K J Somaiya Institute of Management Studies and Research

STARBUCKS Vs. COSTA COFFEE: Comparative Analysis

Prepared By:

Shreyansh R Kejriwal, PGDM(FS) Roll No. 26

Under the Guidance of:-

Prof. Neha Gupta

1

Contents

Introduction..............................................................................................................................3

History......................................................................................................................................3

Coffee Market in India..............................................................................................................4

Let’s have a look at the major coffee outlets working in India.............................................5

OTHER COFFEE HOUSES........................................................................................................6

Indian Market.......................................................................................................................6

PESTEL......................................................................................................................................7

COMPETITION...........................................................................................................................7

Porter’s 5 Forces.......................................................................................................................8

SWOT........................................................................................................................................8

STARBUCKS...........................................................................................................................8

COSTA COFFEE......................................................................................................................9

SEGMENTATION.......................................................................................................................9

Targeting Starbucks:.............................................................................................................9

Targeting Costa Coffee:.........................................................................................................9

Marketing MIX........................................................................................................................10

Product...............................................................................................................................10

Price....................................................................................................................................11

Place...................................................................................................................................11

Promotion...........................................................................................................................12

CONCLUSION..........................................................................................................................12

Refrences............................................................................................................................13

2

IntroductionIn the last ten years, the coffee brewing industry has seen so much activity in terms of massive changes in the landscape of coffee brewing companies. These changes range from mergers and acquisitions to changing consumer tastes and finally, to different branding strategies. These activities are expected to continue over the course of the next five years.

History

Starbucks

Three friends, Jerry Baldwin, Zev Siegl and Gordon Bowker, who all had a passion for fresh coffee, opened a small shop and began selling fresh roasted, gourmet coffee beans and brewing and roasting accessories. The company did well, but things began to change in the 80s.

Leading retailer, roaster and brand of specialty coffee in the world Sells drip brewed coffee, expresso-based hot drinks, snacks, mugs and coffee beans Company started in 1971 in Seattle in Washington, U.S.

Costa Coffee

Bruno & Sergio Costa set up their famous coffee roastery in Lambeth, London in 1971, supplying local caterers and Italian coffee shops with an exciting coffee, slow-roasted the Italian way.

People couldn’t get enough of it and by 1978 the first Costa espresso bar opened in Vauxhall Bridge Road in London. Today it is the second largest coffeehouse chain in the world behind Starbucks.

To this day they still use the same method of slow-roasting our coffee beans, serving the brothers’ authentic blend of 6 Arabica beans to 1 Robusta in 500 coffee shops all over the world.

3

“THE PERFECT CUP” IN FOUR “M”

1. Miscela Blend: Costa has a unique blend we call the Mocha Italia

2. Macinatura Grind: Every cup of Costa is made from freshly ground beans; ground to the exact consistency to ensuring perfect extraction of flavors & aroma. We usethe Ferrari of grinders-the Mazzer–to ensure the “Perfect Cup”

3. Macchina Machine: Costa shops use specially designed Italian espresso machines. Theyhave been tuned & perfected over the last twenty years to achieve highvolumes of perfect espresso [the heart of every coffee drink]

4. Manna Hand: The skill of the Barista influences the “Perfect Cup” So they undergo extensive & intensive training at our Coffee Academy to reach the excellence that’s Costa

Coffee Market in India

The humble cup of coffee that cheers up mood, initiates conversation and relaxes you from a tiring day is brewing up a storm in India. The Indian ready-to-drink (RTD) tea and coffee market has picked up a great business in the last 5 years.

Reports say that the market is expected to grow to a whopping Rs 2,250 crore by 2017- thanks to the cafe culture among urban youth.

The domestic market, which currently stands at an estimated Rs 1,100 crore, is dominated by outlets like Cafe Coffee Day, Baristas, Costa Coffee, Coffee World, Lavasa, Coffee Bean & Tea Leaf. The latest entrant is Starbucks and with many more in the pipeline.

