Costa Coffee - the Retaining of Top Most Position in the Coffee Brewing Industry - Example

COSTA Coffee Costa Coffee is a leading company in the coffee brewing industry in the United Kingdom. It has one of the largest chains of coffee shopsgrowing very fast within the country and also worldwide. It is well known for its control of the entire mechanism right from sorting of coffee beans to serving the customers in the coffee bars by its own specially trained professionals. In the later phase of the twentieth century breweries and espresso bars have become quite popular. This has paved the way for the coffee chains to expand and make further insights into the future of the industry. Costa has an eye for detail about the purity of the taste offered in every cup of coffee (The Costa Story, n.d.). Purpose Costa Coffee was started by two Italian brothers, “Sergio and Bruno Costa” (Costa, n.d.). They had started the business as a coffee roastery in the year of 1971 at the Newport Street in London. The purpose of the business was to supply the caterers of the locality and specialist coffee shops with grinded roasted coffee. They created the unique blend of coffee grind in a production process of slowly roasted coffee beans, which they named ‘Mocha Italia’ and it was distributed for the first time in the coffee shops in London and Ireland. Seven years later, the Costa Brothers entered the retail coffee market and opened their first espresso coffee bar in London, at the Vauxhall Bridge Road. In 1999 Costa Coffee became an international brand with the opening of a store in Dubai at The Aviation Club. They have spread their branches across international destinations ever since. At present, Costa Coffee has eighteen hundred stores in twenty five different countries. Mission The uniqueness of the Costa Coffee was delivered by the process in which it was created. What has increased its demand over the years is the same secret that has been maintained even to this day, as it had been devised by its proponents, by making a unique combination of Robusta beans and Arabica beans in the ration of one is to six. The entire of procedure of preparation of the coffee is undertaken by Costa’s own breweries which makes a big point of difference from the other brands in this industry. This coffee brand is the first in United Kingdom that controls its own process of preparing the coffee from sourcing of the beans, storing them, blending, roasting and grinding the beans and finally preparing them (Costa Coffee, 2009). Its mission is to “save the world from mediocre coffee” (Costa Coffee, 2013). Objectives The Costa Coffee has risen to the status of the “largest coffee shop chain” (Bowers, 2012) in Britain. It is one of the high street retailers in Britain with the objective of bringing smile on the face of ardent coffee lovers. The Costa aims at expanding within Britain and also worldwide and to maintain its position in the industry. Costa Coffee has been acquired by Whitbread, a chain of hotels and restaurants, in the year of 1995 and has grown faster after the acquisition. In order to offer the “perfect cup of Costa coffee every time” a customer enters the coffee shop, it trains every single barista in each of the Costa stores across the world. Costa strictly maintains the art of hand making every cup of coffee and engages the required kill in the process in order to make their mission successful. A comparison with ‘Opposite’ ‘Opposite’ is a distinguished coffee shop located in West Yorkshire in the northern region of England. The shop was built in the year of 2005 by Lou Henry just opposite to the Leeds University. It was built with the purpose of catering to the students of the Leeds University, to serve them with fair-trade coffee and healthy food at affordable prices. It had been successful in bringing a community space to the students of the University and grew into their favorite hangout place within a short period of time. Although it is a privately owned coffee shop in England, much smaller in comparison to the leader in the retail coffee shop market, Costa Coffee, Opposite has a firm fan base that pay loyal visits to the shop. The mission of this coffee parlor is to “stand up for doing things differently” (Opposite, n.d.). Opposite works its way ahead with the objective of becoming the coffee joint with a difference, well-known for its creativity and enthusiasm. It has recently expanded within the region by opening a new store at Victoria quarter in Leeds in August 2009. The comparison with Costa Coffee should be made on the ground that Opposite provides a change from the routine taste of the giant coffee chains. With its expansive outdoor seating arrangement and friendly staff, Opposite provides a good place for the students as well as the professors to have meetings with friends, brain-storming