Executive summary

Costa coffee is the leading coffee chain in UK beating Starbucks in 2010 which is the largest

coffee chain in the world. The organisation’s objective of becoming number one coffee chain

in the world is taken into the account and marketing research has been carried out to achieve

the objective. In order to understand the strength and weakness of the organisation, external

and internal audits are carried out using PESTLE analysis, SWOT analysis and marketing

mix model. From the analysis that has been carried out, strategy has been devised for Costa

coffee for three years to achieve the target. The implementation process clearly describes how

the strategy could be implemented in UK and in the international market to achieve the target.

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Contents

Executive summary....................................................................................................................1

Costa...........................................................................................................................................4

Current marketing situation........................................................................................................4

External Audit........................................................................................................................4

Political...............................................................................................................................4

Economic............................................................................................................................5

Sociocultural.......................................................................................................................5

Technological......................................................................................................................6

Environmental.....................................................................................................................6

Legal...................................................................................................................................6

Internal....................................................................................................................................7

Product................................................................................................................................7

Price....................................................................................................................................7

Place....................................................................................................................................7

Promotion............................................................................................................................8

SWOT analysis.......................................................................................................................8

Objectives and issues...............................................................................................................10

Vision statement...................................................................................................................10

Mission statement.................................................................................................................10

Objective...............................................................................................................................10

Marketing strategy...................................................................................................................10

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Marketing implementation.......................................................................................................11

Target market and Market segmentation..............................................................................11

Increasing the market share in UK and in global environment............................................11

Focus on quality and new products......................................................................................12

Effective operations to reduce the cost involved..................................................................13

Conclusion................................................................................................................................13

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Costa

Costa Coffee is the largest coffee chain in UK operates from Dunstable, UK as its

headquarters. This is the second largest coffee chain in the world after Starbucks. This is

wholly owned by Whitbread. Costa Coffee is the only coffee shop providing hand-made

coffee’s to the customers among its rivals in UK. Costa coffee is specialised in Italian coffee.

It acquired market share of 37.6% by the end of 2010 to become the largest coffee chain in

UK. It was found in 1971 by Sergio and Bruno Costa which was acquired in 1995 by

Whitbread. Now the organisation has 1700 outlets in 28 countries.

Current marketing situation

The current marketing situation of the Costa Coffee could be identified by external and

internal audits. There are several methods and models which enable to conduct external and

internal audit in the organisation. The external and internal audit of Costa Coffee as follows:

External Audit

The external audit is carried out by carrying out by using PESTLE analysis. This enables the

researcher to carry out analysis on several external factors like political, economic, social,

technology, legal and environmental factors (Armstrong. M. A, 2006).

Political

The change in the political environment in UK in 2010 due to coalition government brought

in several changes in the policies. This has also affected the poll rating of the party mainly

due to taxation policy. In the last two years, there has been a fluctuation in the Value Added

Tax (VAT) rate. It was decreased to 15% from 17.5% and then it was increased to 17.5% and

later in 2011, it was still increased to 20%. This has sharply increased the price of the Costa

products. Lower the VAT rate is the lower price of the Costa products to the customer. But

the increase would have a negative impact on the sales which is due to increase in the price of

the products.

The demand for high quality coffee has been constantly increasing for which the organisation

holds coffee beans certification. The fair trade of the coffee beans also gains advantage by

high level of product differentiation. To focus on the sustainable growth of coffee beans,

Costa got its complete supply from Rainforest Alliance Certified farms. In 2006, Costa setup

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a foundation to support the coffee suppliers in different countries like Colombia, Uganda,

Guatemala and so on to implement fair trade in the coffee beans. This has immensely

supported the education and job opportunities of the local people.

Economic

The UK government has reduced the VAT rate in 2008-2009 due to deep economic crisis

with the aim of increasing the sales and accelerating the recovery in the region. This policy

has supported the increase in sale to some extent by reducing the cost price of the product.

But the sharp increase in the unemployment during economic crisis has led to the decrease in

the purchasing power of the people. This has led to decrease in the spending on non essential

products by people affected the sales of coffee.

The economy started to recover from the crisis in 2010. In order to increase the revenue of

the government VAT rate was increased. The inflation rate at that period was also high,

which all contributed in the increase in the price of the products and ingredients. Along with

that Costa being a multinational organisation, changes in the foreign exchange directly affects

the organisation. The decrease in the value of pounds decreases the purchasing power of the

organisation.

In this business environment, Costa Coffee aimed at reducing the cost price of the products

and brought in changes in the menu in order to maintain the profit levels of the organisation.

Cost reduction has been one of the effective ways during the economic crisis to retain the

customers and maintain the revenue generated by the organisation. But the organisation has

to be aware of the quality of the products which brings in the business to the organisation.

