The UK Top Coffee Shops - Coursework Example

UK Top Coffee Shops Introduction Three coffee shops that are renowned in the UK are Caffe Nero, Costa Coffee and Starbucks. These coffee shops are key players in the Coffee industry in the UK particularly in the retail sector. These coffee shops are into continuous expansion, which means they substantially receive tremendous amount of acceptance from their respective target markets. In 2010, Nero had more than 400 branches in the UK. Today, as stated in its website, Costa has more than 750 branches in the UK. In 2009, Starbucks on the other hand had 727 stores and 400 of them were situated in London. Costa and Starbucks seem to be on top of these three, followed by Caffe Nero when it comes to the number of branches already located in the UK. This means that among the three, Starbucks and Costa Coffee have become the leading coffee shops when it comes to expansion program. All of these coffee shops have specific strategic moves for them to obtain substantial market share, competitive advantage and long-term existence in their industry. Their ultimate goal is to increase profitability, which is the bottom line. However, one of the obvious strategies that can be identified when it comes to how these coffee shops compete with each other is based through the price of their product offerings. This paper discusses the price leadership in the three top coffee shops in the UK, including an analysis on how the coffee industry especially in retail sector has become an oligopoly. The proponent visited these three coffee shops and recorded the recent prices of their product offerings which include Cappucino, Cafee Latte, Chai Latte, Americano, Mocha, Espresso, and Hot Chocolate. The data are presented in the following section. The Data The actual raw data gathered by the proponent are shown in Appendix 1 to 3. Common product offerings among the three coffee shops are Cappucino, Cafee Latte, Americano, Mocha, Espresso and Hot Chocolate. Each of these product offerings has corresponding three kinds of prices namely for small, regular and large categories. The corresponding prices of each category of offerings are shown in Tables 1 to 3. For visual identification of differences in the respective prices of the offerings of the three coffee shops, a bar graph is used in plotting the raw data from Appendix 1 to 3. Table 1. Prices of the small category type of offerings of the three top coffee shops in the UK. Table 2. Prices of the regular category type of offerings of the three top coffee shops in the UK. Table 3. Prices of the large category type of offerings of the three top coffee shops in the UK. Analysis Price leadership In most of the categories of product offerings from among the three coffee shops and as shown in the previous tables, Starbucks seems to be in the lead when it comes to pricing. From regular category of product offerings, Starbucks’ prices for its product offerings are relatively higher than those of Costa Coffee’s. The same trend is observed from regular to large category types of offerings. Starbucks relatively prevailed over than the prices of Costa Coffee and Caffe Nero. As stated earlier, Starbucks had more than 700 stores in 2009 and more than half of them are in London. This company is still growing and in fact, has dominated in its industry. The very proof is its ability to initiate higher prices for its product offerings today. Its competitor like Costa Coffee is still having around 750 branches as of today. This means that Starbucks still dominates in its industry when it comes to the number of stores. Among the three coffee shops, Caffe Nero seems to be the new entrant in the competition and this is the reason why it substantially has relatively lower prices for all categories of its product offerings. Aside from the fact that Caffe Nero is relatively small when it comes to the number of its stores compared to both Starbucks and Costa Coffee, the former requires to substantially win the market through the prices of its product offerings. This is its major strategic move in order to win the market, create customer loyalty and cater wide range of customer. As a new entrant based on the number of its stores across UK, Caffe Nero needs to create its identity not only on the quality of its products, but above all through their prices. As clearly observed, there are varying pricing schemes among the three coffee shops depending on the level of their market advantage in the UK. Starbucks appears to have the premium price for their product offerings among the three mentioned coffee shops, Costa Coffee is in the middle and lastly Caffe Nero offers relatively lower prices of them all, which at some point would be the most affordable. This indicates that the three coffee shops are after of obtaining specific market share and even market segment and they could manipulate this through pricing adjustment with their product offerings. The more they are established in the UK market, the more they could substantially create highly competitive prices for their product offerings just as clearly observed in the case of Starbucks. On the other end, it is a challenge