sessions over cups of coffee and hot brownies or to spend lazy afternoon. The stream of people that visit the place vote the coffee served by this coffee shop as superb with a lovely espresso blend. The prices are not too low but the customers are offered with satisfying services and the cozy atmosphere makes up for the price paid (Opposite Café, 2014). The UK Economic System Political trends in the United Kingdom Political factors affect the business decisions and performance of the firm to a large extent. The United Kingdom has been undergoing economic crises in the last five years and has witnessed several political changes. The concepts of power is started to be re-defined and it has induced the political changes. The public accountability of the government has increased and public assertiveness is on the rise. The policy of free trade area opens up the door for overseas growth of the Costa Coffee. The discussions of free trade agreement with the United States of America would help the private enterprises of the United Kingdom including Costa Coffee to expand its business in the States (. It would lead to strengthening of international trade links and better networking within the industry on a global level (Reducing barriers to international free trade, 2012). Economic Conditions affecting Costa Coffee The economic condition of the economy in which the company operates affects the sale of products. Whether the economy is going through a boom or is suffering a recession, it affects the consumers’ expectation about the economic condition of the near future and their spending behavior. Both national and global economical factors affect any business and decisions must be taken accordingly. The two fold effect of multilateral trade liberalization is that it has increased the volume of world trade as well as the foreign direct investment in different counties (Collie, 2010). Social aspects affecting business decisions The culture and mentality of the people vary from country to country. Moreover, the tastes of the population in a country also change over time. Thus the company will face a loss if it does not modify itself from time to time. Thus it is important for the management to examine the population growth in these countries and keep themselves up to date with the preferences of the people. Costa believes in the art underlying the skill of hand-making every cup of coffee (The Costa Story, n.d.). In order to maintain its original Costa blend the company maintains its own baristas that are highly specialized in their jobs. The welcoming atmosphere complements the authenticity of the drinks. The coffee industry caters to the customers of every age group although the members of the young generation are getting attached to the taste of true coffee more and more. Hence the company has to keep a blend of tradition with modernity in order to appeal equally to the customers. Technological factors affecting the business Technological factors play a big role in determining the efficient production level, chalking the barriers to entry for other potential firms and also decisions to outsource portions of the production process to any vendor that can operate at lower cost than the corporation itself. Costa Coffee employs state-of-the art technology in its production of the unique combination of “sweetness, bitterness and body needed to make the perfect cup of coffee” (The coffee, n.d.). The process of slow roasting the coffee beans brings out a stronger aroma and imparts a fuller flavor to the drink. Technological factors not only implies the machineries used in the production process. The technology used while serving the drink also counts a lot. The self-serve coffee machines used in the Costa bars have touch screen technology. The “Swiss made Schaerer Coffee Art Plus coffee machine” (Costa Coffee Equipment, 2011) is powered by its precision and reliability. At Costa one might like to be served by a trained barista or enjoy a drink by making one for the self “at the push of a button” (Costa Coffee Equipment, 2011). Competition Policy The brewing industry has been becoming popular since the last century. The coffee market is one example of the oligopolistic market in which there are a number of sellers and infinite number of buyers. The retail coffee market involves quite high competition among the existing sellers. The intensity of rivalry depends upon the main market forces such as the buyers and the suppliers and also the close substitutes as well as the new entrants. The existing companies enjoy economies of scale in this industry. Costa Coffee has been in the industry for forty one years and enjoys a definite advantage of scale economies over the other coffee suppliers of the United Kingdom. The entire amount of the coffee is sourced from the “Rainforest Alliance Certificate