Question 3

In 2018, a deal was reached whereby Coca-Cola bought the Costa Coffee chain from UK leisure group Whitbread for 3.9bn. At the time, Costa Coffee was the second largest coffee shop worldwide and its acquisition by Coca-Cola represents an entry by the latter into the global coffee market where it had little presence. As noted by James Quincey, president and chief executive of Coca-Cola, "Costa gives us access to this market through a strong coffee platform." The move marks the end of Whitbread's 23-year ownership of Costa, which the group bought for 19m when it had just 39 shops. It now has more than 2,400 outlets in the UK and 1,400 in more than 30 international markets, as well as operating a self-serve businesses. Costa has also expanded internationally. The global coffee industry was valued at more than $80bn, according to research firm Euromonitor, and had been expanding at an annual rate of more than 5 per cent.

3.1 Distinguish between:

(a) the short run and long run in terms of fixed and variable costs

(b) sunk costs and opportunity costs. Give one example each of sunk andopportunity costs.

(8 marks)

3.2 Coca Cola has a global scale and supply chains that would enable Costa to grow and compete. Using a diagram, explain how growth in the scale of a business is potentially beneficial to firms and consumers, in terms of costs.

(17 marks)