Costa Coffee and the Coffee Industry in the UK - Assignment Example

Costa Coffee and the Coffee Industry in the UK + Executive Summary In the past decade, the coffee-making business has experienced numerous activities ascribed to considerable changes around coffee brewing corporations. Examples of such changes include the changing tastes and preferences of consumers, mergers and acquisitions among companies, and the various branding approaches. Such tendencies will continue to develop over the next decade as coffee sales and marketing intensifies. With coffee perceived as the UK’s fastest-retailing product line, with a double-digit growth rates in the last six years, this paper looks into the PEST analysis and Porter’s Fiver Forces analysis of the UK coffee industry and Costa Coffee Company. Even though coffee in the UK has showed some low-priced trends, UK Coffee Brewers, such as Starbucks and Costa Coffee cannot depend on its cheapness to draw additional coffee consumers. Therefore, this report also identifies the biggest opportunity for Costa Coffee and describes the measures they should undertake to seize such an opportunity. Executive Summary 2 1.Introduction 4 2.PEST Analysis, its Purpose and the Business Benefits 4 2.1.PEST Analysis for Costa Coffee in the UK 4 2.1.1.Political Environment 5 2.1.2.Economic Environment 5 2.1.3.Social Environment 5 2.1.4.Technological Environment 6 3.Porter’s Five Forces Analysis, its Purpose and the Business Benefits 6 3.1.Porter’s Five Forces Analysis of the Coffee Industry in the UK 6 3.1.1.Threats of New Entry 6 3.1.2.Threats of Substitute Products 7 3.1.3.Bargaining Power of Buyers 7 3.1.4.Bargaining Power of Suppliers 7 3.1.5.Rivalry among Prevailing Coffee Brewing Businesses 7 4.The Biggest Opportunity for Costa Coffee and its Implementation 8 5.Conclusion 8 References 9 1. Introduction The coffee industry in the UK is going through a period of growth and change. While Starbucks is one of the most familiar names in the industry, it is not the biggest or the most successful because Costa Coffee performs better. On a global scale, coffee remains the most popular beverage with approximately two billion cups consumed daily. The U.K alone consumes around 70 million cups of coffee daily (British Coffee Association, 2015). In comparison with several other European nations, the United Kingdom still stands out as one of the few countries that has favoured instant coffee at the expense of other fresh coffee beans or fresh ground coffee considered of better quality. Even though consumers remain devoted to their preferred brands, the most important thing is the taste and quality of instant coffee. Placing premiums on coffees brands is currently motivating instant coffee customers to consider quality of taste as their preference before buying. In the year 2014, the introduction of private labels for premium coffee had a positive influence on the status of micro-ground coffee, with customers of low-priced options switching to this brand due to its improved quality (Ukers, 2012). Costa Coffee taken over the UK coffee industry, and with their unchanging traditional method of roasting their coffee beans slowly, the Bruno & Sergio brothers have served their customers with authentic blends of six Arabica beans to one Robusta in more than five hundred coffee shops globally. 2. PEST Analysis, its Purpose and the Business Benefits Better known as PESTLE analysis, PEST analysis is a model involving marketing ideologies. In addition, companies tracking their operational environment or those planning to unveil a new project, product or service usually use this concept as an analytical tool for the market. In the UK Coffee industry, PEST analysis involves many factors that define and affect the business environment of different companies, such as Costa Coffee and Starbucks. These companies have the obligation to identify, understand and analyse these factors for the intention of helping them realise ideal performance. PEST analysis classifies such factors influencing the decisions and operations of the organization using four specific titles: Political (P), Economic (E), Social (S), and Technological (T). PEST analysis benefits businesses by helping them analyse their day-to-day influences in their business environment, including all the situational factors determining their prevailing circumstances. 2.1. PEST Analysis for Costa Coffee in the UK As a UK-based coffee house Company established in 1971, Costa Coffee started with wholesale operations distributing roasted coffee to dedicated Italian coffee shops. The Italian founder brothers, Bruno and Sergio Costa established their coffee roaster in Lambeth, London to supply local coffee shops and caterers with the company’s slow-roasted coffee blend known as mocha Italia. Consistent with the PEST analytical tool, the scrutiny of Costa Coffee’s macro-environment involves the following four aspects. 