Costa Coffee Financial Analysis - Case Study Example

Costa Coffee

Introduction

The companies these days are growing at a high extend and the concept of globalisation is again a subject of concern. In order to thrive in the market the companies irrelevant of its business are trying to expand their business to farthest extent. Therefore, the companies have to go through many challenges while doing the same. Such could be related to improper management strategies, plan or even due to some financial shenanigans. The organisations in order to increase its profitability have to solve the same in an efficient manner. The challenges are meant to be solved efficiently because it may financially harm the company’s health. Therefore, this essay will discuss about the case of Costa Coffee, which faced challenges regarding access to the proper database. The company’s finance team complained that the extraction of data into the Microsoft Dynamics NAV system took a lot of time due to which reporting the same also procrastinated. It hampered the proper strategy making for the organisation as the team had problems regarding the creation of financial report.

Background of Costa Coffee

It is a subsidiary of Whitbread Plc and is headquartered in United Kingdom. It can be said that this company is the largest coffeehouse in Britain and the second worldwide after Starbucks. The company is multinational brand and has huge numbers of stores worldwide. The company was looking forward to the acquisition of Business Intelligence (BI) solutions that can be incorporated with the system it was operating i.e. Microsoft Dynamics NAV and CRM systems. It was because it was facing problems regarding the financial data reporting and proper analysis of the same (SQL Perform, 2015).

The company almost had over 1500 coffee shops in the country and over 1000 globally. Being a huge brand, the company had huge number of transactions and improper reporting of the same created problems for the organisation regarding their financial health. Therefore, the company had to implement ZAP business intelligence which helped it to reduce the access time to the reports and analyse it in an efficient way (ZAP, 2013).

Financial Analysis

The company witnessed growth in an aggressive way and there are various numbers of outlets of the organisation globally. According to the management of the organisation, the company is looking forward to invest in various regions and keep itself stable as the market leader in the UK and create good presence and goodwill in other selected countries. The business model of the organisation follows to enter into the market via franchise, joint venture and Costa owned equity stores to distribute its product. The organisation through following this model leaned huge revenues and the growth in sale has also been recorded. The percentage of growth has been 16.6% which stands to 1398.7 million in financial year 2014-15 (Yahoo finance, 2013). The UK retail business has also contributed towards the profitability of the business and is the reason for 16.2% increase in the sales. Therefore, witnessing such profitability margins, the organisation has set a milestone which is generating the revenue of 2.5 billion GBP in 2020. The cash flow of the company supports the plans of growth and development of the company. The company claimed to open new 175 coffee stores in the UK which made the total number of stores 1931 in numbers. Costa made its presence in almost 29 countries outside its country of origin. It also opened 45 new stores outside the UK making it 1149 stores in abroad. There were also new Costa Express machine set inside as well as outside the UK which counted up to 777 in numbers. The expansion of the business operations inside the UK as well as overseas increased the sale and along with the same, the returns have increased by significant figures. Such increase witnessed a growth of 5.8 points which made it to 46.3% (Whitbread Plc, 2015).

The organisation also concentrates on the economic development as well and use the money rose in the Costa Foundation as a fund to build schools in the community. Therefore, providing education to the kids can be considered as a step towards economic development and work for a social cause. According to the company, the teams associated with the same take pride in their work. The organisation also creates 1000 jobs per year in the community and hence contributes to the economic development. Taking into consideration the health of the customer, the company uses 100% natural resources in their product; they follow all the ethical norms of the community and also maintain sustainability in the nature from where they take their resources. The company also works for natural cause and in order to protect the environment, it also reduced the carbon emission by 32.35%. They also reduced their operational wastes and diverting it to landfill (Whitbread Plc, 2015).

Despite the company facing challenges where it could neither store nor it could access the financial data and so the reporting mismatched and was not also on time. The company found a better option when it adopted ZAP instead of using spreadsheet which was very tiring as well as not fully accurate. However, in the 2011 and 2013, a milestone was set which was to grow the sales to 1.3 billion pounds and about 2 billion pounds in 2016 and 2018. However, in this case the company had already achieved its 2016 target in 2014-15. The 2014-15 witnessed revenue earnings of 1.4 billion pounds which was the result of greater performance of the country behind it. Therefore, following the same, the company as discussed before set its plan to increase the revenues to 2.5 billion pounds in 2020.

The coffee distribution of the UK market in the past few years has increased in an outstanding rate and the experts on coffee Allerga Strategies have analysed that the coffee brand chains which operated in the UK has a compounded annual growth rate of 6% from 2008 to 2014. The UK coffee market has also increased at an outstanding rate where the coffee outlets were only 11000 six years ago but the same is expected to rise to 27000 by 2020. This is also the factor for the increase in the Costa coffee to rise to this extends (Whitbread Plc, 2015).

The Costa Coffee has been in the distribution through many sources which also include Wholesale, Costa Express, as well as Costa at home. This whole entity is the Costa enterprise which contributes significantly towards the Whitbread Plc. The sale of the Costa enterprise increased by 20.1% as there were 777 newly installed units over the country (Whitbread Plc, 2015).

The international market of the organisation provides the company with demographical mix as well as revenue diversification. According to the company, the franchise of the business also did well in several countries. The growth in France has also contributed to the company where the distribution through mixture of equity and franchise stores has gone up. Therefore, the U retails have witnessed system sales of 763 million pounds, Costa Enterprise witnessed sales of 347 million pounds, Costa EMEI reflected a sales figure of 205 million pounds and Costa Asia contributed 85.7 million pounds (Whitbread Plc, 2015).

When a company invests outside its national boundaries it has both the pros and cons. The company finds a bigger market place which would result in high sales in the future but on the dark side, a huge cost is associated with the same (Brealey et al., 2012). It affects the available fund of the company which is spent in course of expansion but on the same time the overall value of the company increases in the market both national and international (Weygandt, Kimmel and Kieso, 2015).

Conclusion

The company being the second largest coffee store in the world has witnessed a huge profit which is the result of growth in the coffee industry in the British economy. The company has a global presence and has wide range of distribution channel. The organisation is expanding in an aggressive way where it is installing new machines and opening new outlets every year which also boosts the profitability. The company once faced a challenge where the database lacked the proper storage as well as the computation and analysis was not accurate and the company had to face low profits. However, after the usage of the ZAP, the organisation started its operation in a better way which also increased its profitability. The company also contributes towards economy by building schools and providing employment every year.

Recommendation

The company is doing well where it has increased its outlets internationally as well as also installed vending machines. The company after finding a better solution to the financial problems also should focus on the online marketing to increase their visibility. The company should use the technology available and increase their following around the world which could increase their sale and they can record any such transactions on time. This would help the finance team to analyse the company’s financial health and determine its value in the market.