby, T. and Sellen, T. 2010. No Relief in Sight for the Coffee Market. online 2010 Dow Jones & Company, Inc. acquirable at Accessed on 23 December 2010 6 Zekaria, S. , 2010.Whitbreads Costa Coffee Plans No Retail Price Rises. online 2010 The Connors Group, Inc. Available at http//www. tradingmarkets. com/news/stockalert/sbux_wtbrf_-update-whitbread-s-costa-coffee-plans-no-retail-price-rises-1297481. html Accessed 23 December 2010 7 Zekaria, S. , 2010. Whitbreads Costa Coffee Plans No Retail Price Rises. online 2010 The Connors Group, Inc. Available at http//www. tradingmarkets. com/news/stock- can see, conveys to its bulk-buying in coffee beans, it is outright unaffected, unlike the other coffee shops, by the coffee bean market.However this could be a risk because one can never go through but how many beans are consumed per day and Costa does not know for certain how long these prices will remain high. Another reason Costa would not emergency to raise prices could be because in a period of recession, where consumers are being to a greater extent(prenominal) and more careful with the way they spend their money8 they will not penury to buy a drink at Costa if it is too expensive. Moreover if it is therefore cheaper at Starbucks or Caffe Nero for example why would they want to pay more for the same drink?Hence a third reason for Costas decision is due to the competitiveness with the all the other coffee stores. The utmost reason is With total sales growing at 33% year on year, and like for like sales up 9%9, and with over 1,100 outlets in the UK and 130 new shops to open within this year in the UK10 perhaps Costa is not too affected by the increase of coffee beans price. Hence, with the increase of coffee beans, Costas strategy is not to increase prices for different reasons which demonstrate Costas strength in the coffee industry which therefore explains why it has flourished during the recession Costa moolah at nothing. lert/sbux_wtbrf_-updat e-whitbread-s-costa-coffee-plans-no-retail-price-rises-1297481. html Accessed 23 December 2010 8 Rodenberg, J. , n. d. Costa Coffee vs Starbucks. online Templates Wise. Available at Accessed 16 December 2010 9 Hospitability And Catering News. , 2010. Costa Coffee has wins best(p) mark Coffee Shop Chain?. online Available at Accessed on 23 December 2010 10 Zekaria, S. , 2010. Whitbread Says Costa Coffee Flourished During Recession. online 2010 FOX News Network, LLC. Available at Accessed 23 December 2010Moreover, social factors such as consumer trends modify us to see how Costas strategy is brilliant. According to CJ Bobrowski, Head of Costa Systems, With greater perceptivity into trends we can adapt more quickly to any changes in consumer needs, helping us to stay ahead of argument in a crowded marketplace. 11 Hence identifying and explaining the trends and how Costa adapts to them explains its success. For this essay, we will focus on three trends. With prices that cannot incr ease due to competitively another way in which companies can now fence is through quality.As more and more coffee shops open in the UK, demonstrating high quality is an important aspect for consumers today. With each one providing the same slip of product, they need to know which one is the best quality-wise. One of Costas advertisements promotes its cappuccino by saying Sorry Starbucks, the concourse have voted. 12 This advert clear shows the consumers concern for quality. Through this advert Costa shows it has clearly adapted to consumers new trend. The thirst for an experience is another trend. It has become so important that a news program for consumers searching for an experience was invented Transumers13.Consumers no longer look for simple coffee but for an experience. Costa provides this by training its baristas at official training academies opened by Costa. In fact in 2009they invested in a third Training Academy. Therefore, each of their barista have been professional ly trained to provide each 11 Bobrowski, CJ,. online Torex Retail Holdings expressage. Available at Accessed 17 December 2010 12 Rodenberg, J. , n. d. Costa Coffee vs Starbucks. online Templates Wise. Available at Accessed 16 December 2010 13 Trend watching. , 2006. Transumers. online Trendwatching. om. Available at http//trendwatching. com/trends/transumers. htm Accessed 23 December 2010 customer with the best coffee. 14 This is important for no other coffee shop has invested in training academies which makes Costas drinks even more of an experience for consumers. The Nintendo Wii Fitness is increasingly bought which shows consumers concern for health. They are especially more troubled astir(predicate) the amount of ample, saturated fat, salt and sugar in their aliment. 15 Hence health has become a trend. In order to respond to this, Costa has different techniques.The first is to provide consumers with different types of milk soya or skimmed for no extra cost. 16However, Cost a does not advertise enough this aspect hence many customers are not aware of these options. They need to increase the marketing for this aspect in order to be fully responding to this trend. The guerrilla technique is working with the Food Standards Agency to reduce salt and saturated fat and indicate their quantities. 