Extract A Bright future for coffee shops In 2014 the branded coffee chain segment recorded 2.9bn turnover from 5,781 outlets, with impressive sales growth of 11.9%. The number of branded coffee shops grew by 4.9%, with 271 stores added during the year. Costa Coffee, Starbucks Coffee Company and Caff Nero remain the UK's leading brands by outlet numbers. Market leader, Costa, added 151 UK outlets in 2014 and increased revenue from 807m in 2013 to 951m in 2014. Operating profits increased by 20% in 2014 from a figure of 110m in 2013. Increasing competition provides consumers with more choice of quality coffee at home, at work and a wider variety from the non-specialist sector, such as public houses, fast food operators, supermarkets, garden centres and bookshops. Consumer choice is driven by more criteria than ever before, including: habit, coffee shop brand, loyalty scheme and brand of coffee offered. Coffee shops increasingly play an important role, contributing to the social vibrancy of a community as well as being a large contributor to UK employment and the economy. Independent coffee shops are becoming far more wide spread and successful than ever before. Some of these independents are now expanding, following the success of leading small chains such as Taylor St Baristas and Timberyard. Extract B Leading 10 coffee shop chains ranked by number of outlets in the UK in 2014 11,552 530 Coffee shop chains Costa Starbucks Caff Nero SSP Wild Bean Caf M&S Caf Coffee Republic AMT Coffee 70 Muffin Break 45 Thorntons Cafs 35 0 200 429 315 304 400 600 800 1,000 1,200 1,400 1,600 1,800 Number of outlets Extract Tea, Coffee, Work and Play. Reimagined Timberyard is a dynamic, independent creative workspace fused with speciality tea and coffee. A challenge to the traditional coffee shop, we are a new and exciting environment that aims to provide products and services that are conducive to the evolving needs of life in London. We encourage creative people to come together for a variety of reasons and provide a place in which they are comfortable to stay as long as they like. With our range of food and drink from high quality local producers changing daily, it's easy to keep yourself fuelled all day long. At the 2014 European Coffee Awards, Timberyard was announced as 'Best Independent Coffee Shop in Europe. Timberyard Soho Timberyard Soho provides a new creative hub in the heart of London. In an area known for colourful ingenuity and innovation, this new space welcomes our familiar speciality tea and coffee coupled with vibrant workspace. The members' floor offers a beautiful central brew bar plus 104 seats in 2,000 square feet of open plan workspace. Extract D Wholesale Coffee prices, US cents per pound of coffee, October 2014 to September 2015 Month Price Change Oct 2014 109.39 Nov 2014 106.81 -2.36% Dec 2014 103.51 -3.09% Jan 2015 102.33 -1.14% Feb 2015 103.74 1.38% Mar 2015 98.07 -5.47% Apr 2015 98.73 0.67% May 2015 94.35 -4.44% Jun 2015 2.69% July 2015 92.71 4.31% Aug 2015 91.94 -0.83% Sep 2015 87.98 -4.31% (a) Using Extract A, calculate the operating profit margin for Costa for 2014. Show your workings. [2 marks] (b) Using Extract D, calculate the percentage change in the coffee price from October 2014 to September 2015. Show your workings. [2 marks] (c) Using a supply and demand diagram, illustrate and explain the impact on the coffee shop market of the change in taste and fashion. [3 marks] (d) Costa Coffee, Starbucks Coffee Company and Caff Nero are the UK's leading coffee shop chains. Analyse the possible impact of the market structure on the pricing strategy of these firms. [6 marks] (e) Discuss whether market share maximisation is the most important business objective to a coffee shop chain, such as Timberyard. [6 marks] (f) Extract D shows a fall in the wholesale price of coffee during 2015. Assess the impact this might have on prices charged in coffee shops. [6 marks] (g) To what extent is non-price competition in the UK coffee market important for the firms? [7 marks] (h) Define the characteristics of a contestable market and assess whether the UK coffee shop market could be considered as being contestable. [8 marks]