There is a big opportunity for the organisation to reduce the cost of the products by reducing

the operational cost which constitutes the maximum part of the expenditure.

Sociocultural

With the increase in the population, opportunity for the potential business environment also

increases. In the increasing standard of living and education increases the demand for high

quality products from Costa. The organisation has to maintain the quality and increase the

variety of products and services that is currently being offered. The change in the attitude and

social environment has higher influence on the coffee houses. With the increase in white

collar jobs and laptop and other gadgets, coffee shops are also considered as a place of non

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official meeting due to its environment. With the change in trend, Costa moved in partnership

with the bookshops to adapt to the social change and that has contributed to the increase in

the sales of both Costa and bookshops.

The changes that have been brought in the life style by drink and drive rules, decreased the

consumption of alcohol and boosted the sales of coffee in UK. With the changes according to

the attitude and lifestyle, high level of success has been achieved by Costa with public

through social and cultural communication.

Technological

With the increase in the implementation of technology in business has increased the business

and profit levels of the organisation. With the implementation of technology by Costa has

enabled the organisation to attain competitive advantage in productivity, efficiency and

profitability in coffee brewing sector. Costa has also started to implement technology in the

management with new Electronic Point Of Sales (EPOS) system. This was first installed in

2010 to increase the efficiency of retail sales in the coffee shops.

Environmental

With the increase in the environmental awareness among the people it is important for the

organisation to focus on the environmental impact by Costa. The organisation should focus

on long term sustainable strategy. Costa always was in focus on the environmental impacts

and made efforts to its vest to protect the environment. The coffee cup used in Costa is

recyclable because of the usage of sustainable pulp in manufacturing the coffee cups. From

2009, Costa started to use Iveco which has aided in increasing the fuel efficiency and the

daily delivery of the products.

But still there is concern regarding the environmental impact of wildlife (monkeys) due to its

TV advertising which began recently.

Legal

Costa has always met the standards of business and employment laws and continuously

works on the improvement of safety and health of employees and consumer. To make sure

with the statement, Costa signed with Food Standard Agency (FSA) in 2009 to ensure that

they provide healthier food outside the country

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Internal

In order to understand the internal strength and weakness of the organisation 4P analysis is

carried out. This would enable the organisation to understand the 4P factors that are product,

price, place and promotion (Kerin, Hartley and Rudelius, 2001). This would enable

the organisation to focus on the factors for increasing the business of the organisation.

Product

The products of Costa are the trademark of quality and excellence which has brought

business to the organisation. Costa provides variety of coffee products to its customers which

enable them to attract different kind of customers. The introduction of new products through

different store name called Costa Metro in London, 2011 has increased the sales of the

organisation. This also aids in expansion of the organisation to compete with the largest

coffee shops in UK. The products of Costa have been distinct from that of others all over the

world that resembles the quality. This has become the trademark for the organisation. The

high quality products from the special coffee beans produced for Costa make it difficult for

the rivals to provide the quality which is provided to the customers by Costa.

Price

The increase in the demand for the high quality products in the recent times has increased the

cost of the products. It is not possible to offer high quality products at cheaper price. Though

the cost of products in Costa is not cheaper, the quality of the products is much higher than

the other rivals. The quality of the product is appreciated by the loyal consumers. The

expectation of the consumer from Costa is focused much on the quality which would increase

the price of the product. But the price of the product could be reduced by reducing the cost

involved in the operations area. This would gain competitive advantage to the organisation.

Place

The location of the Costa is also one of the important factors in contributing the sales of the

organisation. Due to high quality products which keeps the price higher compared to the

rivals would be proffered by people who is focused on high quality products and in the areas

where the purchasing power of the people are high. This clearly indicates that the business

targets the upper and upper middle class people. Most of the Costa shops are located at

shopping areas and malls, in order to gain the advantage by its location. Costa also focuses on

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the inventory and easy transport facilities while choosing its location to make it easier for its

operations.

Promotion

Costa does not focus much on the promotion from its beginning. But it has introduced loyalty

cards to its customer to build strong relationship with the customers. This also enables Costa

to provide offers through the loyalty cards. The offers were highly utilised by the loyalty

consumers. This indicates the performance development through the introduction of

promotions through loyalty cards to its customers. The brand name of Costa does all the

advertisement and the word of mouth from the customers acts as a main referrals. Thus

reputation speaks for Costa in its sales. The replacement of loyalty cards would also transfer

the credits in the previous cards and Costa does not charge for the loyalty card unless

multiple cards are requested within 6 months time. The points in the loyalty card could be

used to purchase products in Costa, which increases sales and revenue of the organisation.

Thus from the external and internal analysis that has been carried out, it is clear that the

organisation shows more positive signs for increasing business in the near future and to

become the market leaders within short period of time.

