Starbucks and Costa Coffee: Competitive Dynamics of The Coffee Industry

Starbucks Company is an American based coffeehouse chain and corporation established in the year 1971, in Seattle, Washington (Starbucks Corporation, 2018). Today the company is largest in the coffee industry and operates across the world with a total of 27,339 business locations globally. The Starbucks locations offer cold, and hot drinks, caffe latte, espresso, micro-ground instant coffee also referred to as VIA, and whole-bean coffee (Starbucks Corporation, 2018). The company is considered the primary representative of the “second wave coffee” whereby it at the outset distinguished itself from other United States’ coffee-serving venues by customer experience, quality, and taste while commercializing the coffee which was darkly roasted (Starbucks Corporation, 2018). On the other hand, Costa Coffee refers to a British based multinational coffeehouse founded in Dunstable, Bedfordshire (Costa Coffee, 2018). The company is the second largest coffeehouse chain, after Starbucks corporation, in the world. Since its establishment in London in the year 1971, the firm has grown to 3401 stores spread across 31 countries globally (Costa Coffee, 2018). The corporation offers a lot of flavors and variants of coffee with the most famous being expresso, mocha, Americano, flat white, latte, and cappuccino (Costa Coffee, 2018).

Industry Structure

The coffee industry is built upon an intricate web of economic transactions and relationships. It is divided into three major segments: the retailers, the roasters, and the growers (Luttinger & Dicum, 2011). The coffee industry is controlled by two major economic market structures which are the monopolistic competition of the retailers and the monopsony between the coffee roasters and growers (Luttinger & Dicum, 2011).

Competitive Dynamics of the Industry

The coffee industry is characterized by a monopolistic competitive dynamic where only a few retail outlets exist. These retail outlets not only have a similar kind of management but also share a particular brand with standardized business practices and procedures (Tucker, 2017). The key players who cover the global market share today are Costa Coffee, Café Coffee Day, Barista Coffee, and Starbucks Coffee (Tucker, 2017).

The Contribution of Competitive Dynamics to The Structure of the Industry

The competitive dynamics has largely contributed to the structure of the industry. Since the year 1987, the dynamics of the coffee industry’s rivalry has changed dramatically. The early days of the specialty coffee industry were characterized by Starbucks, the then completive giant, competing primarily against small-scale specialty retailers. Today, Starbucks competes against companies of different exposure and varying sizes to specialty coffee with stiff competition from the Costa Coffee. This changed the structure of the industry from monopoly to monopolistic competition.

Porter’s Five Forces of Current Industry

Competition in The Industry

Most recently, Starbucks Corporation has been in a fierce competition in the global marketplace with Costa Coffee and other specialty coffee shops and quick-service restaurants such as Pret-a-Manger and Dunkin Donuts (Tucker, 2017). In spite of the stiff rivalry, Starbucks has maintained clear market leadership in the United States with a market share of about 40% with the remaining percentage being shared by Costa Coffee and other specialty coffee shops and quick-service restaurants (Tucker, 2017). In other marketplaces such as the United Kingdom, Costa Coffee has a strong high street presence having 1992 stores against the 849 stores owned by Starbucks Corporation (Tucker, 2017).

Potential of New Entrants into the Industry

Bargaining Power of Suppliers

Bargaining Power of Customers

Threats of Substitute Products

Porter’s Five Forces of Past Industry Structure

Firms that are Locked into a Struggle for Industry Leadership

References

Costa Coffee. (2018). The Nation's Favorite Coffee Shop | Costa Coffee. Retrieved from https://www.costa.co.uk/

Starbucks Corporation. (2018). Starbucks – The Best Coffee and Espresso Drinks. Retrieved from https://www.starbucks.com/

Luttinger, N., & Dicum, G. (2011). The coffee book: Anatomy of an industry from crop to the last drop. New Press.

Tucker, C. M. (2017). Coffee culture: local experiences, global connections. Taylor & Francis.