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Essay: Coffee brewing industry / Starbucks and Costa Coffee

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  • Subject area(s): Business essays
  • Reading time: 4 minutes
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  • Published: 15 September 2019*
  • File format: Text
  • Words: 882 (approx)
  • Number of pages: 4 (approx)
  • Tags: Starbucks essays

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As much as it has bring an influence to consumers’ lifestyle at the present time, the coffee brewing industry has been in the midst of a swift change. The growing numbers of the types of coffee and coffee shops has practically made everyone to start off their day with a cup of coffee. Accordingly, this industry have to be mindful of the fact that today’s consumers are mostly the Millennials, who is constantly looking for goods and services that is on-the-go and thus, it its affecting “…how coffee is consumed these days…” along with the advancement in technology (Kleinman, 2017). For instance, it is reported by Bloomberg that by bringing such convenience in coffee market, it has reached $2.4billion in the year of 2015 and it is expected to increase (Hubbell, 2016). As a result of that, the coffee companies have to make a change in the way the business operations are supposed to be managed depending on where their stores is located at – for such the differences in procedures for a home and host countries.

With that being said, it is apparent that Starbucks and Costa Coffee are one of the corporate giants in the coffee brewing industry as they offer wide-range of product and services for the “…consumers, the environment and the coffee business…” (Gonzalez, 2014). Their business operations, how the factors such as balance of payments, exchange rates and macroeconomic condition would bring an influence to their business strategies in home countries specifically in the United States and United Kingdom, respectively, as well as in other host countries like Malaysia and United Arab Emirates and last, the suggestion on what are some of the good strategies that a Malaysian coffee brewing industry can learn from will be discussed in the following.

2.0 Business operations in home and host countries

To begin with Starbuck’s business operations, it was started with a small retail that are located in Seattle (Starbucks, 2017). Over the number of years, it has became one of the companies that is rated highly by the general public with its coffee and their business operating models. One of the operations that Starbucks in home and host countries have is that the company recognised the importance of the role of employees in Starbuck as they are rather to be treated as ‘partners’ who are well-trained to give a good in-store experience and  also, Starbucks whom invested in providing them a coaching session and “…benefits to part-time employees…” (Rios, 2015).

Apart from that, Starbucks noticed that it is essential to expand its business globally to earn a greater return on investment for that they began to get involved in joint ventures and licensing agreements with other companies like “…airports, grocery chains, and colleges/universities…” (MSA Worldwide, 2017). In particular, they have open more than 24,000 stores in 70 countries namely, United Arab Emirates, Malaysia, China and Japan (Starbucks, 2017). In addition, the company also practices cost leadership strategy for both home and host country where they reduced its cost by “…outsourcing agreements for renegotiations…” when their expenses in operation has increased while the sales were dropping in the year of 2007 and 2008 (Starbucks, 2013). Besides, through this strategy, the company strived to reduce their transportation costs by establishing manufacturing plant that act as a support to the businesses in the southeast region of the United States where ultimately, it improves their operating expenses as they saved more than $500 million (Starbucks, 2013). It is apparent when Starbucks recorded a net margin and operating margin of 14.6% and 18.9% in 2015, which is remarkably higher than the average of 3.2% and 5%, respectively, in this industry (Blokhin, 2015). Moreover, Starbucks was receptive in learning local preferences for that they extend their operation in product offerings while producing the finest quality of coffee as a way to gain a competitive advantage in the host countries (Starbucks, 2013).

Nevertheless, the business operations for Costa Coffee in its home country, United Kingdom and host countries namely, Malaysia and United Arab Emirates has become the foundation of its success in being the “…largest and fastest growing coffee shop chain in the UK…” (Costa Coffee, 2017). The company has made an acquisition by forming Costa Express, who is a “…provider of self-service coffee concessions…” at places like airports, convenience stores, gas stations and universities which gives them the ability to gain a profit from growing consumers who are more inclined to have a premium coffee that is on-the-go (Clowes, 2014). On top of that, the company felt the need of “…expanding and innovating the core UK business…” and infrastructure as to be a source of strength to sustainability (Anderson, 2016). This is because Costa Coffee believe that it will help them to deliver a significant growth in earnings, dividends, returns on capital and further creating value for the shareholders where it can be seen that the company’s sales has grew to £1.10bn in 2015 (Anderson, 2016). Similarly to Starbucks, Costa Coffee also placed its importance on creativity and innovation. However, the differences is that Costa Coffee set it in its supply chain management and machines based on the advancement in technology rather than on its product as though they may have as much variant drinks made available, Costa Coffee wants to deliver convenience, a worry-free service level to the customer, to have their supply chain systems firmly situated and to ensure that the partners, supplier and customer are engaged (Clowes, 2014).

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