SWOT analysis

SWOT analysis enables the organisation to understand the strength, weakness, opportunities

and threats of the organisation. This enables the organisation to devise business strategies

accordingly to improve the business and profit levels (Armstrong. M. A, 2006).

Strength Weakness

Reputation for comfort, quality, value

of money and variety of products

Development in the global level

Efficient support by information

technology for organisation’s

procurement

Being one of the largest company in

coffee industry in UK, it has weak

control over the industry with its

additional advantage of IT in the

organisation

Lack of flexibility compared to the

rivals

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Delivers good customer care service

Ability to change according to the

market trend in a quick manner

Better financial status and less

problems related to deficits

Vulnerable to loss of staff

Lack of essential skills with some of

the employees

Its operation is limited in the global

arena

During the new product development

cash inflow is unreliable

Opportunity Threats

Potential opportunities in Europe and

China by merging, taking over and

strategic alliances

Wide opportunity in the emerging

countries like India and Brazil

Expansion of the organisation would

provide diversification of the

organisation from its large super

centres to local sites

Continuous expansion provides big

opportunity to exploit the market

share

Difficult for the rivals to adapt new

technology similar to Costa

Current strategy of expansion helps in

expanding in the global level rapidly

Costa is target for competition as it is

the number one in coffee industry

both locally and globally

Exposed to political problems in the

global business market

Manufacturing cost is currently being

reduced in this sector by outsourcing

to low cost regions that would reduce

the cost price of the products. The

price war should be considered as

threat which has the potential t

drastically affect the business

Ability to change its IT function to

latest technology would also be a

threat in future when it is adapted by

rivals

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Objectives and issues

Vision statement

“Our vision is to be the best hospitality company that there is - a family of related hotel,

restaurant and leisure club brands recognized by our people, guests and investors as leaders in

each market in which we operate”.

Mission statement

“To serve the best coffee in the true Italian style.”

Objective

Increasing the scale, market share and the profitability of the organisation

Develop potential new products that reaches the customers in significant scale

Acquiring new customers and retaining the existing customer

Improve the customer service offered to the customers

Marketing strategy

With the market share of 37.6% by the end of 2010 has enabled the Costa Coffee to become

the highest market share holder in UK. It operates in 1175 outlets inside UK in January 2011.

It has planned to expand it to 3000. This expansion process is focused in opening new outlets

near universities, hospitals and transport interchanges. It also operates 442 stores globally

where it is also expected to increase its operation (www.whitbread.co.uk). The following

marketing strategy would enable the organisation to achieve the objectives in the next 3 years

time. This would enable the organisation to become number one in global business market

and in UK. The 4P marketing mix strategy has been used in order to develop marketing

strategy to achieve the objectives of the organisation which as follows:

Target market and Market segmentation

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Expansion through partnership

Focus on the quality and new products

Effective operations to reduce the cost involved

Marketing implementation

Marketing implementation clearly describes the process that are to be carried out which

would enable organisation to achieve the objectives that has been set for the next three years.

This would not only address the path in which the organisation would proceed but also

address the current issues in the organisation. When the current issues of the organisation are

addressed, it would also boost the performance of the organisation.

Target market and Market segmentation

Costa Coffee has big appeal in all the age groups. It is not restricted to young or mature group

of consumers. The menu is designed in such a way to cater all categories of consumers

according to the preference and quality of taste in the coffee. Since the organisation focus on

high quality products which has higher price, the market is segmented to upper middle class

and the privileged class. Costa is clear that it is not focusing on the niche market. Most of its

existing customers were also from the upper middle and privilege class. From the research it

has been identified that mature people, students and professionals are more attracted by the

products of Costa. The new products developed in Costa Metro were aimed at the

professionals. This has been a great success and Costa has planned to expand Costa Metro in

several other parts of London and UK. Similarly stores has been planned to open up new the

universities and the hospitals targeting the customers.

Increasing the market share in UK and in global environment

Whitbread plc, the parental organisation of Costa Coffee has acquired Coffee Nation for

£59.5 million (annualreport.whitbread.co.uk). It has been renamed as Costa Express adding to

the number of outlets to Costa Coffee in UK. Even in the past Costa Coffee has acquired

Coffee Heaven in 2006 (www.independent.co.uk). Costa Coffee has expanded in UK through

acquisition in the past which has planned to open up new shops in the particular areas to

increase the business of the organisation. Since the acquired Coffee Nation is mostly located

in Tesco stores and motorways, the organisation has planned to focus to open new shops near

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the universities, transport interchanges and hospitals. This would enable the organisation to

focus on their targeted customers.