More than 1,200 cafes have sprung up across India in the past decade, mostly from six organized chains, clocking an average annual growth of around 40%. They have made the cafe industry -currently capped at Rs1000 crore -one of the fastest growing organized retails.

4

Let’s have a look at the major coffee outlets working in India

CAFÉ COFFEE DAY

Cafe Coffee Day or CCD is India’s largest cafe chain with its first outlet at Brigade Road, Bangalore in July 11, 1996. As of August 2013 it has 1319 outlets spread across 28 states of India.

The man behind CCD is V.G. Siddhartha. He is the chairman of the Amalgamated Bean Coffee Trading Company Ltd. (ABCTCL) which also grows coffee in its own estates of 10,000 acres. The cafe chain is a division of ABCTCL.

CCD is expanding their market reach through brand extension by launching mineral water, cookies, and chips under their brand name. The brand plans to reach the 2000 outlet mark by 2014.

BARISTA

Barista Coffee Co. Ltd, India’s second largest organized cafe chain with 225 outlets (according to a 2010 report) and plans to launch 40-45 outlets a year in the next two-three years. This chain of espresso bars was established in February 2000 by the Barista Coffee Company Limited.

A 34.3% equity stake was sold to Tata Coffee in 2001 and the remaining 65% stake was bought by Sterling Group owned C Sivasankaran in 2004. Later, he also bought the remaining Tata’s stake. In 2007 Sterling group sold Barista to Lavazza. Lavazza is an Italian manufacturer of coffee products.

Barista Lavazza has estimated annual revenue of Rs 200 crores. In 2014, Lavazza sold the coffee shop chain to Carnation Hospitality Pvt. Ltd. for an undisclosed sum

COSTA COFFEE

This is United Kingdom’s largest coffee brand, which entered India in September 2005 through an exclusive franchisee tie-up with Devyani International Ltd.

Andy Harrison, CEO of Whitbread PLC was quoted recently in an interview that Costa Coffee wants to expand to 300 outlets in India. The brand has its presence in all major cities of the country including outlets in Mumbai, Bengaluru, Delhi, Gurgaon, Noida, Pune, Agra and Jaipur. Last year, Costa opened its 100th store in India, in Mumbai.

5

STARBUCKS

The latest entry in India`s coffee chain industry is Starbucks. Starbucks came to India in 2012 in partnership with Tata Global Beverages.

The Seattle-based company, which has operations in 61 countries, was planning to open its store in India for the last 5 years. Finally, the first outlet was open in Mumbai in October 2012.

Beginning with stores in Delhi and Mumbai in calendar 2012, the retail stores will be developed in cities across the country.

OTHER COFFEE HOUSES

Here are few coffee cafe chains that have their presence in India. They started with very few outlets in the major cities of the country but are now branching out across the nation quite fast.

Australian cafe chain Gloria Jean’s Coffees, which entered India in 2008 through the Landmark Group’s hospitality section, Citymax, positions itself at the upper end of the market. It plans to open 36-40 outlets in the next few years.

Other such coffee chain is the Coffee Bean & Tea Leaf which also ventured in India in 2008 with an outlet in Select CityWalk in Saket, New Delhi. CBTL worldwide has around 812 outlets but in India they have around 17 outlets.

Indian Market

Size of the market in 2012 - $230 MillionExpected market size in 2015 - $400 Million

Number of speciality Coffee Shops in India today – 2400Expecded to increase to 4000 in 2015

PESTEL

Political Coffee beans are grown in developing countries. Discussions about work conditions, child labor. Also political influence by tariffs and taxes.

6

Economic The key business challenges for the industry as a whole firmly relate to the economic recession from 2008, as consumers become much more cautious with their discretionary spend due to the high unemployment and personal debt.

Social/Cultural

People spent more and more money on coffee (UK: Tea: £623m, Coffee: £738m)5. Customers do not only go to coffee shops to drink a coffee but also to sit down, and relax.

Technological Better and cheaper coffee machines are available for home usage (Senseo).

