Costa Coffee Essay

Costa Coffee was founded by Italian brother Bruno and Sergio Costa in Lambeth, London in 1971. Then in 1995, Costa was sold to Whitbread Company as its subsidiary. During the period of global economic recession, 2009, Costa achieved a remarkable level with 60% profit increased and 23% revenue increased1. Moreover, as the largest coffee chain in UK, Costa paid  £36m for the acquisition of ‘Coffeeheaven’ at the end of 2009. So far, Costa Coffee operates in 28 countries with the total number of 1,600 stores2. Then what are the key successful factors which made Costa expanded quickly with high profitability in the fast growing and competitive coffee industry? In order to answer this question, I will apply PESTLE Model and STP Process to analyze the strategy and marketing issues. Strategy: PESTLE As a component of the marketing environment, the macroenvironment include many factors which have great effect on the decisions of strategies. Political In 2010, the new government, coalition government (Cameron Ministry), published several new policies which caused the decrease of the poll rating for the party3. And one of them is the Taxation policy. During the past two years, the VAT rate had a fluctuation: decrease from 17.5% to 15% and back to 17.5% in 2009/2010 and increase to 20% in 2011. Clearly, the low VAT rate means lower price to customers and then lead more sales. Also the 20% VAT rate will affect the Costa customers since they may try to stop buying or purchase less to resist the VAT raise. Due to the increasing demand of high-quality coffee, the company who holds certified coffee beans and fair trade coffee beans will gain more product differentiation advantage. From 2008, Costa Coffee has started to convert its entire coffee supply to sustainable grown beans4 which was from Rainforest Alliance Certifiedâ„ ¢ Farms. Also, in order to implement the Fair Trade, in 2006 the Costa Foundation was set up to support the coffee growers lived in Colombia, Guatemala, Uganda and so on5. Through the Costa Foundation, the local people have been provided huge amounts of education opportunities and job positions. Economic During the economic crisis in 2008-2009, the government reduced interest rate and VAT rate in order to boost consumption and accelerate the economic recovery. In some extent, these policies are helpful to raise the sales since people feel like paying less for the same product. However the high unemployment percentage means that the purchasing power of buyer is weak. People cut their budgets on food, cloth, and other non-essential goods, such as coffee. In 2010, the economic started to recover. The VAT rate and interest rate have been raised in order to increase the government revenue. And followed the increased VAT rate, the inflation was higher. As a result of these factors, the prices of ingredient and goods seem to be higher also. Also for the companies like Costa which involved in the foreign exchange, the decreasing exchange rate of sterling will make the companies’ purchasing power weaker. Then under this condition, Costa tried to focus on cost saving and menu changes to keep its profitability6. This is a better way to retain the customer with the old price. However, Costa should be aware of quality of ingredient and taste of new menu products. In my opinion, Costa could consider about cutting operation cost which is a large part of total cost. Sociocultural The growing population implies a huge potential market for coffee industry, but it also means companies need to provide wider ranges of products and services. Also the rising number of educated people will increase the demand for quality coffee. Moreover the change of attitudes to work and leisure has influence to the coffee houses. More and more Laptop generation and white-collar workers prefer coffee shops as their second office because of its relaxed atmosphere and delicious coffee. Costa has already found this trend early and moved its shops into the bookshops. Under the co-operation of Costa Coffee and bookshops, both of them got the benefits on sales. In addition, the change of lifestyle is also a factor. Due to the drink driving legislation, the consumption of alcohol drink has a huge decline. Therefore instead of going to pub, more people are going to the coffee shop. Costa achieved a huge success at the social and cultural communication with the public. Since 19717, Costa Book Awards started to improve the communication between readers and writers. Also Costa encourages everyone to read wide range of books and make personal comments. Technological It is obvious that high technology will offer lots of advantages on efficiency, productivity, and profitability to the coffee brewing world. Therefore Costa should continue updating the information and upgrading the machine. It will be more effective on management if Costa could use a new electronic point of sale (EPOS) system which was first installed by one of the Costa Coffee franchise in 20108. Environmental Company must consider more about the environmental concerns in their production process. They should use sustainable strategy in the long-term. Costa Coffee tried its best to protect environment. In 2009 Costa started to use a number of Iveco Daily 6.5-tonne urban delivery trucks which could improve the fuel efficiency in its daily delivery9. Moreover, the Costa coffee cup could be recycled widely because of the material-certified sustainable pulp. However there are still some uncovered considerations. Recently Costa Coffee was doubted that it did not respect another resource of environment – wildlife (monkeys) according to the TV advertising10. Legal Besides meeting the standards of Employment law, Costa always keeps working on improving the health and safety of products. In 2009 Costa Coffee signed up to the Food Standards Agency’s (FSA) drive to provide healthier food outside the home11.