Good Report About Strategic Analysis Of Costa

Executive Summary

The main objective of strategic analysis of both the internal and external factors of an organization is to maximize its potential resources, strengths and opportunities and at the same time, minimize the weaknesses and possible threats to its growth. This analysis often involves people in the strategy and experts to conduct meetings that bring people together. To understand the marketing strategy with deep information and comprehend it, a considerable interest is required to study and analyze the current situation of the company. It will help a given company to evolve as the leader of the market and combat the challenges in implementing marketing strategies. This report includes the strategic analysis of Costa coffee, one of the leading organizations of the Coffee Industry. The report includes usage of various frameworks to determine the strengths, weaknesses, threats and opportunities of a given company. After carrying out, a careful analysis, recommendations have been provided at the end to solve the current issues.

Introduction

Bruno & Sergio Costa set up the coffee shop in 1971, in Lambeth, London supplying the local caterers and Italian coffee shops with exciting coffee that was slowly roasted in the Italian way. By 1978, the first Costa espresso bar was opened in Vauxhall Bridge Road in London. The coffee shop still uses the same method of slow-roasting the coffee beans (David, 2011). It serves the brothers’ an authentic blend mix of Six Arabica beans to one Robusta beans giving an utter good taste of coffee. It has all over five hundred coffee shops round the world. The tagline says “THE PERFECT CUP” IN FOUR “M” that follows as below:
Miscela: It highlights the Blend. Costa incorporates a unique blend that is usually known as the Mocha Italia.
Macinatura: It speaks about the Grind. Costa makes every cup of coffee from the freshly ground beans. They are ground to the exact uniformity to ensure perfect extraction of the taste and aroma. The Ferrari of grinders-the Mazzer is used to ensure the “Perfect Cup”.
Macchina: It signifies the Machine. Costa shops use particularly designed Italian espresso machines for more than last twenty years. They have been tuned and perfected to achieve high volumes of perfect espresso.
Manna: It means the Hand. The skills of people at Costa influence the taste of the “Perfect Cup”. They therefore, pursue extensive & intensive training in their departments at the Costa Coffee Academy to reach the excellence (DuBrin, 2013).

Analysis of External Environment

The coffee market in United Kingdom had grown 5.6% in 2005 and made a contribution of 29.1% market share. The total number of coffee shops in UK is around 14,022, but survey shows that majority of customers visit top three chain of coffee stores of Costa, Starbucks and Café Nero, during a span of 3 months in 2010 (Mintle, 2010). The numbers of coffee store of these top three brands are 1,175 Costa, 731 Starbucks and 440 Café Nero in UK itself (Allegra, 2011). But, Costa Coffee is the leading coffee company of the United Kingdom since last many years. The perfect positioning strategies and high quality services of the company are the key factors of success of the Costa coffee.
The main competitors of Costa in coffee market are Starbucks, Café Nero, Coffee REPUBLIC, and other independent coffee stores. The Coffee market of UK has extensive competition due to high quality products and offerings.

PESTEL Analysis

PESTLE analysis is a composition of Political, Economic, Social, Technological and Environmental factors, which influences the performance of any company. Here, the influence of the factors of PESTLE analysis is accomplished for Costa Coffee.
Political/Legal: The coffee beans for Costa are grown mainly in developing countries. The political and legal business environment tremendously affects the performance of business and influence the span for achieving the long term goals. Costa has to wisely deal with all these factors to not to slow down its pace in the home market of UK.
Economic: With the arrival of economic recession from 2008, the coffee business has declined in UK. This has become a major challenge to attract the customers who have become more conscious for their money value because of personal dept and increasing unemployment.
Social: Now-a-days, coffee is becoming a jewel of the city modernization and a new evaluation index (Gold, Thorpe, & Mumford, 2010). Different parts of the world observe people with different views, understanding and interpretation of their coffee culture. After ten long years of development of coffee industry around the world, the culture of coffee has been eventually accepted by the people. Even though, as the traditional tea culture is more prevalent, there is still some time needed for the development of coffee culture in different parts of the world.
Technological: With the advancement of science and technology, the coffee making machines have become better and cheaper such as Senseo. Thus, it becomes easy for the management team of Costa to purchase new machines and start with new shops. In order to deal with external forces, Costa should use innovative and latest technologies (Olliva and Sobral, 2011).
Legal: The labor required and taxes that are applicable on coffee beans at origin places are impacting the company's business development. Hence, the organization needs to develop strategies in this direction to overcome this issue.
Environmental: With the raise and widespread of social environmental awareness, the whole coffee production chain has been put on a higher request. Coffee can easily turn out to be good substitutes to the aerated cold drinks. Also, nowadays coffee companies as well as customers have become more concerned regarding the manufacturing methods of coffee beans and supply chain.

