Costa Coffee: UK’s largest branded coffee shop chain
The UK coffee shop market continues to expand rapidly. Costa Coffee is by far the largest branded chain in the market, and an important revenue stream for parent company Whitbread. This Case Study uses Porter’s Five Forces and Ansoff matrix analyses to examine the competitive pressures faced by Costa, and possible strategies for expansion.Features and benefits
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The UK branded coffee shop market has been growing strongly for many years.
Costa is the largest such chain in the UK by store count, ahead of Starbucks and Caffe Nero. Since 1999, the company has expanded into new geographical markets, but remained focused on coffee shops as its core competency rather than reaching into radically different product categories.
Lack of switching costs for consumers strengthens buyer power, threat of new entrants, and level of rivalry in the market.Your key questions answered
- Which company leads the UK branded coffee shop market?
- How is competitiveness in the market affected by the ease with which customers can switch between coffee shop companies?
- What strategies is Costa using to defend its revenues and profitablity?
Table of contents
COSTA IS THE LARGEST BRANDED COFFEE SHOP CHAIN IN THE UK
The UK coffee shop market is growing strongly
Costa is currently the market leader
FIVE FORCES ANALYSIS OF THE MARKET
How competitive is the UK coffee shop market?
Costaâ€™s buyers include millions of individuals, plus thousands of businesses
Inherent switching costs for coffee shop customers are low, but raised by loyalty schemes
Costa enjoys brand loyalty
Price sensitivity is moderate
The quality of the coffee is central to the brand
Foodservice is a labor-intensive industry
Retail rents are significant costs
The coffee shop market has low capital barriers to entry
Expansion can be relatively straightforward
Regulation is not burdensome
Intellectual property is only moderately important
Brands are strong
Bars, cafes, and fast food outlets are key substitutes for coffee shops
The coffee shop market in the UK is growing rapidly
Exit costs are low, making it easy to close down underperforming locations
Costa is geographically fairly diverse
Customer switching costs are low
The large chains are formidable competitors
WHAT STRATEGIES DOES THE ANSOFF MATRIX SUGGEST?
The Ansoff matrix considers four market-product situations
Costa has higher penetration of the UK market than its competitors
Further penetration of the market is possible
Costa offers a range of food and drink products
Coffee is likely to remain central despite future product development
The Coffee Nation acquisition lets Costa take its core product to new markets
Supermarket retail will challenge Starbucks
Since 1999, Costa has entered new geographical markets
Costa Express and international expansion will remain key strategies in this quadrant
Costa is unlikely to venture far into the riskier fourth quadrant
Costa performs strongly in a buoyant yet competitive market
Costa is moving from lower to higher risk quadrants of the Ansoff matrix, but radical change is unlikely
Ask the analyst
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