Costa Coffee Market Analysis - Essay Example

?COSTA COFFEE QUESTION STRATEGY PESTLE ANALYSIS Political UK government rules and laws are very strict in Health and Nutrition sector and companies need to ensure that they follow the existing and new policies. For example, UK Heath Secretary has pushed companies to follow calories-oriented menu labelling and he has shown an urge to select a date by which all companies in UK will follow calories-oriented menu labelling (Fastcasual, 2010). Government influences the operations of the companies in UK. According to British Chambers of Commerce, the cost of doing business in UK has increased to 88.3 billion pounds a year because government has imposed 40 new regulations on companies (Chinadaily, 2010). Since coffee retailers in the UK largely depend on coffee producing economies therefore, governments of coffee producing economies also influence the operations of coffee shops in UK. For example, Venezuela was the largest coffee exports however, because of government price controls; growers consider growing coffee as not an economically viable option (BBC, 2010). UK government with the support of members of coffee associations is struggling to support the producers of coffee such as through farm certifications, direct-buying initiatives and quality improvement which supports the farmers to improve their position and long term sustainability (British Coffee Association). Economic Population of UK has grown over 60 million people and in 2006, the total population was 60.6 million as compared to 55.9 million in 1971. Moreover, it has been estimated that people above 65 years old will be more in number as compared to individuals below 16 by 2021 (British Council, ). Poverty reduction has become an important target for UK and government has been able to lift 2.4 million people out of poverty including 800,000 children and government aims to halve child poverty by 2010 and eliminate poverty by 2020 (British Council). Economic problems faced by coffee producing economies influence the coffee companies in UK because most of the companies are acquiring coffee from these economies. For example, Uganda farmers are facing increasing level of pests and diseases and extremely harsh weather conditions (Butler, 2011). Around 70 percent of the world’s coffee is grown on area less than 10 hectares and most of the famers, out of 25 million in 50 developing economies that produce coffee, sell coffee in small quantities to local traders, manufacturers or exporters. The manufacturers of Coffee in UK are buying green beans from international trading houses or exporters. However, Government of UK is encouraging the companies to buy coffee direct from the famers to access best quality coffee in the long term (British Coffee Association). Social Consumers are asking for fair deals from suppliers at coffee shops and according to a Concerned Consumer Index Survey, 54 percent of the participants have showed that coffee shops should consider social issues ahead of environmental issues such as treating workers in plantation fairly (Gibbons, 2010). UK Fair trade market has grown from ?493 million in 2007 to ?712.6 million in 2008 and according to survey 72 percent of people are aware that they can buy coffee through fair trade certification. In the period of six months, 36 percent of the people have bought coffee through fair trade and the trend of buying coffee through fair trader is further boosting (Mortimer, 2010). More than 60 million cups of coffee are consumed on average in the UK in one day (British Coffee Association, 2011). The coffee culture is continuously increasing in UK however, because of the economic downturn; consumers in the UK were giving preference to drink coffee at homes rather than at coffee shops (Euromonitor, 2011). Consumers in UK are more focusing on taste and quality of coffee and the increasing consumption of coffee at homes is evident from increasing household penetration of coffee pod machines (Euromonitor, 2011). Technological Between 2002 and 2005, the UK internet sales to households have increased by ?21.4 billion (British Council). Technological developments such as better coffee machines have encouraged fast food restaurants to offer coffee at their outlets and in 2007, fast food restaurants fulfilled 6 percent of UK coffee demand (Fahey, 2007). A research study has predicted that UK coffee shops are expected to nearly double over the next decade. According to consultancy Allergy strategies, branded coffee chains have established more than 3,000 shops throughout UK and grown by 15 percent annually over the last eight years (Manson, 2007). Coffee companies are rapidly adopting new technologies to serve customers more efficiently. For example, the UK leading self-serve gourmet coffee company based on High Wycombe, Coffee Nation has recently launched a new touch screen system, first chip and pin concession (CBI, 2010). Legal Coffee brands and shops have to follow the regulations, taxation and legislations imposed on them in the UK market. They are more frequently required to get checked by health and safety inspection. Moreover, coffee companies are achieving food safety and hygiene certifications and relevant courses conducted by British Institute of Innkeepers to increase their competencies (acareerchange). Like other businesses, coffee companies have to follow financial regulations and laws in UK. For example, Starbucks is one of the market leaders in the UK market however, because of the tax avoidance issue as a result of transfer pricing policy of company, the company had to incur a huge loss to fulfil its tax credit (Murphy, 2010). Environmental As an impact of climate change, the climate change-related projects have been introduced in coffee production such as livestock farming, fuel-efficient stoves and tree-planting. These projects have increased the cost of production of coffee therefore, coffee roasters in UK are being asked to increase prices to ensure future supply of coffee (Butler, 2011). To avoid