on the part of Caffe Nero to create a market share so one of its highly obvious strategic moves is to create lower prices for its products in almost all categories. All of these coffee shops therefore are market leaders when it comes to manipulating the prices of their offerings. Costa Coffee is trying to define its products through their prices which at some point not so relatively far from Starbucks’ and Caffe Nero’s, just midway of them though. Starbucks prevails in the pricing strategy and while Caffe Nero wants to remain at the bottom. All of them substantially prevail in the coffee retailing market sector as different customers have varying preferences mainly not only on product quality, but on pricing considerations as well. Oligopoly Every market segment therefore could be substantially catered in the coffee retail sector in the UK through Starbucks, Caffe Nero and Costa Coffee as they all have substantial range of product pricing that could be affordable for various types of customers. If they will be combined together, they all have specific role to play in catering different types of customers. In other words, all three of them and together with the number of their stores across the UK are integral parts of the healthy competition in the coffee retail industry. The very reason is the fact that all three of them have substantially formed oligopoly. By definition, oligopoly is a market form in which there is more than one competitor but not so many just like those observed in a market with perfect competition (Hall and Lieberman 333). In other words, oligopoly is in between monopoly and perfect competition. In the case of Starbucks, Caffe Nero and Costa Coffee, there are only three of them which could substantially influence the price, but they could not totally do so because each one of them is aware of the strategic move of the other. In oligopoly, there is less concern on giving so much time in monitoring various prices for there is only small number of key players and each of them could closely monitor the entire market activities of each other. The best thing they could do is to focus on what specific market they should cater with their product offerings. For example, Starbucks could substantially cater customers who are looking for premium brands of coffee drinks at various specifications. The Costa Coffee on the other hand could cater the middle class in general and finally Caffe Nero could provide to those budget conscious customers. As observed, all of them have placed meaningful identity for their product offerings based on their pricing schemes. In one way or another, they were competing, but they do not actually influence the price by themselves alone. Each of them is substantially looking only for market opportunity, and in their case it is about looking for the best market segment where they could offer their products featuring their prices, respectively. Conclusion Competition is crucial in the industry where Costa Coffee, Caffe Nero and Starbucks are integral parts. However, this competition is something not so hard to play along with for there are only few key players which the bottom line is they could certainly manipulate and focus on certain strategic moves. One of them falls on their pricing strategy. This made the three coffee shops as price leaders in their industry as they try to create their market share, depending on how competitors priced their product offerings. Each of them have identified the best possible pricing scheme just enough to make them stay in the competition and pursue competitive advantage and market share. Furthermore, it would not be hard on their part to create this market share because they have created a market form between monopoly and perfect competition – the very essence of an oligopoly. In this market form, they could substantially define a market segment prior to achieving their market share. They all have created specific brand identification which the customers could readily identify, most especially based on price. Reference Hall, Robert E., and Marc Lieberman. Microeconomics: Principles and Applications. 5th ed. Mason, OH: Cengage Learning, 2009. Appendix 1. The prices of Caffe Nero’s product offerings. Prices Drink Large Regular Small   2.5 2.2   Cappucino 2.5 2.2   Cafee Latte   2.7   Chai Latte 2.2 1.9   Americano 2.55 2.25   Mocha   1.4   Espresso 2.55 2.25   Hot Chocolate As of 2010, Nero has more than 400 branches in the UK. Appendix 2. The prices of Costa Coffee’s product offerings. COFFEE Prices Drink Large Regular Small   2.65 2.45 2.15 Cappucino 2.65 2.45 2.15 Cafee Latte 2.65 2.45 2.15 Costa Light 2.35 2.15 1.85 Americano 2.85 2.65 2.35 Mocha no large 1.8 1.45 Espresso 2.7 2.5 2.2 Hot Chocolate In COSTA website, it is written that, "they have over 750 stores in the UK" Appendix 3. The prices of Starbucks’ product offerings. Prices Drink Large Regular Small   2.75 2.5 2.15 Cappucino 2.75 2.5 2.15 Cafee Latte 3.25 3 2.75 Chai Latte 2.3 2.1 1.9 Americano 3.2 2.95 2.55 Mocha   1.75 1.45 Espresso 2.95 2.7 2.4 Hot Chocolate 1) In 2009, the number of STARBUCKS stores were about 727. 2) In London, it was approximately 400 Read More