Good Example Of Essay On Costa Coffee In UK Market

PORTER’S FIVE FORCES

Threat of Substitutes
Coffee is a substitute drink in UK market, and its substitute drink is without coffee ingredient drink such as tea, fruit juice and hot chocolate. What is more, some cafes, bars and fast food store can provide substitute drink.

Suppliers

Analyzing Costa coffee through the eyes of the suppliers raises a number of questions that the company should deal with. Essential to note is that the competition in the market for the raw materials is high. This means that the suppliers have a high bargaining power as compared to the coffee companies. With this, the company should come up with strategies on how to counter this threat; otherwise things will go wrong for the company (Wood, 2009).

Buyers

Threats of New Entry
This is the major challenge that the company is facing. Apart from the threat of substitutes, the high economies of scale hurt the company. The U.K market imports coffee. The company has also failed to create a sustainable brand awareness to take advantage of the potential customers. This is despite that there is no special knowledge that is needed.

Competitive Rivalry

This is the major problem that Costa coffee faces. In the U.K market, here are several competitors who produce similar products to Costa coffee. Little differentiation is made between these companies. A good example of one such company is Nero Company, which produces products similar to Costa coffee (Fellner, 2003). This has hindered the expansion of the company’s market, resulting in low sales. It also promotes the intensity of the rivalry in the market, prompting other companies to use unfair means.

Pentagonal analysis

The diagram above is a simplification of Costa coffee’s analysis. Due to the high competition in the industry, the suppliers have a high power. This is detrimental to the company in that they can exploit this fact to their advantage. Also on the negative note is the fact that the power of buyers is low. This is based on the fact that most of the sales the company makes are house-hold. The threat of substitutes is rampant. As already discussed, most people appreciate tea, which is a substitute. The impact of this is that the company may find it difficult to expand the market. As far as entry into the market is concerned, Costa coffee stands in a better position because such an entry may never cause any harm. The company already has established customers and has a recognized brand. Internal matters have also been handled efficiently, meaning there is no internal rivalry. The management has done a good job to maintain harmony within.

Industry Life Cycle

The industry life cycle for Costa coffee varies across the world. Being a multinational industry with outlets in various parts of the world, the industry entails a number of markets, ranging from America, Europe, Asia, and Africa among many others. These markets are in different life cycles as far as the coffee industry is concerned. In Africa, for instance, the market is in the growth phase. This is characterized by accelerated sales and little competition. As a matter of fact, Costa coffee has realized an increase in its sales in Africa. In Europe, the coffee industry is in the maturity phase/ stabilization phase. After the initial quick growth, the European market is characterized by an average growth. At the moment, the level of competition in the market is quite high, leading o the normalization on the return on equity. The number of competitors in the industry has also increased tremendously. The Asia and American markets are in the mature growth phase. In a nutshell, this stage is characterized by a growth phase that is slightly above average. However, such a growth is no longer in the initial growth/acceleration growth. In these markets, the profit margins have slowly started to erode and there is a general increase in competition (Simon, 2009). These life cycles are influenced by a number of factors, including the available competition and brand identification of the companies.

Strategic Group Analysis

The diagram above is essential in making a strategic group analysis. In terms of quality, Starbucks and Costa Ltd top. In actual sense, these two company’s compete for customers because of the quality associated with their products. Despite this, Costa Ltd edges Starbucks as regards to the market base. Costa Ltd has the most number of shops. McDonald and Greggs do not mount any serious competition. This is because of their low quality products and their small market base. The mobility barriers in this strategic group also work to the advantage of Costa Ltd. The variables used are number of outlets (shops) and the quality of the products. The number of shops is essential in defining the market base, while quality shows the commitment and productivity of the companies. Measurement of number of shops is through physical counting, while quality is achieved through consumer reviews. With less competition, Costa Ltd has a better chance to increase the market base (number of shops). However, it should not compromise its quality in doing this.

Scenario planning

The worst scenario that can happen to Costa coffee is increased competition by more entrants into the market. At the moment, the market is already full, with a number of companies offering substitutes and similar products at a lower price as compared to Costa coffee. If more companies dealing with similar products join the market, for instance, it would be difficult for Costa coffee to cope as it will lack the capacity to attract adequate returns.
On a similar note, the best scenario for the company would involve number of competitors pulling out or shutting down their businesses. These competitors could involve those who deal with close substitutes to coffee or those who produce coffee, similar to Costa coffee. If this happens, Costa coffee will have a major stake in the industry. First, it will have a high bargaining power because of the increase in the suppliers. With this in mind, the company can acquire raw materials at a cheaper price than in the current market
The most probable scenario, however, is that the market structure will remain in its current position. The fact that the market in Europe is already in the maturity phase means that there is no likelihood that new entrants will join the market. The current environment does not encourage new firms to venture into this business because of the economies of scale.

ANALYSIS OF RESOURCES AND COMPETENCES

VRIN analysis
Value
Costa coffee has a number of resources that are valuable to the company. It is these resources that play a role in giving it the competitive advantage over the rivals (Gilbert, 2003). Machines and human resource factors play a significant role in determining the success of Costa coffee.

Rareness

Some of the machines and tools that the company uses in processing the coffee are rare. Such rareness work to the company’s advantage as it seeks to lead in the industry. On a similar note, having rare machines mean that the company is able to produce products that are rare to the market. This is essential in developing its brand.

Imitability

Despite having rare machines a competent staff, the biggest risk the company faces is the imitability of its products. Over the world, there are several companies who have resorted to imitate the products of Costa coffee, the result of which is reduced sales from the company (Schultz, 1997). The management should take this into account.

Non-substitutable

This is another challenge that the company has faced over time. Although it produces quality products, availability of substitutes has seen its sales significantly reduce.

