Costa Coffee Essay

1. Executive summary In this business report we are analysing the business environment in which our company – BESO and its main competitor – Costa Coffee operate. The main objective is to research, analyse and understand the competitor’s business strategy, to find out if there is a gap in their action plan and how we can take advantage of this. The report consists of SWOT analysis of BESO and PEST analysis of both companies. The target markets of both – BESO and Costa Coffee are similar. That makes the competition between them even bigger. The report also discusses the marketing approach and the various advertising campaigns conducted by Costa Coffee and the advertising techniques we decide to adopt in the long run. The distribution system of Costa Coffee is also considered and plans to expand to different locations. The pricing strategy of BESO is based closely to the strategy of Costa Coffee as we have adopted competitive pricing. In terms of ethical issues we examined the various types of corporate social responsibilities of Costa Coffee. 2. Introduction The business report includes an analysis of Costa Coffee as a main competitor of BESO Coffee. The report examines the business environment where both companies operate in. It has been requested from the Marketing Director of BESO and also has to be focused only on the UK market. 3. BESO – Brief history BESO Coffee is a coffee chain settled in the UK in 2001. It has been established by an independent trader but later on when the business has grown, new stakeholders appeared. At first BESO’s target market was limited as well as the products it offered- only a few types of coffee and limited types of confectionary. However, only two years after launching BESO on the market it became popular through different groups of people, therefore the menu became much diversified and the target market as well. BESO has shown great performance during the years and has become one of the most recognized names on the current market. That is why Costa Coffee is determined as a main competitor of BESO. 4 5 The Marketing Profession 4. SWOT and PEST analysis 4. 1. SWOT analysis Strengths †¢ †¢ †¢ †¢ †¢ Efficient and trained staff Customer loyalty Brand recognition High quality coffee Friendly and relaxing atmosphere for our customers. Weaknesses †¢ †¢ †¢ †¢ †¢ †¢ Limited number of outlets Low levels of advertisement Interior design needs updating More range of the types of coffee available. Continual change in consumer taste Can be seen as an unhealthy product Opportunities †¢ Based in Central London which covers a large demographic of customers Olympics 2012 will bring in more sales Introduction of new products including healthy options. Retailing mugs and coffee equipment Threats †¢ †¢ †¢ †¢ Customers demanding fair-trade and organic coffee. Big chain coffee shops dominating the market. Economic issues and crisis Lack of ownership of primary resources e. g. Coffee farming. †¢ †¢ †¢ 4. 2. PEST analysis There are many different Political, Economic, Social and Technological issues that both our company and also Costa Coffee face within the coffee industry. Firstly, the first political issue to consider is that majority of coffee beans are brought and made in developing countries, so companies need to ensure that their coffee is made by fair-trade dealers and they need to consider the ethical conditions of the labor used. Another political issue includes all the taxes and tariffs incurred by any business operating within the UK, whether it be import tariffs or VAT on goods sold. The economic factors that our companies face are similar to the issues faced by many businesses within the whole goods and services market, this including the economic recession of 2008. Customers now have less disposable income to spend and as a result cut-down on the purchasing of non-vital goods. This is due to of unemployment rising and the levels of debt increasing. The social factors that need to be taken into consideration is that consumers are spending more money on coffee due to the demand for quality goods. This can be seen in the comparison of value of tea and coffee industry with coffee valuing at 738 million according to the Times (2008). As a result, companies need to ensure that buying coffee is not only a quick purchase, as they need to have value-added for customers including high quality coffee and a relaxing 5 6 The Marketing Profession atmosphere. Lastly, the technological issues that both our company and Costa face is the introduction of self-made home coffee by the use of coffee machines specifically tailored to make at home, for example, the Senseo coffee-machines. This can be seen as a threat to coffee shops as it is a cheaper alternative for customers in the long run. 5. Target market According to a Mintel report titled â€Å"Coffee Shops† published February 2012, â€Å"Two thirds of consumers buy coffee out of home, rising to three in four among 16-24-year-olds as core users†. Costa Coffee has the highest number of outlets within the UK totaled to 1,302 coffee shop chains as opposed to Starbucks who has 739 and Caffe Nero with 509 shops. It also claimed that â€Å"Costa has different store designs to suit different purposes such as ‘Metro’ which is aimed at the younger/urban consumers and ‘Evolution’ which is designed for more mature customers in provincial locations. It states its customer segments are ‘Recharge, Relax, Refuel’†. Therefore the target market for Costa Coffee ranges from a wide range of customers of different ages as it caters to many different needs. Students have been said to make up 30% of their target market, Professionals 45%, Families 10% and mature consumers 15% of the clientele. At BESO Coffee, our market we aim to target at is very wide as it ranges from teenagers to mature customers. We even target at families as we offer menus for younger children and parents. Our products are reasonably priced so it can be bought from people of many different income level groups, from working to upper class. 