17This way, the products stay the same with less fat and consumers know how many calories they absorb.This is very risky for Costa. Many consumers are not aware of how many calories there are in their beverages and could be 14 The Food and salute novelty Network,. 2009. Costa Opens third training academy in Newburry. online Food & Drink Innovation Network. Available at http//www. fdin. org. uk/2009/06/costa-opens-third-training-academy-in-newbury/ Accessed 17 December 2010 15 Foods Standard Agency, 2008. Consumer confidence rises around many food issues. online Crown copyright. Available at Accessed on 16 December 2010 16 Morgan, J. , 2008.Fast food menu is recipe for obesity. online Cambridge Newspaper Ltd. Available at Accessed on 15 December 2010 17 Food Standards Agency, 2010. hale catering commitments. online Crown Copyright. Available at Accessed on 14 December 2010 shocked like Rebecca Its lethal I dont want it now I know theres a lot of fat in them too. 18 By observing the trends and adapting to them despite possible negative consequences, Costa proves that great insight into trends helps costa to stay ahead of competition in a crowded marketplace. 19 Costa has been able to make it through the rough patches despite the increase of coffee beans price and its ability to identify and adapt to consumers trends. However will they have to increase their prices soon? With such sales growing 33% year on year20 will this hard be able to be at the top of the coffee shop list? 18 Sky News HD, 2009. Cancer disquietude Of Calorie-Laden Iced Coffees. online BskyB. Available at Accessed on 14 December 2010 19 Bobrowski, CJ,. online Torex Retail Holdings Limited. Available at Accessed 17 December 2010 20Hospitability And Catering News. , 2010. Costa Coffee has wins Best Branded Coffee Shop Chain?. online Available at Accessed on 23 December 2010 MARKETING 2. Analyse Costas Marketing and then consider on how it compares to the marketing of Starbucks. Deborah Dougherty, professor of Management and Global trade at Rutgers product line School, and Cynthia Hardy, professor of Management and Marketing at the University of Melbourne, agree that it is difficult for old governances with a big history to innovate due to the challenges of new technology and global competitors. 1 Costa Coffee being a new organisation hence should not have many problems innovating its products and processes. Being part of the young rising coffee shop industry, Costa Coffees compute one competitor is Starbucks. Dr. Robert G. Cooper, expert in the field of mental hospital, published The Invisible victor Factors in Product Innovation in which he es tablishes Eight Actionable vital Success Factors for innovation. 22 In this essay we will only use certain factors to explain how Costas service and product innovations are damp than Starbucks but how, despite this Costa is still a little behind for the future.In order to be competitive in todays UK coffee shop industry, service innovation is vital. Costa and Starbucks have therefore launched a new loyalty card because as Jeffery Young, managing director of Allegra Strategies notices Electronic loyalty cards provide an 21 Dougherty, D and Hardy C,. 1996. Sustained Product Innovation in large, mature Organisations overcoming innovation-to-organization problems. Academy of Management Journal, 39(9, pp. 1120. 22 Cooper, R,. n. d. From hear The Invisible Success Factors in Product Innovation. online Product increment Institute Inc.Available at Accessed on 17 December 2010 opportunity to engage in rich duologue with customers and track their behavior. 23 Hence this card will not on ly improve the dialogue between customers and firm but overly will enable the companies to innovate their manufacturing process or services in order to adapt to the changing behavior. 24 Although the service is the same, are the reasons behind this innovation the same? One of Coopers critical innovation success factors is the justification of the project. 25 For Costa, this new card is a positive sign its use is to replace the undefeated old card.According to a year-long trial in Scotland, one in three transactions was using the old card26. Hence in order to thank the customers loyalty, Costa wanted to add rewards and innovate the card so that one no longer had to top-up money on the card in order to purchase but would simply pay with money and then receive points that would transform into rewards. 27 The justification for Starbuckss loyalty card is not for the same positive reasons. For them, with sales decline and customers brew at home or visit competitors, this new loyalty car d is a 23 Thomas, J,. 2010. Costa Coffee rolls out customer loyalty card. online Haymarket Business Media. Available at Accessed on 15 December 2010 24 Thomas, J,. 2010. Costa Coffee rolls out customer loyalty card. online Haymarket Business Media. Available at Accessed on 15 December 2010 25 Cooper, R,. n. d. From Experience The Invisible Success Factors in Product Innovation. online Product Development Institute Inc. Available at Accessed on 17 December 2010 26 EatOut,. 