Costa Coffee Strategy

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MMS assignment: Costa Coffee

STRATEGY:

1.Identify, analyse and discuss Strategic issues in Costa Coffee.

“Costa has flourished in a recession which has claimed many victims in the industry," says Whitebread company.1The reason for this success is its strategy. Using the PESTEL framework will help identify, analyse and discuss Costa’s strategy. Despite the importance of political, environmental, technological and law factors, for the purpose of this essay we will focus on the economic and social factors affecting Costa Coffee. We will first see how economic factors such as the recent raise of coffee beans price influence Costa’s prices. We will then use social factors such as consumer trends to identify the different trends today and explain how Costa is reacting to them. Through this essay we will have then explained how “Costa has flourished in a recession which has claimed many victims in the industry,"2

The main economic factor affecting the coffee market today is the raise of coffee beans price. Due to heavy rains brought on by Caribbean storms in the coffee producing

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Zekaria, S., 2010. Whitbread Says Costa Coffee 'Flourished' During Recession.[online] 2010 FOX News Network, LLC. Available at: [Accessed 23 December 2010] 2

Zekaria, S., 2010. Whitbread Says Costa Coffee 'Flourished' During Recession.[online] 2010 FOX News Network, LLC. Available at: [Accessed 23 December 2010]

countries from Central America, coffee prices have increased3. Coffee futures have gone up 35% since June 2010 to reach the highest price for a pound since December 1997: $1.848.4 This is a significant problem because coffee beans are raw materials for coffee shops. Hence if shops do not have coffee beans or not enough, their sales will plummet. As John Wolthers, a trader at coffee exporter Comexim in Santos reports: "It's a great time to be a producer, and a difficult time to be a roaster.” 5 Because these prices are due to natural disasters, it is possible that they will not change until at least end of 2010 or 2011. A normal consequence would therefore be to raise prices in order to retain money. However, Whitbread PLC, owner of Costa Coffee, announced November 10th 2010 that “it has no plans to increase beverage retail prices, even as it remains concerned over escalating wholesale costs.” 6One of the reasons for this action is because Costa had already bought many coffee beans before the storm hence has enough to provide the outlets with enough beans during this period of increased prices. 7 This shows that Costa “plans” its purchases well because as we

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Zekaria, S., 2010. Whitbread's Costa Coffee Plans No Retail Price Rises. [online] 2010 The Connors Group, Inc. Available at: [Accessed 23 December 2010] 4

Danby, T. and Sellen, T. 2010. No Relief in Sight for the Coffee Market. [online] 2010 Dow Jones & Company, Inc. Available at : [Accessed on 23 December 2010] 5

Danby, T. and Sellen, T. 2010. No Relief in Sight for the Coffee Market. [online] 2010 Dow Jones & Company, Inc. Available at : [Accessed on 23 December 2010] 6

Zekaria, S., 2010. Whitbread's Costa Coffee Plans No Retail Price Rises. [online] 2010 The Connors Group, Inc. Available at: < http://www.tradingmarkets.com/news/stockalert/sbux_wtbrf_-update-whitbread-s-costa-coffee-plans-no-retail-price-rises-1297481.html> [Accessed 23 December 2010] 7

Zekaria, S., 2010. Whitbread's Costa Coffee Plans No Retail Price Rises. [online] 2010 The Connors Group, Inc. Available at: < http://www.tradingmarkets.com/news/stock-

can see, thanks to its bulk-buying in coffee beans, it is now unaffected, unlike the other coffee shops, by the coffee bean market. However this could be a risk because one can never know exactly how many beans are consumed per day and Costa does not know for certain how long these prices will remain high. Another reason Costa would not want to raise prices could be because in a period of recession, where consumers are...
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