6. Marketing approaches Costa coffee have used many different marketing approaches and campaigns in order to succeed within the industry as it is important to continually update their marketing strategies. Costa has introduced campaigns such as ‘How Do You Like Yours’, which allowed customers to customize their coffee’s by for example adding espresso or syrup. This helps them differentiate themselves from competitors as it gives consumers more power and control over their purchase. Another campaign introduced by Costa was the arrival of Costa light in 2011, which offered low-calorie and healthier options to customers. This was an important step for Costa as there has been an increase in healthy eating trends, which can be seen in the figure below. Figure: Consumer demand for display of calorie content on restaurant menus, June 2010-December 2011 6 7 The Marketing Profession Other campaigns included the launch of Costa Coffee Gift Card in November 2011 which allowed customers to buy card with pre-paid amounts of up to ? 75 and a more recent campaign at the beginning of 2012 when Costa collaborated with the Spirit Pub Company which ensured that Costa coffee would be used in its restaurants chains including Chef & Brewer and Flaming grill. Costa has used many forms of media to advertise their campaigns to the public. One method used to inform customers was through the use of television advertising in 2008 whereby Costa launched its first ad. The advert helped to illustrate the â€Å"superiority of Costa’s products† and according Reynolds (2010) its message was that â€Å"the brand is on a mission to save the world from mediocre coffee and seven out of 10 coffee lovers prefer Costa†. Other forms of media used by Costa include Billboards as it can be seen by many commuters within the UK by their use of big bold writing and minimal distraction of the main message. Their billboards are distinctive as they have a continual theme colour, text and logo, which are recognised by customers. Our approach to our marketing campaign is to use alternative uses of media to portray our message, including the use of the Internet, as it is a popular form of media used in today’s society. We aim to use Facebook and Twitter to advertise our campaign and the company as a whole as it covers a large demographic. 7. Distribution strategy Costa operates in the UK through its own coffee shops, franchises and wholesale outlets. On the18th of October 2011, Whitbread stated that the number of Costa UK stores had risen from 1,217 in March 2011 to 1,302 in September 2011, including 95 openings and ten store closures. In comparison, Costa International increased its stores from 654 to 701 during the same period, including 72 openings and 25 closures. Meanwhile Costa Express/Coffee Nation units increased from 877 in March 2011 to 934 in September 2011, taking account of 79 openings and 22 closures. These units are partnered with service station operators such as Moto, Esso and Welcome Break, retailers like Tesco and The Co-Operative and foodservice group Compass (Mintel 2012). In a market with low loyalty levels, advertising and promotion is important in keeping brands in the forefront of consumers’ minds. Costa Coffee looked to sustain an emotional response among consumers with the marketing supporting its launch of Costa Light variant in autumn 2011 through an advertising campaign that used slogans such as ‘All the love, none of the handles’ and ‘Extra feel good in every cup’ (Mintel 2012) Customers were also encouraged to see the lighter side of life with its Costa Light Comedy Challenge competition. Costa’s aim was to showcase up-and-coming comedians by asking them to submit a one-minute film via its website. A public vote then saw the top ten entries from five regions go through to a further round to be judged during one-off events across the UK, with the campaign finally culminating in two regional winners performing at The Comedy Store, London (Mintel 2012). Costa Coffee’s distribution system is broad with a balanced portfolio across high streets, retail parks, concessions, airports, rail and other travel hubs as well as an increasing number of stores in new locations such as universities and hospitals. Innovative distribution channels, such as Costa Express and Drive Thru are developed. They will extend the brand’s reach and increase accessibility for the customer (Whitbread, 2010). 7 8 The Marketing Profession Andy Harrison, chief executive of Whitbread said that popping out for a coffee has become a â€Å"firm fixture† of peoples’ lives. â€Å"Coffee culture has grown massively over the last five to 10 years – people have a real demand for quality coffee and a choice of different coffees,† he said. â€Å"When I was kid everyone wanted a Nescafe – that has definitely changed. † (The Guardian 2011). 