2010. Costa Launches New Coffee Club. online Available at Accessed 15 December 2010 27 EatOut,. 2010. Costa Launches New Coffee Club. online Available at Accessed 15 December 2010 echnique to hopefully rebound profits by attracting customers back to the store for its benefits with the card. 28 Therefore, this innovation shows that although both companies propose the same service through their loyalty cards, the reasons behind this same service differs which shows that Costa is raising compared to Starbucks who is struggling against its competitors. Another example that shows that Costas innovation is better than Starbuckss is the launch of a new drink The Flat White. Although Starbucks is the first to have inaugurated this drink, Costa is the one who has the biggest impact in the UK29.Costa Coffe is the only one to have followed Coopers fifth critical innovation success factor A well-planned, adequately-resourced and proficiently-executed launch. 30 Indeed, Starbucks only launched the drink in London whereas Costa, several weeks after, launched it nationally. By launching nationally, Costa was able to sell its new product everywhere whereas Starbucks, only in London31. Hence out-of-London people could believe Costa is the founder of the Flat White, which could therefore lead them to a competitive advantage.Starbucks is the perfect example for Coopers statement In almost businesses, its almost as though the launch is an 28 Startz, S,. 2009. Starbucks Boosts Rewards With Revamped Loyalty Pr ogram. online 2001-2010 brandchannel. Available at Accessed 14 December 2010 29 Westfield London. n. d. Costa Coffee. online 2008 Westfield Group. Available at Accessed on 15 December 2010 30 Cooper, R,. n. d. From Experience The Invisible Success Factors in Product Innovation. online Product Development Institute Inc. Available at Accessed on 17 December 2010 31 Boughton, I,. 2010. Costa Coffee launches the flat white? ationwide. online Reed Business Information. Available at Accessed 23 December 2010 after-thought something to worry about after the product is fully developed. 32Moreover, Costa says to have invested more than twelve months research, involving the training of 6,000 baristas, at a cost of over one million pounds. 33This also shows they followed Coopers fifth factor. However, Starbucks says that their baristas had trained themselves due to customers requests and that the education in the making of the drink was anyway already readily available from a number of bari sta trainers. 4 Perhaps Starbucks is right, but according to an independent survey by Tangible Branding Limited consumers prefer Costas Flat White to Starbuckss. 35 This could be explained by the twelve months research and training of 6,000 baristas with a cost of one million pounds. Furthermore, both companies follow Coopers second innovation success factor the voice of the customer. According to Costas core skills trainer Tim Douglas the Flat White will attract some of our latte drinkers who are looking for a milky drink with a broad strength of flavour, and cappuccino drinkers who want a milkier drink with a much richer coffee 2 Cooper, R,. n. d. From Experience The Invisible Success Factors in Product Innovation. online Product Development Institute Inc. Available at Accessed on 17 December 2010 33 Boughton, I,. 2010. Costa Coffee launches the flat white? nationwide. online Reed Business Information. Available at Accessed 23 December 2010 34 Boughton, I,. 2010. Costa Coffee laun ches the flat white? nationwide. online Reed Business Information. Available at Accessed 23 December 2010 35 Westfield London. n. d. Costa Coffee. online 2008 Westfield Group. Available at Accessed on 15 December 2010 flavor. 36 Hence this drink will be able to satisfy the gap between lattes and cappuccinos. Costa is purely reacting to the customers need for this gap-filling-space. On the other hand, Starbucks is innovating this drink due to their very negative customers voice. Their consumers find their coffees too bland and milky37 which is why, the Flat White is the perfect drink to launch because it is Stronger, smaller and less milky than most of their drinks. 38 Therefore, although Costa and Starbucks are using the same product innovation, they have different reasons which show that Costa is becoming more competitive than Starbucks.Although this essay has proved that presently, Costa is innovating for more positive reasons than Starbucks, this state might change in the near f uture. During a period of recession it is important that firms react to this economic problem. Starbucks, as opposed to Costa, has seemed to understand this and has innovated in at-home machines. The Starbucks Barista Espresso Machine39 or the Barsita Aroma Grande coffee machine enable consumers who do not necessarily want to go out to have a Starbucks coffee to stay at home 36 Williams, A,. 2010. Great White Hope. online William Reed Business Media Ltd 2010. Available at Accessed 23 December 2010 37 Wallop, H,. 2009. Starbucks to sell flat white for those fed up with milky coffee. online Copyright of Telegraph Media Group Limited 2010. Available at Accessed 17 December 2010 38 Wallop, H,. 