Porter’s Five Forces

Michael Porter introduced 5-forces model which are based on certain factors which determine the position of any company in an industry (Wit and Mayer, 2010). Here, the model is proposed for the Costa coffee that explains certain factors to deal with highly competitive business environment.
Threat of New Entry: Costa Coffee is a well-known brand round the globe. And simultaneously, as the product of Costa Coffee is sold to a single buyer, the buyers may do little negotiation. But, due to the high levels of loyalty of market and consumers for a particular coffee brand, the influence of new entrants on the coffee brands like Costa Coffee is not considerable (Griffin & Moorhead, 2014).
Supplier’s Power: The raw material suppliers for Costa Coffee are mainly from developing countries in South America. But there due to presence of a number of Coffee bean producers, suppliers possess low bargaining power.
Threat of Substitution: The threat of substitution for coffee market can be the emerging market of hot chocolate, tea, etc. But to convert existing customers into loyal customers, Costa has developed new products such as lower calories or caffeine drinks for the customers who are more conscious for their weight and health (Mortimer R., 2011).
Buyer’s Power: Since buyer purchase in little quantity, a single person possesses low buying power. Along with this, there is very low switching cost in coffee market. The main concern of UK customers depends on the unique taste of the coffee.
Competitive Rivalry: There is very high competition in coffee market of UK. A number of competitors are present with very little differentiation. To cope up with competitive rivalry, Costa needs to maintain its unique and innovative strategy in order to increase the number of loyal customers.

SWOT Analysis

The SWOT analysis of the Costa Company suggests as the following:
Strengths
It has an excellent brand name and visibility
It has a wide range of products
It has reputation that implies value for money
Weaknesses
Present in a limited number of countries
Very few number of stores
Opportunities
It has opportunities to take over, merge, or form the alliances with other coffee companies
It may expand its name in various consumer markets besides UK such as in the Asian and other European nations
It is a continuously expanding company
Threats
It has the main threat from the existing coffee chains like the Starbucks
The company faces intense price competition
Pentagonal Analysis
We will be analyzing the positive and the negative aspects of Costa Coffee on the basis of SWOT Analysis. In addition, we will be including the internal and external perspectives.

On the positive side:

It has good infrastructure in place
Very focused management teams
Well managed business
The organization should move forward in different countries with a view to expand
They need to find out new markets so that they can improve the growth rates of their business (Kouzes & Posner, 2008)
On the negative side:
The focus of the top-level management might be narrow
There is absence of strong marketing teams that could function well in the Asian sub-continent regions
Markets may be price sensitive and hence, the organization might require to work out accordingly
Increasing competition will hinder the growth rates of the organization
Industry Life Cycle
Costa coffee is in a mature state with concentration of high level. The industry makes up more than 60% of the market share, which determines the industry trends. However, same is not the case for the Asian markets (Marturano & Gosling, 2008). People belonging to the Asian nations still have the habits of drinking coffee at their homes. Hence, Costa Coffee should utilize this opportunity of becoming the first player to enter into the Asian markets and establish their concrete position.