2.1.1. Political Environment The UK has undergone some crucial political and electoral changes and crunches lately, which has affected the coffee industry. These political trends include the demand for reforms and democracy; increased public accountability; the rise in general and locally based aggressiveness, and the reestablishment of the models of authority and political affairs. According to Jones (2014), “the methods of political economies have gradually moved from a bipolar (big government-big business) to a tri-polar structure (authorities - private sector – civil society).” The government has continuously implemented the principles of Free Trade Area (FTA), which establishes all-inclusive plans for reducing taxes regionally. Between the year 2012 and 2014, the UK government increased the taxes of imported coffee beans from developing countries and reduced tariffs for locally produced coffee to offset competition. The UK government also initiated the abolishment of non-tariff barriers to cultivate the standards for the certification of common coffee products. 2.1.2. Economic Environment Even with the hostile economic developments that has grappled the UK since the economic crisis in 2008, the country has recorded a robust economic growth. Estimations show that the entire UK recorded an unexpected growth in their GDP by 4.5 percent in 2014, slightly over the 4.1 percent growth recorded in 2013 (Thomas, 2014). Various provinces in the country have also recorded an improvement in the risk-weighted capital adequacy ratios of banks because of government-funded strategies for bank recapitalization. The coffee industry has experienced major business challenges in the UK emanating from the economic crisis in 2008, as customers have developed cautiousness in their spending habits because of personal debts and high unemployment rates. Therefore, the government has continues to restructure its financial incentives while improving their financial risk management. 2.1.3. Social Environment In the UK alone, consumers spent more on buying coffee than any other beverage. For example, the ratio of amount spent in millions for tea to coffee in 2014 stood at £623:£738 (Roberts, 2012). Not only do consumers visiting coffee shops to purchase coffee to drink, but also to rest and relax. People in various parts of the world have diverse techniques of understanding and interpreting their native coffee culture. This is because the beverage has developed into a trendy city innovation with a fresh evaluation. As many regions in the UK experience an influx of middle to upper-middle class families, the emergence of mismatching strategies have reduced the accurate consideration for the potential for the exiting consumer market (Thomas, 2014). Furthermore, both social and cultural trends have gained ground in the last two years including the start of a self-analysis period, the permanent growth of civil society organizations blending flawlessly with the a tri-polar arrangement of political class as well as the rise in intellectuals’ roles to train people on business-related issues in the UK. 2.1.4. Technological Environment The UK coffee brewing industry remains is a mature industry in its peak of development stages. It has revealed that it has the potential to grow rapidly with an estimation of over one million customers every year. Furthermore, over the subsequent decade, the expectations show that the remarkable growth as well as technological developments will endure in the coffee industry and globally. Mobile marketing function as one of the technological advancements that Cosa Coffee uses, as it has implemented the Costa Coffee Mobile app helping consumers to drive to their stores, push for social media promotions, making them increase brand awareness and interactions. Therefore, the constant growth and development of technology as well lead to localization in the coffee brewing industry in future (Euromonitor, 2015). 3. Porter’s Five Forces Analysis, its Purpose and the Business Benefits The Porter’s Five Forces is a great tool for analysing the powers of a business in the industry. It helps businesses to recognize the strength of their existing competitive situation, while comparing it to the anticipated strength of a particular position. Once a business understands their positioning and power, they can focus on their situation of strength, build their weaknesses, and evade making damaging decisions, making it an imperative part of their strategy. The tool can help businesses to ascertain if they can fetch profits from their new products and services. 3.1. Porter’s Five Forces Analysis of the Coffee Industry in the UK Since the UK coffee industry is very competitive, companies, such as Costa Coffee and Starbucks have to implement unique strategies to attract potential customers. The following are the Porter’s Five Forces. 3.1.1. Threats of New Entry The high costs of importing coffee beans from developing countries, such as Brazil and Kenya seems very expensive leading to high economies of scale. With the entire coffee industry flooded with potential local and international businesses that can enter the market easily, the UK coffee industry tries to increase taxes on imported coffee beans to encourage the production of local coffee. However, such trends leads to high costs of imported beans for roasting for big companies like Starbucks and Costa Coffee (Thomas, 2014). 