2009. Starbucks to sell flat white for those fed up with milky coffee. online Copyright of Telegraph Media Group Limited 2010. Available at Accessed 17 December 2010 39 Justin,. n. d. Starbucks Barista Espresso Marchine. online Coffee-Mker-Review. net.Available at Accessed 17 December 2010 and make one. Costa should look into this innovation for the future, especially with this economic crisis that continues to worsen. However, Costa may not want to produce these machines because consumers drink their coffees not only for the beverage itself but also for the environment Costa provides, for the experience and unique touch each Barista has when they make one. Hence, perhaps selling these machines would not be of great utility for them. Starbucks is a great competitor for new and rising coffee shops such as Costa.But through this essay we have seen that Costa Coffee is becoming the number one competitor with Starbucks due to its respect to Coopers Eight Actionable critical success factors. However, Costa must not forget that Starbucks may be a little weak in the UK but is very strong internationally and that Costas next step to compete with Starbucks could perhaps be to have a bigger and stronger position internationally. Referencing List Bobrowski, CJ,. online Torex Retail Holdings Limited. Available at Accessed 17 December 2010 Bottonwood,. 2010.Productivity and Coffee Shops. online The Economist Newspaper Limited 2010. Available at Accessed 13 December 2010 Boughton, I,. 2010. Costa Coffee launches the flat white? nationwide. online Reed Business Information. Available at Accessed 23 December 2010 Bowers, S. , 2008. John Derkach Singular vision fuelled by double macchiato. online Guardian News and Media Limited 2010. Available at Accessed 15 December 2010 Cooper, R,. n. d. From Experience The Invisible Success Factors in Product Innovation. online Product Development Institute Inc.Available at Accessed on 17 December 2010 Danby, T. and Sellen, T. 2010. No Relief in Sight for the Coffee Market. online 2010 Dow Jones & Company, Inc. Available at Accessed on 23 December 2010 Dougherty, D and Hardy C,. 1996. Sustained Product Innovation in large, mature Organisations overcoming innovation-to-organization problems. Academy of Management Journal, 39(9, p p. 1120. EatOut,. 2010. Costa Launches New Coffee Club. online Available at Accessed 15 December 2010 Foods Standard Agency, 2008. Consumer confidence rises around many food issues. online Crown copyright. Available at Accessed on 16 December 2010 Food Standards Agency, 2010. Healthy catering commitments. online Crown Copyright. Available at Accessed on 14 December 2010 Hospitability And Catering News. , 2010. Costa Coffee has wins Best Branded Coffee Shop Chain?. online Available at Accessed on 23 December 2010 Justin,. n. d. Starbucks Barista Espresso Marchine. online Coffee-Mker-Review. net. Available at Accessed 17 December 2010 Morgan, J. , 2008. Fast food menu is recipe for obesity. online Cambridge Newspaper Ltd.Available at Accessed on 15 December 2010 Ndzamela, P. , 2008. Credit crunch set the bite on cafe culture. online Thomson Reuters. Available at http//www. reuters. com/article/idUSTRE4AC7YE20081113 Accessed 15 December 2010 Prynn, J. , 2008. Coffee shop boom time as chains obtain crunch. online Evening Standard. Available at Accessed 16 December 2010 Rodenberg, J. , n. d. Costa Coffee vs Starbucks. online Templates Wise. Available at Accessed 16 December 2010 Sky News HD, 2009. Cancer Fear Of Calorie-Laden Iced Coffees. online BskyB.Available at Accessed on 14 December 2010 Smith, A. , 2009. Coffee Price Too Steep? Blame the Weather. online Time Inc. Available at Accessed 15 December 2010 Startz, S,. 2009. Starbucks Boosts Rewards With Revamped Loyalty Program. online 2001-2010 brandchannel. Available at Accessed 14 December 2010 The Food and Drink Innovation Network,. 2009. Costa Opens third training academy in Newburry. online Food & Drink Innovation Network. Available at http//www. fdin. org. uk/2009/06/costa-opens-third-training-academy-in-newbury/ Accessed 17 December 2010 Thomas, J,. 2010.Costa Coffee rolls out customer loyalty card. online Haymarket Business Media. Available at Accessed on 15 December 2010 Trend watching. , 2006. Tra nsumers. online Trendwatching. com. Available at http//trendwatching. com/trends/transumers. htm Accessed 23 December 2010 Wallop, H,. 2009. Starbucks to sell flat white for those fed up with milky coffee. online Copyright of Telegraph Media Group Limited 2010. Available at Accessed 17 December 2010 Westfield London. n. d. Costa Coffee. online 2008 Westfield Group. Available at Accessed on 15 December 2010 Williams, A,. 010. Great White Hope. online William Reed Business Media Ltd 2010. Available at Accessed 23 December 2010 Zekaria, S. , 2010. Whitbread Says Costa Coffee Flourished During Recession. online 2010 FOX News Network, LLC. Available at Accessed 23 December 2010 Zekaria, S. , 2010. Whitbreads Costa Coffee Plans No Retail Price Rises. online 2010 The Connors Group, Inc. Available at http//www. tradingmarkets. com/news/stockalert/sbux_wtbrf_-update-whitbread-s-costa-coffee-plans-no-retail-price-rises-1297481. html Accessed 23 December 2010