Global Marketing

Based on the Costa Coffee case,

a.) Identify and briefly explain the environmental factors that have led the coffee retailer to expand in the Chinese market. (25 points)

b.) Identify and briefly describe the initial entry mode to the Chinese market and the other / further operating modes. (30 points)

c.) Devise a product strategy and a communication strategy for the retailer in China.(45 points)

The world's second largest coffee chains international expansion and operations in China

In 2017, British company Whitbread announced plans to invest more to its Costa Coffee brand. Costa had over 2,400 stores in the United Kingdom, and 7,000 express coffee machine kiosks. It had another 1,450 stores spread across 31 foreign markets, including 450 in China.

With sales declining in the United Kingdom, Costa was looking to international markets to fuel its growth. Costa positioned itself to build its strong international presence with growth expected in China said the CEO of the company. Research firm Euromonitor estimated that global sales at specialist coffee shops increased 50% over the past years to $58 billion in 2017. China, where sales have more than tripled over the same period, was one of the hottest markets.

Despite opening hundreds of stores in China, Costa did not establish a highly profitable operation in the country. Costa bought out its joint venture partner in south China, taking full control of the business.

The Chinese market is vast enough for a number of international brands. The UK chain has a long way to go before it can compete with industry giant Starbucks. Global sales the US company hit $22.4 billion in 2017, compared to 1.2 billion ($1.7 billion) for Costa. Starbucks had 3,200 locations in China alone and was opening a new shop in the country every 15 hours. Costa Coffee entered the market with its first Shanghai outlet, seven years after Starbucks made its entry in Beijing. Costa started looking to foreign markets as sales decreased at its stores on main streets in Britain. The number of customers visiting UK main streets declined as shopping shifted to online, a trend that has hurt coffee sales. Rising inflation also harmed Costa and other food sellers.

In 2018, Coca-Cola Company paid US$5.1 billion for Costa Coffee. The CEO of Coca Cola, stated that the company desired to create a drink portfolio catering to customers. Costa Coffee helped Coca Cola to explore the hot drink market and build a robust coffee sale platform, while Coca Cola created more opportunities for Costa to develop new service. The company, now owned by the Coca-Cola Company, started to make some innovations to improve its position in the coffee market in China.

Recently, during the Covid 19 pandemic, it is reported that the company will be closing a number of its stores as of August 2020, as part of the adjustments to its retail strategy in response to shrinking demand. This comes as a response to Chinas consumption decline, which took a major hit during the coronavirus outbreak. While Chinas economy rebounded last quarter from a historic slump, the high unemployment rate affected the spending power and discretionary consumption.

Despite the impending store closures, Costa Coffee remains committed to the market and will look to grow all its sales platforms. China is a priority market, said the chief operating officer of Costa International. The firm is actively expanding its ready-to-drink portfolio to meet demand and to cultivate new growth areas. Chinas freshly brewed coffee market is expected to grow at 15.6 per cent annually through 2024, according to its forecast. Costa Coffee offers iced green tea in its stores in southern China and a hot beverage in northern China. In March 2020, Costas instant coffee appeared in Chinas coffee market and offered products for the at-home coffee in addition to coffee shops. This coffee is available in online platforms, supermarkets, and other distribution channels. Costas overseas market CEO said China is an essential market for the company, and considering modern consumers fast pace of life, Costa targeted the instant coffee market to adapt to customers requirements and develop new growth opportunities for the company. Based on the results of a survey, the average person consumes 2.06 cups of coffee a day. That comprises 1.37 cups at home, 0.24 cups at workplaces, 0.25 cups at restaurants and cafes, and 0.2 cups at other sites. As most coffee around the world is consumed at home, Costa Coffee aims to reach more people to enjoy companys high-quality coffee leading to more consumption of its coffee.