With reference to extract A, explain one drawback to Coca Cola of acquiring Costa Coffee in a highly competitive market
Extract A
Tough market conditions for coffee shops – but coffee quality is king
UK coffee shop chains have experienced slow growth opportunities and rising costs. In 2019 the UK market leader, Costa Coffee, opened over 60% fewer stores than in 2018, while Starbucks opened just three new stores overall in 2019. By 2020, many costs were rising: staff shortages meant rising wages for baristas (trained coffeemakers), a 6.2% National Minimum Wage increase for over 25-year-olds and rising rents. In a challenging UK economy, consumers placed coffee quality ahead of convenient location when choosing a coffee shop. This demonstrates the need for coffee shops to match rising expectations in the UK’s increasingly crowded coffee shop market in order to stay competitive. Independent coffee shops (total 25892 shops in 2020) remain a threat to the branded coffee shops as they pursue a unique luxury experience for customers. This will often focus on the atmosphere and customer service, luxury food and drink ranges and being a part of the local community. Independent coffee shops run on average profit as low as 2% of revenue, and many go out of business as new chains arrive in a locality. In January 2020, Coca-Cola finalised its £3.9 billion takeover of market leader, Costa Coffee. The Coca-Cola company’s stated aims are to maximise long-term returns to shareholders while being mindful of overall responsibilities such as supporting sustainable communities. Major brands, such as Costa, continue to lead coffee shop expansion in 2020 as competition intensifies.
(Source: adapted from https://www.worldcoffeeportal.com/Latest/InsightAnalysis/2020/ February/5-UK-coffee-shop-market-dynamics-to-watch-in-2020)
2 marks