Porter’s value chain

The company has a number of activities that add value, while others do not add any value. Marketing and sales, for instance, are some of the activities that add value to the company. As a matter of fact, the company acquires raw materials and processes them to finished goods by adding value to them. Human resource management also plays a major role in adding value to the company.

Virtual chain

The diagram above shows Costa Ltd’s resources in terms of importance. As expected, the company’s infrastructure and human resource rank above. This is because of the key role they play in controlling the company’s operations.

Generic Strategies

Costa coffee has effectively pursued its competitive strategy all over the world. The fact that it is a multi-national company gives it the ability to reduce the cost of the products, hence attracting more customers. This is helped by the economies of scale.

GENERATIO AND EVALUATION OF STRATEGIC OPTIONS

SWOT analysis
Strengths
Costa coffee has a number of strengths. The fact that the brand is international means that its sales are high. The company has a powerful background, based on its joint-venture nature. To some extent, the company enjoys giant corporation support

Weaknesses

Despite its multi-national nature, the company has lower reputation when compared to its competitors. The fact that it lacks product localization also hinders its operations. To add up to these, there is a shortage of trained professionals in the company (Pelsmacker et al. 2005).

Opportunities

The company has a number of opportunities. Due to economies of scale, the company’s potential market is high. It also has the ability to expand its consumer markets. The appreciation of coffee from China recently also plays to the advantage of the company.

Threats

Costa Company faces a number of threats. The emergence of Starbucks as a competitor should not be taken lightly. There is also a threat as regards to the influence of tea culture. Many people prefer tea to coffee. This means that Costa coffee cannot maximize the market.

TWOS Matrix

Costa Ltd has a number of threats in its environment. The threat of entry into the market by other firms is real. To avoid this threat from affecting the company, Costa Ltd should concentrate on expanding the market base and building customer loyalty There are a number of weaknesses in the organization. Internal feuds on leadership isues may end up disintegrating the company. This should be fully addressed by the management. The company’s environment has a number of opportunities. The company may decide to exploit the market potential and increase its base. It can also assimilate other similar companies to reduce competition. Lastly, the company has sufficient strengths that can sustain it. The fact that it is based on a joint venture works well with it as it gets a strong foundation. Its international brand cannot be ignored.

Ansoff Matrix

Market penetration
Costa coffee has evidently demonstrated its desire to grow by employing the available products and services. In doing this, it has taken into account the available and existing markets. With the increased competition, the company has employed various mechanisms to have a large market share. This is evidenced by the company’s move to open several outlets all over the world, with the aim of taking advantage of the market. With this in mind, the company has a high ability of penetrating the market seamlessly and enlarging its market share.

Market development

Costa coffee tries to use this strategy in a number of ways. Similar to the market penetration strategy, the market development strategy seeks to expand the operations into new markets using the available resources. The company has tried to conquer new geographical regions so as to have a competitive advantage over its competitors.

Diversification

In one way or the other, Costa coffee has sought to diversify the products it introduces into the market. The essence of this is to give the customers an opportunity to test other related products within the company’s production (Ryding, 2011). This strategy has however proved to be tricky in implementation because it needs market development.

Implementation of the SAF criteria

Suitability
Costa coffee’s management strategies meet most of the SAF criteria. As regards to sustainability, the management strategies look at the long-term as opposed to the short-term developments. For instance, the widening of the company’s market by expanding the outlets to various countries can only increase the company’s sustainability.

Acceptability

The risks that the company takes to ensure success is achieved are acceptable. If successful, the company stands to gain and have a major impact in the market. On a similar note, this move is likely to attract more customers and ensure the current ones remain loyal.

Feasibility

Most of the strategies that Costa coffee employs undergo a form of feasibility study to ensure the move does not backfire. This is essential in ensuring that these moves can be financed and do not end up unsuccessful. The expansion of the company’s market geographically is a good example to this.

Feasibility

Acceptability
Suitability
Final Recommendations
The above analysis of the company exposes both the advantages and disadvantages of every move the company has taken or intends to take. As a matter of fact, the company stands a better chance to implement the development strategy and the market penetration strategy. Although appealing, differentiation and diversification strategies may be tricky. It is also important for the company to take Starbuck seriously, owing o the competition arising.

References

Fellner, K. (2008). Wrestling with Starbucks: Conscience, capital, cappuccino. New Brunswick, NJ: Rutgers University Press.
Gilbert, S. (2008). The story of Starbucks. Mankato, MN: Creative Education.
In Clarence-Smith, W. G., & In Topik, S. (2003). The global coffee economy in Africa, Asia and Latin America, 1500-1989. Cambridge, UK: Cambridge University Press.
Monk, D., & Ryding, D. (2007). Service quality and training: a pilot study. British Food Journal. doi:10.1108/00070700710772417
Pelsmacker, P. D., Janssens, W., Sterckx, E., & Mielants, C. (2005). Consumer preferences for the marketing of ethically labelled coffee. International Marketing Review. doi:10.1108/02651330510624363
Ryding, D. (2011). The speciality coffee shop market - are today's consumers demanding more than store ambience and good coffee from their consumption experience? Inderscience.
Ryding, D. (2011). The speciality coffee shop market - are today's consumers demanding more than store ambience and good coffee from their consumption experience? Inderscience.
Schultz, H., & Yang, D. J. (1997). Pour your heart into it: How Starbucks built a company one cup at a time. New York, NY: Hyperion.
Simon, B. (2009). Everything but the coffee: Learning about America from Starbucks. Berkeley: University of California Press.
Wood, D. C. (2009). Economic development, integration, and morality in Asia and the Americas. Bingley, UK: Emerald, JAI.