Market Analysis of Costa Coffee (Research Paper Sample)

MARKET ANALYSIS OF COSTA COFFEE by (Name) Course Professor's Name Institution Location of Institution Date Market Analysis of Costa Coffee Introduction Costa Coffee, the second leading coffee chain in the globe after Starbucks, is the principal coffee chain in the United Kingdom (UK) headquartered at Dunstable from where it coordinates its hand-made coffee delivery services to the clients of the country as well as the rest of the world. Being a business the size of Costa Coffee, the effects of external factors on its market operations cannot be overwritten, and factors such as political, socio-cultural, legal, economic, and environmental issues impact its operations equally, factors better explained using the PESTEL perspective. For instance, Costa Coffee increased its product prices in the year 2014/2015 period as a response to the then political issue which resulted in the high-income tax rate imposed on the company. The essence of this essay is to give an insight into the market situations of the Costa Coffee, first giving a succinct description of the company, then the recent trends that affect the operations of the firm. Finally, the paper utilizes the four factors of the PESTLE theory i.e. political, economic, socio-cultural, and environmental matters to clarify how the business operates as influenced by the external environmental issues mentioned above. Description of Costa Coffee As argued by Hattox (2014), Costa Coffee is the major coffee business in the UK that works from Dunstable as its headquarter, and comes second only to Starbucks regarding size within the sector of coffee manufacturing (p. 233). Its foundation was pioneered by Sergio and Bruno Costa in 1971 who utilized a slow processing similar to the Italian baking method to make and supply coffee to the local dining areas and coffee shops. Consequently, the first Costa espresso bar opened in 1978 in London and over the years, Costa Coffee has grown into the largest coffee shop chain in the UK with over 1500 stores in the United Kingdom as well as at least 1000 stores in international markets. Specifically, Luttinger and Dicum (2006) stated that Costa produces and distributes Italian coffee and by the end of the year 2010, the firm had acquired a market share of about 37.6% in the UK (p. 143). Although Starbucks is the leading chain in this sector, Costa's recent establishment has seen it overcome its major competitor regarding the number of outlets it operates and has achieved the globalization milestone in which it supplies coffee to at several countries of the world. Recent Trends Affecting Costa Coffee Bowers (2011) asserted that some issues have in the recent past affected the operations of the Costa Coffee, constraining the business to either change its prices, improve product/brand quality, and marketing strategies. First, the increase of income tax imposed on the chain's revenue generated resulted in a simultaneous response by the business through the raising of their product buying prices in the year 2014/2015 period. Besides, the high competition offered by Starbucks has partly contributed to the high innovation witnessed in Costa that facilitates the production of high-quality products and brands as a counteractive mechanism to market completion. Also, Costa Coffee has adopted technology-based marketing strategies which have enabled it to achieve the global milestone in whereby its operations are now based within and outside the UK (Luttinger and Dicum 2006, p. 145). However, to have a clear understanding of the market operations of Costa Coffee, PESTEL's use is recommended, and is as discussed below: PESTEL Analysis of Costa Coffee The current market scenario of the Costa Coffee can be identified by an external assessment using PESTEL; which helps in the clarification of the external issues like political, economic, social, technology, legal, and environmental factors (Yüksel 2012, p. 52). However, this section utilizes four of these factors namely political, economic, social, and environmental matters to analyze the market situation of Costa Coffee for the better comprehension of its operations and position in the sector. Political According to Yüksel (2012), political factors encompass the extent to which an organization, in this case, the Costa Coffee Chain, is influenced by political rules and policies touching on, for instance, tax obligations to be met by a business (p. 52). Particularly, Rodenberg (2013) noted that the UK's political environment poses serious challenges to the operations of Costa in the way its taxation policies are formulated over time; often, fluctuations in the Value Added Tax (VAT) rate have prompted the business into readjusting its product prices (p. 14). Since the year 2010 when a shift in the political environment was realized, there have been changes in VAT rates either for or against the Costa Coffee. Initially, the rate was reduced to 15% from 17.5% in 2010 before later adjustments were made which placed VAT rates at 17.5%; the initial decrease signaled the lowering of market prices by Costa; hence consumers could enjoy products at low, or other, affordable prices (Bowers 2011). However, the future increases prompted Costa to increase the prices of its products from 2011 through to 2015 when the VAT rate was as high as 20%. Notably, the higher the VAT rates, the higher the prices of products offered by Costa Coffee and the slower the rate of market expansion in the UK and vice verse when VAT rate is low. That is an implication that the business cannot perform better under such conditions as the consumers are likely to shy away from the purchase of what they perceive as very expensive. Economic Bowers (2011) argued that the government of the UK lowered the VAT in the 2008/2009 period as a result of deep economic crisis/recession so that the sales could be increased and recovery accelerated in the country. Consequently, Costa registered improved sales as the prices of their products lowered, and the customers indulged in more purchase of the coffee products, taking the advantage of the low prices and increased demand. However, Fitter (2009) noted that there was a simultaneous rise in the unemployment rate during the economic crisis that limited the purchasing power of consumers, and the consequence was a decreased spending on non-essential products, coffee included (p. 79). Promisingly, the change of administration in the year 2010 was followed by an onset of economic recovery and a rise in VAT rates by 2011, and that coupled with the high inflation rates of the time, resulted in the increase of Costa product prices. Besides, Costa is presently a global organization, hence the changes in the foreign exchange directly impact the entity and situations like a decrease in the value of pounds and or dollars limits the business' purchasing power. During such challenging moments of economic crises and inflation, Bowers (2011) clarified that Costa adjusted its price menu so that the profit levels could be kept constant and the business' chance of running losses is managed through cost reduction endeavors. In fact, cost reduction has been substantially utilized by the company during the crises to retain clientele and maintain revenue generation by the firm; and through such actions like the reduction of operational cost/expenditure, the entity has successfully dealt with the challenge. Socio-cultural As Yüksel (2012) stated, the socio-cultural dimension comprises issues of culture, population dynamics, demography, health, safety, and seasons and how these impact on the operations of an enterprise, which is Costa Coffee (p. 52). First, the company boasts of an increased population thanks to its expansion to the international level; and alongside the rising living standards and education, Costa has redefined itself with high quality, surplus production to meet the growing demand needs of its customers. Mainly, the organization observes quality against the manufacture of variety in terms of products and services to counter that demand; which has increased following the positive shifts in the public attitudes towards the consumption of coffee. Moreover, coffee shops are now official frequent meeting places where managers talk out their managerial plans amid sips into the coffee cups (Fitter 2009, p. 76). Furthermore, the trend prompted Costa into partnering with bookshops to attempt to meet the demands of the civilized man while it benefits from the sales of coffee and the bookstores benefit equally from sales of books (Luttinger and Dicum 2006, p. 148). Evidently, the lifestyle of the modern man is not all about visiting coffee shops to drink, but also to sit and relax and read a novel, for example, hence the need for the partnership as noted above. Notwithstanding, the argument by Pendergrast (2010) indicates that the laws against drinking while driving has inculcated a lifestyle of decreased alcoholic beverages consumption and the rise in coffee sales and use in the UK (p. 88). Hence, through attitude and lifestyle modification, socio-cultural factors prove to be pivotal to Costa Coffee as that offers the best link for social and ...