any environmental concerns, the coffee brands are adopting environmental friendly practices. For example, the head of marketing at Costa, Kevin Hydes argues that Costa has chosen Rainforest Alliance Certification Scheme to support the farmers to improve their trade by equally emphasising on environmental protection, social improvements and worker welfare (Gibbons, 2010). QUESTION # 2: MARKETING ANALYSIS COSTA COFFEE BRANDS The brand name of Costa Coffee is recognised as a brand of luxury, perfection and excellence. The company has positioned all brands of Costa available in the market as a luxury brand (Mrda, Nikic & Baturna). Costa Coffee is only offering coffee products in the UK market. The company has kept its focus entirely on coffee to become the coffee leader in the UK market. Costa Coffee is selling total nine categories of Coffee on its coffee shops including Espresso, Espresso Doppio, Ristretto, Macchiato, Americano, Flat White, Cappuccino, Caffe Latte and Mocha (Costa UK). Rather than focusing on product development strategy, Costa has been pursuing market penetration and development strategies as evident from the presence of Costa in a few countries with very selective product range. In consideration to the positioning of brand as a luxury brand, company has also kept the prices of its products higher. Therefore, Costa Coffee is a premium coffee brand which only offers high quality coffee to the people who have a luxury lifestyle and prefer consuming luxury brands. STARBUCKS BRANDS Various competitors of Costa Coffee are operating in the UK market however; Starbucks appear to be the major competitor because Costa Coffee and Starbucks have always been in the race of getting market leadership. Figure I: Coffee Companies in the UK Market The total product brands of Starbucks including Coffee, Handcrafted Beverages, Merchandises, Fresh Food, Starbucks Entertainment, Global Consumer Products, Starbucks Card and Brand Portfolio. Since Starbucks is a direct competitor of Costa Coffee in Coffee products therefore, only coffee brands and related brands of Starbucks have been considered here. Starbucks is currently offering more than 30 blends and single origin coffee (Starbucks, 2008). The product line of Starbucks can be categorised into four groups including Special coffees, hot chocolate, tea and juice/smoothie. Rather than positioning brand as a luxury brand or brand of excellence, company has given more emphasis on “Higher product variety and quality” (Mrda, Nikic & Baturna). High product variety and quality of the company can be proven from the fact that with the category of special coffees, company is offering three kinds of coffees including Mild Coffees with light bodies and gentle taste, Smooth Coffees with richer taste and Bold Coffees with exotic and intriguing taste (Starbucks UK). Within the Fresh Food Products, Starbucks is offering seven varieties including yogurts, pastries, cakes and cheesecakes, muffins, salad, sandwiches and hot panini (Starbucks UK). As compared to Starbucks, Costa has kept its focus on coffee and coffee is the only speciality of the company. Starbucks has the advantage of offering variety of food and beverages and generating more sources of revenues. The increasing number of shares of Costa in the UK market relative to Starbucks shows that company has been able to successful to keep its brand focus on coffee and become the market leader in coffee in UK. The losses of Starbucks in Britain have increases to around ?10 million because of the strong performance of Costa Coffee owned by British Leisure Group Whitbread (Bowers, 2010). Costa brand strategy to focus on entirely coffee and Starbucks brand strategy to offer a variety products and good quality have been two opposite strategies, however, increasing market shares of Costa has proven that Costa has been able to achieve its strategic aims and objectives. Starbucks pricing strategy for all its brands is not premium rather the company has kept the prices to target as many consumer groups and segments as much possible. Costa Coffee as a coffee brand can be positioned as a medium price and medium quality brand as compared to Starbucks which is considered as a normal quality brand with high prices. The graph shows the positioning of three market leaders in the coffee industry based on their perceived prices and quality (Figure II). Figure II: Brand Perception Map Source: Mrda, Nikic & Baturna In addition to the different brand positioning and perceptions of the two coffee competitors in the UK market, they have also pursues different brand promotional tools. For example, Costa Coffee has more focused on word-of-mouth strategy and brand image to attract the customers and make the people aware of its offerings. On the other hand, Starbucks is very active as evident from Starbucks available at fair trade, company charity programs and cross selling strategies. Conclusion Based on the above analysis it can be concluded that increasing coffee trend in the UK market and even expanding coffee consumers have made the UK market attractive for the coffee brands. The technological developments, government support for small and medium enterprises which boost the economic growth and social trends are appearing very favourable for the coffee brands however, economic challenges and legal framework of UK also poses great challenges for these companies. In a highly challenging and competing environment, Costa Coffee has been able to position itself as a market leader against many other major brands like Starbucks because of its brand strategies such as focused strategy, luxury image and unique taste. Bibliography Acareerchange, 2010. Starting up a Coffee Shop, Restaurant or Bar. [Online] Available at: http://www.acareerchange.co.uk/changing-career-coffee-shop-restaurant-bar.html [Accessed on 26 January 2011] BBC, 2010. 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[Online] Available at: http://www.starbucks.com/assets/company-factsheet.pdf [Accessed on 27 January 2011] Read More