COMPETITION

STARBUCKS VS COSTA COFFEE

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. But 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 future in China will depend heavily on its partner. Currently, it is the Yueda group that will drive Costa's business. With its Italian image in Europe, Costa aspires to capture that very Italian aura in the Chinese market as well. But such a strategy raises a very crucial question about brand experience. One of the reasons that customers pay a premium to consume coffee at a cafe is for the experience. Chinese customers, especially in affluent cities such as Shanghai would aspire to identify with a global brand portraying a global image. Starbucks has been fairly successful in exploiting such a customer need.

Costa Coffee, with its Chinese partner, could face the risk of customizing the brand a bit too much. Such a step would jeopardize Costa's market aspirations. Even though the joint venture could allow Costa Coffee to understand the market faster, it would have to tread its path carefully.

It would be interesting to watch Costa's future path, given that Starbucks plans to expand in China very aggressively in the coming years and open thousands of new stores yearly. Who wins in the war between a global brand and a joint venture between a European brand and a Chinese company is ultimately for the Chinese customer to decide. But as long as Costa Coffee ensures that its brand essence and experience is not compromised, Starbucks can expect some competition.

What opportunities Starbucks has for differentiation (any touchpoints for value creation)? 

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 is 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 have approached the basics with a science and intensity that no one has ever done before.

Here are the opportunities of Starbucks for differentiation:

·       Launching new products/product extension (e.g. tea, healthy, premium, co-branding)

·       Capturing new markets (retailing) and new consumer groups

·       Selling more whole coffee beans and equipment

·       Develop in non high street areas

·       Expansion into retail operations

·       New distribution channels (delivery)

·       New products

·       Distribution agreements

·       Brand extension

·       Emerging international markets

·       Continued domestic expansion/domination of segment

Sources:

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