3.1.2. Threats of Substitute Products With the maturity of the coffee industry in the UK, there are many competitors with little differentiation. The market attracts the threat of substitute products, which significantly makes the coffee industry volatile and not easy to dominate. Such threats stem from the increasing varieties of energy drinks as well as collective emphasis on the undesirable effects of caffeine on the mass media and among customers (Financial Times, 2015). 3.1.3. Bargaining Power of Buyers After the 2008 financial crisis, the purchasing power of customers in the UK changed, as they became cautious with their spending habits due to increase in unemployment and personal loans. Therefore, the UK coffee industry has attracted high bargaining power of buyers because of the rise in the numbers of promotional offers in the coffee industry that surpasses the demands for coffee. Furthermore, the UK industry does not have the lowest switching costs to other coffee brewing companies (Roberts, 2012). 3.1.4. Bargaining Power of Suppliers The bargaining power of coffee suppliers in the UK coffee industry is high because of the limited availability of coffee beans since the raw material can only be fetched from some specific geographical regions, such as Latin America, Africa as well as some Asian countries. Such trends have increased competition levels amongst coffee chains (Euro Monitor, 2015). 3.1.5. Rivalry among Prevailing Coffee Brewing Businesses The level of competition among prevailing businesses is very high in the UK coffee industry, with the varieties of registered coffee shops constantly increasing as shown in the figure table below. Source: The Telegraph (2014) The table shows the intensity of rivalry in the industry from 2007 to 2013 with food focused coffee chains trailing the coffee focused coffee chains in numbers. However, with the flooded market of coffee as depicted in the totals, rivalry is very high. 4. The Biggest Opportunity for Costa Coffee and its Implementation The biggest opportunity for Costa Coffee involves taking over other business through merging or the formation of strategic associations with various coffee brewing firms. Implementation of such opportunities can lead to the expansion of various consumer markets internationally, such as in populous countries like India and China. Their prowess comes about from the strategic measures the company place once it was established. In 1978, after branching out to retailing coffee, the company opened their first store in London, and then sold their business to Whitbread in the year 1995, making it a subsidiary of Costa Coffee. The company opened their 1000th store in the year 2009, and celebrated this achievement because it stands out as their biggest coffee chain in the United Kingdom based in Cardiff. Furthermore, the company acquired “Coffee Heaven” in 2009, with a capacity of an extra 79 stores (Euromonitor, 2015). With such opportunities in place, Costa Coffee can diversify its outlets from its large super centers to local-based locations. Since the company continuously expands to other regions even within the UK, it can encourage its customers to use the available better quality and low-cost coffee machines for domestic use as they expand. 5. Conclusion Over a century now, Costa Coffee remains one of the leading coffee brewing firms in the UK due to its ability to implement its branding as well as positioning strategies effectively. The company also dedicates itself to offering high quality services to its customers in line with its vision, mission and corporate goals. Furthermore, it utilizes the proper knowledge management tools matching their products to attract potential customers from diverse cultures. However, the company should analyse some of its strategic tools of management. With their income exceeding many coffee brewing firms, the company should review its strategic objectives in approaching the UK market due to the high levels of rivalry within it since its present strategies would consume more time than usual, beside its costliness. On the other hand, since Costa Coffee focuses on lasting domination and permanence in the international coffee brewing business, it should keep pursuing promotional campaigns to help the company fulfil its objectives. References Britishcoffeeassociation.org, 2015. British Coffee Association - Find the coffee facts. [Online] Available at: http://www.britishcoffeeassociation.org/about_coffee/coffee_facts/ [Accessed 20 Oct. 2015]. Euromonitor.com, 2015. Coffee in the United Kingdom. [Online] Available at: http://www.euromonitor.com/coffee-in-the-united-kingdom/report [Accessed 20 Oct. 2015]. Financial Times, 2015. Everyone wants a taste of booming UK coffee market - FT.com. [Online] Available at: http://www.ft.com/cms/s/0/860d06cc-d13c-11e4-98a4-00144feab7de.html?siteedition=uk#axzz3dzkZNrpY [Accessed 20 Oct. 2015]. Jones, A. 2014. Give UK Cities More Autonomy. Political Insight, 5(1), pp.40-40. Nebiyu Assefa., and Brown, J. 2007. Coffee. [United Kingdom]: Jozart Press. Roberts, J., 2012. Quality quest keeps coffee sector full of beans, Marketing Week February 8, 2012 Issue. Thomas, N. 2014. Why coffee shops are replacing pubs in Britain. [online] Telegraph.co.uk. Available at: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/leisure/11084328/Why-coffee-shops-are-replacing-pubs-in-Britain.html [Accessed 20 Oct. 2015]. Ukers, W. 2012. All about Coffee. Cincinnati: F+W Media. Read More