8. Pricing strategy Costa Coffee is a well-known, high valued and trusted cafeteria all over the world. They offer wide range of high qualitative coffee drinks and food, excellent services and relaxing atmosphere. Costa relies on their superiorities and offer comparatively higher prices because they have realized that the luxury comes with the price. Costa Coffee offers two sizes of drinks – medium and large and the price difference between them is not significant. In this way they encourage their customers to buy the bigger size, because the amount of the drink is bigger and is on almost the same price as the medium one. But even the medium size of cappuccino is served in a cup with the size of soup bowl, so Costa Coffee has a reason to charge a relatively higher price because of the value they give, even though in most cases customers do not need such a big amount of drink although they have to pay for it. In this way, Costa is able to sell cheaper coffee to regular customers, who are aware of the amount of the drink (with elastic demand) and sell more expensive coffee to infrequent visitors, therefore the cafeteria makes big profit from each cup of coffee. This is the corporate strategy and how Costa found a way to charge comparatively higher prices than most of their competitors. This strategy has some disadvantages and threats such as the present credit crunch, which might affect the sales and the budget of Costa Coffee as they target middle and upper middle class, therefore in the time of recession customers may prefer some of the cheaper competitors. 9. Pricing strategy that we will adopt – competition based pricing strategy One of the biggest advantages of the †Competition based pricing strategy† is that in the same time you are focused on your business and objectives and on the competition’s strategies. Once you understand what the competition is doing, you have the chance to do everything better and to gain a competitive advantage (Jobber 2008), therefore to increase the number of customers and to gain bigger market share. There are three types on competition based pricing methods: †¢ †¢ †¢ Price your product the same as the competitor Set your price to increase customer base Seek larger market share through price Compared to Costa Coffee we are fairly new to the market so it would be more appropriate for BESO to adopt the †Competition based pricing† as a strategy that will allow us to grow fast as competitive brand. In order to achieve biggest results we will match/mix the three competition-based pricing methods. BESO will offer similar products as/like the Costa’s products but on lower prices, therefore BESO’s market department must always be aware of what the competition is offering in order to provide better value for money. In this way BESO will has the opportunity to outline its advantages as comparing similar products as those of the competition but on lower prices (even pence). Once customers understand our priorities they will use to come to BESO as a place, which offers better value for money, 8 9 The Marketing Profession therefore we will increase our market share (Palmer and Hartley 2006). In terms of increasing customer base, the process is similar to market penetration, we have to select a price that will beat the competition and doing that we will motivate customer to notice our products and to make a purchase decision. Market penetration pricing works well in the introduction stage of the product life cycle and in a highly competitive market, as you increase the production some of your costs will decrease. During the next stages of the product life cycle the price can be increased (Jobber 2010). The easiest way to increase the market share of BESO is to select prices that will attract and hold as many customers as possible (depend on target). It is recommended to adopt the †Market – share pricing† after the business achieved market penetration, because they are linked as the market share happens when large volume of products are sold. So it is better if things happen step by step. And finally the market share is calculated by dividing the amount of each company sells out of the total market and in this way the market leader is determined. 9. 1. Disadvantages of †Competition based pricing† †¢ †¢ †¢ There is a danger to ignore your own production cost if you focus too closely on the competitors’ prices. It takes more time to research and update competitors’ information. Competitors also can copy whatever price you select. 10. Customer service Loyalty is particularly low in the coffee shop market, making customer retention a key area of improvement going forward (Mintel 2012). At the start of 2012 Costa Coffee launched the ‘Just How Do You Like Yours? ’ campaign. It aims to highlight the customizable elements of its products, a key differentiator to its lower-priced non-specialist competitors such as EAT and Pret A Manger. A clear pricing strategy was also included in order to appeal to consumer’s sense of value for money. For example, customers can now add an extra shot of espresso or sugar-free syrup shots to their drinks for 35p per unit. Also, in 2011 Costa Coffee launched gift cards (Mintel 2012). Although consumers state that convenient location is more important to them than the brand of coffee chain, operators can still capture consumers’ attention through qualities other than price. For example, two in three users think that quality is the most important decision-making factor when choosing where to buy hot drinks, whilst nearly half disagree that they usually choose the cheapest venue. However, with so many brands trading off of a quality positioning, operators have to ensure that they are differentiating themselves on additional levels, hence the trend towards lifestyle branding in the wider eating out market (Mintel 2012). Costa Coffee’s reputation for excellence applies not only for the exceptional coffee but also the insistence on perfect service. â€Å"Recruiting and retaining highly motivated and talented people is essential and great emphasis is placed on improving the skills, expertise and 9 10 The Marketing Profession performance of our people through award winning, industry-leading training and developing programs† (Mintel 2012). 