Strategic Group Analysis

The entire market of London is saturated with different players as shown in the below figure. We can find many well-known international brands, local brands, sandwich shops, cafes and bakeries and QSRs selling coffee products to the people. The number of stores has increased for all the players due to increase in the demand (McDonald & Wilson, 2011). Hence, price factor plays a key role in attracting the crowd toward their stores.
Source: http://tutor2u.net/economics/revision-notes/a2-micro-contestable-markets.html

Scenario Planning

Looking into the future, it seems that, the coffee industry will grow. More and more number of players will be emerging into the market, and price factor will turn out to be the most important factor. However, product quality and marketing promotions will affect the brand to a certain extent, but the number of stores and the price of the coffee products will play a major role in the near future (McDonald & Wilson, 2011).
Hence, the organizations need to work upon such issues. In addition, they need to add supplementary products to their menus so that people can also rejoice the same at the same place. People will not come only for coffee except for special occasions or for meeting purposes. It needs to turn into a café stores so that people can rejoice at such places.

Analysis of Resources and Competences

Vrin Analysis
The micro environment of any company can be evaluated by using VRIN analysis model. Here V stands for Value and Costa Coffee provides value by special roasting gourmet freshly ground coffee, which is considered as the best world class quality provided to the customers. The next word R stands for Rare, which implies for the selection of rarest rich full bodied coffee beans from one centre of Costa Coffee to other stores located in different parts of the world. Third word I stands for Inimitable which signifies the key factor of success of Costa Coffee which is its objective to make the taste by grinding fresh coffee beans which attracts customers (Mullins, 2010). The last word N stands for Non-substitutable, that is, due to its unique taste and services which is hard to find.

Porter’s Value Chain

Porter’s Value chain is defined by four sub branches of a value system: Supplier Value Chain, Firm value Chain, Channel Value Chains, and Buyer Value Chain. The value chain of any company is the inter-organizational links which are used in the creation of the product or services provided by the company. This comprises of a chain of processes which follows from the production of the products from raw materials to the customer counter. The four stages explain the development of the product.
The firm value chain is considered to be important for the managing team to understand the whole process and manage the relationship with the customers. For Costa Coffee, the supplier value chain means the process of selecting origin of the coffee beans to create a cup of coffee, which they buy directly from the farmers. The channel value chain deals with the strategies used by the Costa Coffee to deal with the outlets to reach the customers. Customer value chain of Costa Coffee deals with the objective to provide added value to the customers by setting certain standards.

Virtual Chain

Costa coffee carries out a deep market research through a third-party marketing agencies with a view to identify the market demand of that location. It also carries out analysis to extract the geographical, demographical and physiological information of the people of that locality (Mullins, 2010). Once the market research reports are ready and concluded, only then they open up a new store at a given prescribed location.

Generic Strategies

Generic strategies explain the strategies that a company opts to accomplish the operations. If we configure the infrastructure of Costa Coffee, it spends a lot of concentration to get feasible store location according to its choice. This helps the company in maintaining uniformity in their operations and other related processes. The next aspect is Human resource management in the company. The HRM in Costa Coffee deals with the recruitment process as per their requirements which include the training procedure according to their culture and service delivery specifics. Last but not the least, is the Technology aspects that is used by the company.
The technology used in Costa Coffee is programmable coffee roasting machine grinding machine to ensure consistency in their taste and aroma (Nystrom & Viveca, 2013). Simultaneously best technology is used in the billing and transactions process along with the strategies to connect with customers. The launching of new taste and make customers aware of their new launch is also accomplished with the help of best exploiting technological ways.

Generation and Evaluation of Strategic Options

SWOT Analysis
The strengths of Costa Coffee has already been elaborated that its products has very powerful retail quotient. The company has a reputation for money value along with a wide range of products. In past years, company has grown significantly and acquired experienced global expansion.
The main weakness of Costa Coffee is its lenient control over its empire. Instead of operating globally, the presence of the company is located in only few countries worldwide. Along with these weaknesses, Costa lacks in flexibility and taking opportunities, which it needs to improve at priority (Nystrom & Viveca, 2013).
The opportunities in front of Costa have numerous advantages if they work for merging and forming strategic alliances with other coffee brands. The company can expand its market in the Asian countries due to increasing craze of the coffee taste and their brand value. The company should also work on increasing their concentration at local sites along with super marketing sites.
The threats that Costa needs to overcome are to maintain its presence in the target market and beat its competitive companies. The company also requires to meet the political norms of the countries where its store are located or to be located. The next threat they need to overcome is generating cost satisfaction among the customers with the standard quality of the products.