In the global business environment, the organisation forms a partnership with the local

competitor. This strategy would enable to overcome the barrier of new entrants in the high

potential market like China, India and other emerging countries. This would enable the

organisation to leverage the knowledge of the local market from its partners and expand in

the region rapidly with its brand name Costa. The partnership has enabled the organisation to

open 89 new stores on 2009/2010 in East European region. But the partnership plan in China

and other emerging countries would enable the organisation to open more than 200 stores in

2011/2012. This expansion has already reached 100 stores in June. Starbucks which entered

China in 1998 has more than 500 stores in China. But the strategy of partnership with local

competitor by Costa Coffee has enabled to reach 100 stores in short period of time, would

enable Costa Coffee to become number one in China within next three years. Similar

operations in UK and in the global market would enable the organisation to become number

one in several new countries and retain its number one position in UK.

Focus on quality and new products

A foundation was set up by Costa to support the education and job opportunities of people in

coffee developing supplier nation such as Uganda, Costa Rica, Columbia and so on. The

organisation has built around 119 classrooms and 22 schools, helped 22 different

communities of coffee suppliers, education has been provided to 11,800 children and jobs to

193 teachers. The organisation has also committed to raise £750,000 for this financial year.

This would enable the organisation to develop sustainable supplier with the increased ability

to produce high quality coffee beans. The new products introduced in Costa Metro have been

huge success and similarly Costa develops new products according to the trend in the market.

It has come up with several new products for the Christmas festive season to increase the

sales. With the same commitment on its focus on quality and new products, organisation

would be able to achieve its objective of acquiring new customers and retaining its existing

customers.

Effective operations to reduce the cost involved

The organisation upgraded to Master Roaster which has the ability to produce 65 tonnes per

week which is almost double the current capacity of producing 35 tonnes per week. This

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would clearly reduce the cost involved in the operations that would increase the profit levels

of the organisation. The organisation started using Iveco in 2009 increased the capacity of

daily delivery and fuel efficiency. This not only contributes to the financial growth of the

organisation but also supports the green environment. The increased profit levels could be

used to expansion process and other planned operations which would reduce the overhead of

financial requirements of the organisation. Similarly training programmes are made effective

by increasing the number of days to the new employees. This would give time for the new

employee to get customise with the environment and co-workers. This has found to produce

better results compared to the previous method of training in several industries. This would

enable the employee to deliver high quality customer service and also aid the organisation in

reducing the employee turnover rate. High quality customer service would increase the

customer satisfaction while the reduction in employee turnover rate decreases the expenditure

in human resource management. All this contributes to the higher revenue and profit levels to

the organisation.

Conclusion

A brief marketing research has been carried out on the Costa Coffee to understand the

strength and weakness of the organisation. This has enabled to the researcher to set objectives

for next three years. In order to achieve the objective of the research, appropriate strategy has

been devised from the different analysis like PESTLE, SWOT and Marketing mix carried out

on Costa Coffee. The implementation process enables to clearly implement the strategy

devised to achieve the objective of the organisation.

Reference

1. Kerin, Hartley and Rudelius. (2001), Marketing, The Core. 4th

Edition. McGraw Hill Publishing,.

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2. Armstrong. M. A (2006), Handbook of Human Resource Management

Practice (10th edition) Kogan Page , London

3. Annual report Whitbread

http://annualreport.whitbread.co.uk/pdfs/0910/Whitbread-AR-0910-Section-Our-

Businesses.pdf

Accessed on: 22.12.2011

4. Costa foundation

http://www.costa.co.uk/costa-foundation/targets-and-achievements/

Accessed on: 20.12.2011

5. Current position of Costa Coffee

http://www.whitbread.co.uk/whitbread/ourbrands/costacoffee/whereweare.html

Accessed on: 20.12.2011

6. Aim of Costa Coffee

http://www.whitbread.co.uk/whitbread/ourbrands/costacoffee/whereweplantobe.html

Accessed on: 20.12.2011

7. PESTLE analysis, Oxford University press

http://www.oup.com/uk/orc/bin/9780199296378/01student/additional/page_12.htm

Accessed on: 22.12.2011

8. Information Technology in Costa

http://www.torex.com/global/hospitality/asusedby/costacoffee

Accessed on: 28.12.2011

9. Impact of political factor

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http://www.thisislondon.co.uk/standard/article-23865334-coalition-under-pressure-as-

liberal-democrat-support-plummets.do

Accessed on: 22.12.2011

10. Acquisition of Coffee Heaven

http://www.independent.co.uk/news/business/news/costa-pays-16336m-for-

coffeeheaven-1841930.html

Accessed on: 02.01.2012

11. Customer focus in Costa Coffee

http://www.whitbread.co.uk/whitbread/ourbrands/customerfocus.html

Accessed on: 02.01.2012

12. Costa Coffee summary

http://en.wikipedia.org/wiki/Costa_Coffee

Accessed on: 18.12.2011

13. Costa Coffee operations

http://www.costa-business.co.uk/

Accessed on: 28.12.2011

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