farms” (Costa Coffee with a Splash of Convenience, 2011). However the free trade agreement at the beginning of this year will open lanes for new independent investments in the coffee industry. For a new player any special knowledge is not necessary for the opening of retail outlets. The usage of coffee machines in the coffee bars would serve the initial purpose. The capital requirement is therefore not very high of an investor. This opens up the option to the customers of availing cheap coffee at the different independent coffee shops. The tradeoff between expense and quality is relative and depends upon the requirements of each unique customer. The effect recent financial crisis from which the European Union has emerged will be felt by the branded chains of coffee retailers in this respect. Pricing strategy of Costa Coffee Since there are a few sellers in the retail coffee sector, the suppliers of the coffee chains monopolize their products by branding their products through various strategies. The buyers are individuals with low buying power. Hence they cannot affect the market to a large extent. The competition faced by each brewer is from its rival in the industry which has several mature players in the industry like, Starbucks, Nero and some others. The differentiation of the products based on branding, taste, advertisement and promotions. Hence a unique pricing strategy is important for maintaining the position of the company in the industry. Pricing is one of the important elements in the four keys of marketing mix and in primarily responsible in bringing revenue for the company. Prices of the products are set in accordance to the cost of production which is inclusive of the cost of branding and advertisement. Although the pricing of a product incorporates several aspects, it is the most easily adjustable features of the market controlled economy. The pricing decisions are largely influenced by the market structure. Since the retail coffee industry has an oligopoly form of market, the sellers possess some amount of power in setting the prices of the products they offer. Business and cultural environment The cultural environment in which the company operates casts an important effect upon the response of the organization. It is necessary for the management of any enterprise to understand the cultural environment of the place in which it operates. As has happened in case of Totnes, the people of the town have not welcomed the company’s decision to open a branch in the town (In response to David Parseley, 2012). Acceptance of the local residents is an important factor to be considered in business decisions. Although the international brand, like Costa Coffee tries its best to maintain the originality throughout their production and distribution pattern, it has to modify its processes in order to match the tastes and requirements of the people of that place. Significance of International Trade The big international traders in coffee adopt various corporate strategies that affect the governance of coffee trade internationally (Daviron & Ponte, 2006, p. 90). The international coffee trade is a volatile business. The international traders have access to coffee beans in two ways. If local rules allow they get the green coffee directly from the producer countries, in other cases, they get it from the spot markets existing in the United States and the Europe. The larger traders control a greater portion of the roaster market. The high quality brands like, Starbuck and Costa Coffee, dominate the market for retail chains. The demand for their products is growing internationally and international trade allows these brands to capture new markets and expand in the existing ones. Costa coffee has planned to double its production at the London roastery so as to satisfy its Chinese market for cappuccinos. The plants in UK roast a major portion of the coffee that is exported around the world. Costa expects the outlets in China to reach a number more than double, estimated at five hundred, in the next three years (Thompson, 2012). European Union The European Union (EU) has set legislation for the EU market for coffee extracts. The legislation “relates to the composition and characteristics of coffee extracts and sets specific labeling requirements” (EU legislation: Coffee Extracts, 2012). This is done to ensure a standard and quality of the coffee extracts circulating the EU market and also to keep the consumers aware of such standards. The requirements mentioned in the legislation are extended from the general requirements set for food safety in the European Union and some specific requirements are set for coffee extracts. Global factors affecting UK organizations The fundamental principle followed by the Members of the World Trade Organization (WTO) in participating in international trade is