Strategic Analysis of the UK Coffee Shop Industry, Global Expansion, and Retail Acquisitions

Assignment Brief

For all questions, you are required to apply relevant strategic models and theory.  In some cases, the model is indicated, in others you need to choose the appropriate model(s). You are encouraged to add more depth to your answers with additional strategic theory and ideas.

Question A 20% Industry Evolution

1. Where in its life cycle do you consider the coffee shop industry in the UK to be?  How well do you think the Industry Life Cycle model explains what is happening in the industry now? 

Question B 40% Global Strategy

1. Appraise whether Costa Coffee gained a competitive advantage from being a British company in its development as an international business.

2. Analyse how Starbucks balances international / global integration and national differentiation.  Consider its whole operation, not just the company’s marketing offer to customers.

Question C: 40% Acquisitions and the Nature of Strategy

1. Analyse the strategies behind Sainsbury’s acquisitions of Home Retail Group (including Argos) completed in 2016 and the proposed acquisition of ASDA from Walmart rejected by the Competition and Markets Authority in 2019. 

2. What is your assessment of each of these moves in terms of intended and emergent strategies?

Sample Answer

Strategic Analysis of the UK Coffee Shop Industry, Global Expansion, and Retail Acquisitions

Introduction

This essay critically examines strategic issues in three areas. Firstly, the evolution of the UK coffee shop industry is assessed using the Industry Life Cycle model to determine the sector’s current stage and the model’s explanatory power. Secondly, the global strategies of Costa Coffee and Starbucks are analysed, with a focus on competitive advantage, international integration, and local differentiation. Finally, the acquisitions undertaken by Sainsbury’s, specifically Home Retail Group in 2016 and the proposed ASDA acquisition in 2019, are evaluated through the lens of intended and emergent strategies. The essay applies relevant strategic models and theories throughout to provide a rigorous assessment.

Question A: Industry Evolution

The UK coffee shop industry has experienced significant growth over the past two decades, driven by increasing consumer demand for out-of-home coffee consumption, lifestyle trends, and urbanisation. Using the Industry Life Cycle (ILC) model, which includes the stages of introduction, growth, maturity, and decline, the sector can be characterised as being in the late growth to early maturity stage.

In the introduction phase, speciality coffee shops emerged as niche offerings, targeting early adopters and enthusiasts. The growth phase witnessed rapid expansion of chains such as Costa, Starbucks, and Caffè Nero, coupled with the entry of independent coffee shops. This period was characterised by increasing store numbers, rising consumer awareness, and innovation in product offerings. Currently, the industry exhibits features of maturity, including market saturation in urban areas, slowing growth in store openings, and intensified competition on pricing, loyalty programmes, and brand differentiation.

The ILC model explains these trends to some extent by highlighting growth deceleration and competitive pressures in the mature stage. However, the model is less effective in accounting for continuous innovation, consumer lifestyle shifts, and technological disruption, such as mobile ordering and delivery services, which enable mature markets to maintain dynamism. Moreover, consolidation through mergers and acquisitions, as seen with Costa’s acquisition by Coca-Cola, indicates strategic responses that extend the maturity phase, which the linear ILC model does not fully capture.

Question B: Global Strategy

Costa Coffee: Competitive Advantage as a British Company

Costa Coffee’s British heritage provided an initial competitive advantage in both domestic and international markets. The brand benefited from reputational capital, being associated with British quality and tradition, which resonated with international consumers seeking premium, authentic experiences. Costa leveraged brand equity and operational know-how developed in the UK to standardise its offerings abroad while entering markets with franchise partnerships, particularly in Europe and Asia.

However, Costa’s competitive advantage was limited by the need to adapt to local tastes, cultural norms, and regulatory environments. While its British origin offered a marketing differentiator, success relied heavily on operational flexibility, supply chain management, and adaptation to local consumer behaviour.

Starbucks: Balancing Global Integration and National Differentiation

Starbucks exemplifies a transnational strategy, integrating global efficiencies with local responsiveness. Globally, Starbucks maintains standardised operational practices, brand image, and product quality, ensuring consistency across markets. International integration is evident in its centralised supply chain, training programmes, and global brand messaging.

Simultaneously, Starbucks adapts to national markets by offering localised products, store design, and marketing campaigns. In Japan, for instance, Starbucks incorporates green tea lattes and culturally aligned store aesthetics, while in the Middle East, it adapts to religious and cultural norms. This balance between global integration and local responsiveness allows Starbucks to leverage economies of scale while meeting local consumer expectations, thereby sustaining competitive advantage in diverse markets.

Continued...