11. Costa Coffee’s attitude towards environmental issues Consumers are extremely careful about environmental issues, trying to buy environmentally friendly food and drinks. Most of the customers feel that it is their duty to save the environment in order to live healthier. That is why most companies are under a lot of pressure to change their attitude towards the environment most often related to greener, packaging solutions, recycling and many others. Costa Coffee is the first UK coffee chain buying beans from Rainforest Alliance Certifiedâ„ ¢ farms. From October last year, almost 100% of the coffee beans for Mocha Italia blend are from certified sustainable farms. Costa Coffee is also a member of UK Paper Cup Recycling Committee, their cups are made from sustainable sources and that’s saves about 1,100 trees a year. The ingredients from which the cups are made of are all from iconic recyclable material and are made using only certified sustainable pulp. Vegetable Costa Coffee is also concerned about its coffee-growers and in 2006 it registered a Costa Foundation, dealing with the improvement of the welfare of coffee-growing places like Colombia, Costa Rica, Ethiopia, Guatemala, Uganda and Vietnam. Costa Coffee is also a partner with Cafechurch network, supporting local community. The organization deals with environmental issues, fair trade, divorce and stress problems and others. People are feeling well, being part of a great atmosphere, live music, good communication, and a lot of interviews, having the opportunity to understand more about the Costa Coffee Foundations. 12. The competitor’s CSR activity Costa Coffee is not achieving basic standard of Corporate Social Responsibility (CSR). The coffee company does not give a specific data for the carbon footprint. Its environmental data is part of the environmental data of its parent company-Whitbread. 13. What is your attitude to CSR/environmental issues going to be? The aims that Costa Coffee manages to do are quite a lot. Some of the first ones are: †¢ †¢ †¢ †¢ Developing Costa Coffee’s energy & environmental strategy. Managing carbon reporting and ensuring compliance for CRC. Maintaining the ISO50001 system. Working with manufacturer’s waste contractors and NGO to improve takeaway cup recycling. 10 11 †¢ †¢ The Marketing Profession Developing Costa Good Together CR programme . By 2012/13 Costa Coffee aims to help 15, 000, providing them access to education. That target will help to bring together the communities, helping adults to find jobs and trades. The coffee chain aim is to raise ? 750,000 alone during 2012/13. Costa Coffee will try to dedicate Energy & Environment Manager in Costa Coffee. That will be useful, trying to insure more control and to organize the best structured plan for the company. Costa’s cardboard cups are not recyclable, even though the cardboard can be recycled. The other ingredient in the cardboard cups, the ink and the glue, cannot be recycled. The target environmental plan of Costa Coffee is to use vegetable ink and degradable glue on its cups. Costa Coffee is raising money to build schools in regions where a lot of coffee farms take place. There are already 22 schools in developing countries. That makes a big difference for a lot of young people who have the opportunity to study. Costa Foundation is also taking care for the supplement of special healthy nutritious meals and laptops for the children. †¢ †¢ †¢ 14. Conclusion Based on the researches and analysis that have been done BESO has a great potential to use Costa’s disadvantages and to convert them into our opportunities for prosperity. Offering similar products as those of Costa Coffee but on lower prices and in the same time launching our own products (BESO’s cupcakes) is a good strategy to gain a competitive advantage. Slight changes in the interior design of our cafeteria would be refreshing and a good way to attract new customers. Furthermore increasing our advertising activities would be an opportunity to remind our customers and in the same time to inform our new potential customers about BESO’s fantastic services and great value for money. 15. References Baker S. (2003), New Consumer Marketing, West Sussex, John Wiley & Sons Ltd Cooper D., Schindler P.(2011), Business Research Methods, New York, McGraw – Hill Education Economics Help (2008), Costa Coffee UK and Sales Techniques. Available at: http://econ. economicshelp. org/2008/08/costa-coffee-uk-and-sales-techniques. html [Accessed: 20th March 2012]. Government of Alberta (2012), Methods to Price Your Products. Available at: http://www1. agric. gov. ab. ca/$department/deptdocs. nsf/all/agdex1133#competition [Accessed: 20th March 2012] Jobber D. (2010), Principles and Practice of Marketing, London, McGraw – Hill Education 11 12. 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