to strictly follow a policy of non-discrimination. They are obliged to follow the same rule in each country and none should enjoy ay special grants or protections, although there are exceptions to this policy. The International Coffee Organization (ICO) has been established with the aim of achieving “sustainable development of the global coffee market” (The effects of tariff on Coffee trade, 2011) and to remove obstacles to free trade wherever possible. The tariff in importing countries tends to rise as the product becomes more refined. This discourages local processing in the exporting countries. Figure 1 in appendix shows the tariff rates in the different countries. Conclusion The coffee exports in the current year 2013 might face a good picture. According to the reports by International Coffee Organization the global coffee exporters have witnessed a rise of 17 percent summing up to 9.21 million bags in November 2012. In November 2011 the number of bags shipped was 7.88 million (Global coffee exports rise by 17 pc in Nov 2012: ICO, 2013) (See Figure 2 in appendix). Whitbread owned Costa Coffee is on its way for expansion following the huge rise in international demand, particularly driven by China. The company is on the right track to work towards its goal of retaining the top most position in the coffee brewing industry in the long run. Appendix Figure 1. : Tariff rates in importing member countries of the European Union Description Category EU Norway Switzerland Tunisia Turkey USA Green coffee not decaffeinated MFN* GSP LDC 0 0 0 0 0 0 0 0 0 15 - - 13 - 11 0 0 0 Green coffee decaffeinated MFN GSP LDC 8.3 4.8 0 0 0 0 0 0 0 15 - - 13 - 11 0 0 0 Roasted coffee not Decaffeinated MFN GSP LDC 7.5 2.6 0 0 0 0 63 Fr/100kg 0 0 36 ‐  ‐  13 - 11 0 0 0 Roasted coffee decaffeinated MFN GSP LDC 9 3.1 0 0 0 0 63 Fr/100kg 0 0 36 ‐  ‐  13 - 11 0 0 0 Coffee substitutes containing coffee MFN GSP LDC 11.5 8 0 0 0 0 70 Fr/100kg 0 0 36 ‐  ‐  13 - 11 1.5¢/kg 1.5¢/kg 0 Extracts, essences & concentrates of coffee MFN GSP LDC 9 3.1 0 0 0 0 182 Fr/100kg 0 0 Instant coffee: 0% Other: 10% 9 3.1 0 0 0 0 Preparations with a basis of extracts, essences or concentrates or with a basis of coffee MFN GSP LDC 11.5 8 0 0 0 0 80.8 ‐ 123.45 Fr/100kg 0 ‐ 79.45 Fr/100kg 0 36 ‐  ‐  9 ‐ 11.5 8 ‐ 9 0 ‐ 9 8.5 – 10 0 ‐ 10 0 ‐ 10 Source: The effects of tariffs on the coffee trade, 2011. MFN: Most favored nation GSP: Generalized System of Preferences LDC: Less developed countries Figure 2. : Rise in Exports of Coffee from between 2012 and 2013 Source: As explained in essay References 1) The Costa Story (n.d.), Costa.net, available at: http://www.costa.net.cn/costa-story (accessed on January 12, 2013) 2) The Coffee (n.d.), Costa.net, available at: http://www.costa.net.cn/coffee (accessed on January 12, 2013) 3) The Costa Way (2013), Costacoffee, available at: http://www.costacoffee.ae/costa-coffee/the-costa-way/ (accessed on January 12, 2013) 4) Bowers, S. (2012). Costa Coffee attracts nearly 4m customers a week, Guardian, available at: http://www.guardian.co.uk/business/2012/dec/11/costa-coffee-sales-starbucks (accessed on January 12, 2013) 5) Opposite (n. d.), Oppositecafe, available at: http://www.oppositecafe.co.uk/ (accessed on January 12, 2013) 6) Opposite Café (2013), Yelp.co, available at: http://www.yelp.co.uk/biz/opposite-cafe-leeds (accessed on January 12, 2013) 7) Reducing barriers to international free trade, (2012), available at: https://www.gov.uk/government/policies/reducing-barriers-to-international-free-trade--3 (accessed on January 12, 2013) 8) Collie, D. R. (2010), Multilateral Trade Liberalisation, Foreign Direct Investment and the Volume of World Trade, available at: http://business.cardiff.ac.uk/research/working-papers/multilateral-trade-liberalisation-foreign-direct-investment-and-volume-world-trade (accessed on January 12, 2013) 9) Costa Coffee Equipment (2011), available at: http://www.costa-business.co.uk/wp-content/uploads/2011/09/costa_equipment_brochure.pdf (accessed on January 12, 2013) 10) Daviron, B. & Ponte, S. (2006). The Coffee Paradox: Global Markets, Commodity Trade and the Elusive Promise of Development. Zed Books. 11) Thompson, C. (2012), Costa seeks expansion in China, Financial Times, retrieved available at: http://www.ft.com/intl/cms/s/0/88809950-16b3-11e2-957a-00144feabdc0.html#axzz2HjyTsWWR (accessed on January 12, 2013) 12) The effects of tariff on Coffee trade (2011), available at: http://dev.ico.org/documents/icc-107-7e-tariffs-trade.pdf (accessed on January 12, 2013) 13) In response to David Parseley (2012), available at: http://www.notocosta.co.uk/ (accessed on January 12, 2013) 14) Global coffee exports rise by 17 pc in Nov 2012: ICO (2013), Economic Times, available at: http://economictimes.indiatimes.com/articleshow/17925544.cms (accessed on January 12, 2013) Read More