Environment As raise of environmental awareness, coffee companies have to be concerned about the way their coffee beans are produced, the way they design their supply chain and the way they prepare and sell their products.

Legal See Political

COMPETITION

Porter’s 5 Forces

7

The competition on the coffee market is quite high.A unique strategy is important to attract customer.

SWOT

STARBUCKS

8

COSTA COFFEE

SEGMENTATION

Targeting Starbucks:• Age: Young adults

Nice place to relax, chat, chilly musicTrendy coffees which present their lifestyle

• Age: Middle agePlace to calm down, relax, chat, read a bookPossibility for a small (healthy) snack with a great coffee

• Psychographic: Coffee loversTrendy, fresh, high quality, new developed coffee (some: fairtrade)

• Psychographic: Atmosphere loversA great third place

Targeting Costa Coffee:• While evaluating their consumer market the conclusion was that the ideal consumer’s economic profile will be

– Upper Middle Class– Privileged Class

• While the age demographics will be:– Students and Youngsters– Professionals– Families– Mature Consumers

9

• Gender and Ethnic/Religious Background was researched to have minimal or no effect on the choices concerning coffee made by consumers and their patronage of coffee houses.

Marketing MIX

Product

10

Price

Place

11

Promotion

CONCLUSION

Costa Coffee has been able to remain one of UK's leading coffee brewing companies for more than a century now primarily because of the execution of the company‟s branding and positioning strategies to perfection. Add to the mix the company‟s dedication to high quality of service and the formula for success is at hand. Moreover, the utilization of the appropriate knowledge management tools is necessary for their products to reach out to people even in different cultures. However, certain points have to be taken into consideration by Costa Coffee regarding knowledge management tools. Since their income is relatively higher than most coffee brewing companies, the time for implementation of their chosen knowledge management tools would take longer than usual, aside from being expensive. But since the goal of Costa Coffee is towards a long-term dominance and stability in the brewing industry, then the pursuit of these promotional campaigns will be beneficial for the company in the long run.

Starbucks has appealed to such a wide target market; it seems every product introduced will be an instant success (sodas, teas, ice creams, pastries). As the most innovative company, it‟s no surprise that the new technological addition, the Starbucks Card, boosted sales and helped growth during a time when the economy was struggling. “Starbucks went back to basics, and they‟ve approached the basics with a science and intensity that no one has ever done before.”

12

Refrences

1.Financial Times: Costa tops table of coffee outlets (2007)http://www.allegra.co.uk/pdf-files/2007-05-28-ft.pdf

2. Allegra Strategies: UK Coffee Bar Market (2004)http://www.allegra.co.uk/pdf-files/2004-12-00-fs.pdf

3. Keynote: Market Assesment 2007: Coffee and Sandwhich Shops (2007)4. Allegra Strategies: UK coffee bar market still growing despite recession (2009)

http://www.foodbev.com/report/uk-coffee-bar-market-still growing-despite-recession

5. Sunday Times: How Starbucks colonised the world (2008)http://business.timesonline.co.uk/tol/business/industry_sectors/leisure/article3381092.ece

6. Starbucks: A brief history of Starbucks (2009)http://starbucks.co.uk/enGB/_About+Starbucks/History+of+Starbucks.htm

7. London Evening Standard: Starbucks wakes up to £47m loss a year (2009)http://www.thisislondon.co.uk/standard/article-23748711 coffee-giant-pins-hopes-on-bohoredesign-for-branches-in-capital.do

8. Marketing Magazine: Starbucks launches heritage branding in UKhttp://www.marketingmagazine.co.uk/News/MostDiscussed/964788/Starbucks-launches-heritagebranding-UK/

9. Starbucks: Company Fact Sheet (2008)http://www.starbucks.com/aboutus/Company_Factsheet.pdf

10. http://www.catalogs.com/info/food/the-history-of-starbucks.html11. http://ivythesis.typepad.com/term_paper_topics/costa_coffee_s

13