A TWOS Matrix

Ansoff Matrix
SAF Criteria
As per the analysis accomplished above, the Costa Coffee can move to diversify its business in related and unrelated ways. The company requires identifying its potential clients and the products and services they are interested in. The company can also expand within countries where it has stores in limited market areas. But to globalize itself more, expansion of the stores is required in the foreign market also (Porter & Heppelmann, 2014).
Similarly, the company can also concentrate on the stakeholders because a stakeholder has an important effect on any organization. By working with the group of stakeholders, the firm can generate maximum profits. The main stakeholders of Costa Coffee are its customers, employees, owners and suppliers. The company should adopt strategy to unite its stakeholders to minimize the risk of losing the market to the competitive authorities.
A number of factors contribute to intense rivalry between the existing competitors in an industry. For example, Costa can introduce a substitute for the coffee, like tea, which customer can switch ever in future. It is understood that there is always a threat of substitute products, suppliers and buyers in the target market, which company need to control.

Recommendations

Costa Coffee has always been able to maintain its position as the leading coffee brand of UK for more than a century. This is because of the branding and positing strategies of the company to achieve perfection. The marketing plan of Costa includes current market situation, target marketing, market segmentation, and strategic planning. The company mainly considers the following tools market research and competition, Porter’s five forces analysis and external environmental analysis in the given UK territory.
The strength of the company is its dedication to serve high quality of products and services which the exact formula to achieve success (Porter & Heppelmann, 2014). Moreover, the company has to make best utilization of the appropriate knowledge management tools to reach the customers in different cultures and meet their tastes.
However, Costa Coffee needs to take certain point into consideration regarding these knowledge management tools. It might be possible that the execution of the tools may take more time and expensive because their income is relatively higher than most of the coffee brands. Since the Costa is dedicated to achieve long term goals and is moving towards long term dominance, the company should exploit promotional campaigns.

References

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David, R. (2011). Strategic Management: CONCEPTS AND CASES. Francis Marion University.
Gold, J., Thorpe, R., & Mumford, A. (2010). Leadership and Management Development. London, UK: CIPD.
Griffin, R. W., & Moorhead, G. (2014). Organizational behaviour: managing people and organizations. Mason, OH, South-Western: Cengage Learning.
Kouzes, J.M., & Posner, B.Z. (2008). The Leadership Challenge. San Francisco, CA: Jossey-Bass.
Marturano, A. & Gosling, J. (2008). Leadership: The key concepts. London: Routledge.
McDonald, M., & Wilson, H. (2011). Marketing Plans: How to prepare them and how to use them. Hoboken, NJ: John Wiley.
Mintel, (2010). Coffee–UK. Retrieved from Mintel website: http://oxygen.mintel.com/sinatra /oxygen/display/id=545333/display/id=479838.
Mortimer, R. (2011). Costa coffee comes with shot of customer insight. Marketing Week, 34(40), 18-23.
Mullins, L.J. (2010). Management and Organizational Behaviour. Upper Saddle River, NJ: Prentice Hall.
Nystrom, C. A., & Viveca, A. (2013). Virtual teams - support for technical communication? Journal of Organizational Transformation and Social Change, 10(1), 64-80.
Olliva, F.L. and Sobral, M.C. (2011) ‘Measuring the profitability of innovation in technology-based companies’, Journal of Manufacturing Technology, pp. 365-383.
Porter, M.E., & Heppelmann, J.E. (2014). How Smart, Connected Products are Transforming Competition. Harvard Business Review, 65-88.