differentiation in the coffee industry: Big Brands

WHAT CAN BE DONE IN COFFEE BREWING INDUSRTY TO DIFFERENTIATE THEMSELVES?

As coffee-brewing industry is competitive, companies need to differentiate themselves in order to survive. Line management is a significant issue for coffee houses as often the demand is concentrated in the early mornings.

Starbucks

Starbucks has been able to achieve customer service efficiency by introducing automatic espresso machines.  According to Michelle Gass, Chief Merchant of Global Product, Starbucks, efficiency is a key driver in customer satisfaction, as customers “want their beverage in under three minutes.” Interestingly, however, it appears these efficiencies must be balanced with creating a mystique around the coffee experience and having an awareness of the consumers’ price-value ratio.  For example, Starbucks customers, who pay a premium for coffee, seem to miss the elaborate process of brewing and drink creation.  Starbucks’ CEO recently expressed a concern that the brand was becoming “watered down” and such gains in efficiency threatened to commoditize the brand. Technology is impacting this industry in the form of increasingly sophisticated home brewing machines that are able to at least replicate, if not beat, the quality of coffee prepared at many of these stores. Though it is unclear of the impact of these machines on the coffee players, this is an area of increased growth and one for these competitors to monitor.

Starbucks’ strategy

Starbucks does not compete on price but rather on the complete experience customers get while visiting the coffee shop.  Embracing its value beyond extraordinary coffee, Starbucks tries to make a business out of human connections, and celebration of diversity and culture.

Starbucks focuses its retail selection on the “best places in town” and its outlets can be found in the center of almost every famous city in the world ranging from Cologne to Los Angeles. As mentioned, the firm focuses on high-traffic, high-visibility locations.  While Starbucks selectively locates stores in shopping malls, it tries to focus on places that provide convenient access for pedestrians and drivers.

Starbuck’s overall goal is to establish its brand as one of the most recognized and respected ones in the world. Therefore the enterprise plans to continue the rapid expansion of its retail ~ and grow its specialty operations and to selectively pursue other opportunities to leverage the brand through the introduction of new products and the development of new channels of distribution.

Costa

Costa Coffee is part of the British leisure group Whitbread. With around 500 coffee stores in the UK and another 150 around Europe and the Middle East, Costa Coffee has been a brand to reckon with in that region. Let’s say,in the China market, compared to the global market leader Starbucks that entered China in 1998 and already has around 180 outlets in China, Costa Coffee entered the Chinese market in December 2006. Unlike Starbucks, Costa Coffee entered into a joint venture with the Yueda Group based in Jiangsu Province. The logic for such a partnership is quite simple - the Costa Coffee brand being a new entrant to the Chinese market would take a long time if it went alone but a partnership with a local company would allow Costa Coffee to leverage the partner's knowledge of the local market and customers. As attractive as it may sound, such partnerships do come with a price.

Costa’s strategy


Costa Coffee is set to adapt its ad strategy to focus on generating emotional engagement, starting with promotions for its new Costa Light variant. 


Costa Coffee is using a new strategy of emotion-led marketing to promote its new Costa Light drink (see right). The campaign for the drink, features ads promising ’All the love, none of the handles’ to tap into consumer concerns about consuming too many calories in their hot drinks.

The move to offset diet guilt marks a change in creative approach for the brand. Until now, Costa’s creative work has concentrated less on emotional appeal and instead tried to set the brand apart from its rivals, such as Starbucks or Caffe Nero. It’s “7 out of 10” campaign claimed that in taste tests more than twice as many consumers preferred Costa cappuccinos to the Starbucks equivalent (see one of the ads below).

In competing with Starbucks in the Chinese market, Costa’s ambition is to have one-third share of the coffee chain market of China, according to a recent company announcement. Starbucks signed an agreement with Maxim Group, its long-term partner, to take over 100% of its ownership in certain provinces, hence it now has full control of more than half of its Chinese retail stores.

Meanwhile, Costa is taking a much different approach. It has signed a cooperation agreement with the Beijing Hualian Group, a leading Chinese retailer, betting on rapidly entering high-end business complexes through the retailer’s 70 supermarkets and department stores as well as 10 shopping malls. To shorten the opening time of its new stores, Costa also gives its China office plenty of autonomy, just like its American rival.

Sources:

[1] COFFEE WARS IN CHINA: STARBUCKS VS. COSTA, http://www.worldcrunch.com/coffee-wars-china-starbucks-vs-costa/4086

[2] Costa Coffee adapts ad strategy to boost emotional appeal of Costa Light variant, http://www.marketingweek.co.uk/blogs/pitch-blog/costa-coffee-adapts-ad-strategy-to-boost-emotional-appeal-of-costa-light-variant/3030686.article