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Costa (part of the larger Whitbread group) has accrued a number of enviable accolades over the years and can boast equally impressive growth figures to boot. The coffee shop chain recently posted a massive 28.4 percent growth in underlying operating profits, from £52.4 million to £67.3 million. It has set itself the target of achieving £2.5 billion system sales by 2020; we examine how the company will expand globally and deliver a number of strategic initiatives.
Costa’s position as the UK’s favourite coffee shop is supported by a large network of outlets, backed up by a rigorously well-organised supply chain. In the past 12 months, it has continued to grow its UK store portfolio taking the total to 1,999 coffee shops and has a further 1,168 spread across the 30 countries; its vending machines (known as ‘Costa Express’) have grown by 416 new units, taking the total to over 4,700 globally with the company hoping to roll-out another 7-800 machines in the next year.
To get an idea of just how strong its position in the UK market is, you only need look at the number of people using its ‘Coffee Club Card’ which now make up 42 percent of all transactions across its stores – now that’s loyalty! What is more impressive is the fact that as many as 2.7 million people hold one of these cards – just under one in 20 people in the entire UK.
A major part of Costa’s future growth will come from its international operations. Backing up these extensive, high-value operations is a combined operational and supply chain strategy. The supply chain component is headed up by Jan Jakubowski (Head Of International Supply Chain) and his centrally located team.
He said: “To understand the complex environment in which we operate, it is important to understand our structure of supply chain operations. We manage three main formats and several key categories such as hot and cold drinks, consumable
items and sweet range products. The first format is the international franchise business - we have a group of franchise partners with which we cooperate and they are essentially our customer.
“Because we are not contractually empowered to impose solutions, relationship management plays a crucial part. We have developed over the years a mutual respect and our Partners believe in the quality of service that we provide.
“The second group is composed of countries in which Costa Coffee shops are operated by entities in which Whitbread PLC has an equity stake. These are our stores in Poland, France and Singapore; they are still perceived a customer to supply chain but the level of engagement is different compared to a franchise partner. We have, in this instance, greater impact on what choices are made and what specific solutions implemented.
“The third format is through joint ventures which we predominantly have in China. This is an essential requirement to growing a successful business over there. We have two JVs in China. This business is supported by DHL, a leader in supply chain/ logistics services in the region who manages for us warehousing and distribution. The international supply chain team supports them with strategic directions as well as providing key products from the UK supply base.
The company’s operations in China are certainly cause for much celebration, since it can now boast over 350 stores (the most of any country outside of the UK) which have been formed using JVs and an ambitious goal of reaching 900 coffee shops by 2020;
Strategic supply chain
Jakubowski was proud to acknowledge that this growing global network of quality coffee shops would not have been able to reach this scale and popularity without the support of his team.
He said: “We are growing at an incredibly fast pace. We are not only concentrating on expanding businesses in existing countries but also working constantly to bring Costa into new territories; to be able to make sure that the business growth is supported we have to have a very well-functioning, future proof supply chain. Supply chain is and will continue to be a key enabler of Costa’s international growth.”
“Our ambition is to establish an end-to-end supply chain into which new business partners will be able to easily plug in and out. Flexibility and adaptability will be important in an ever accelerating business environment.”
“We build our supply chain with the elaborate mixed model and growth in mind and because of this we have particular focus on understanding cost. We need to understand what the cost of serving each country is, and then for each individual franchise or equity partner operating in them. Our model promotes flexibility and is developed to make it a competitive advantage for Costa.”
“Structural solutions enable good cost management but also a focus on continuous improvement. The lean mind-set is in everything we do, from planning headcount, projects, and travel to administration. We make sure that we develop a great service but when it comes to well defined systems (such as 6-sigma) we don’t use them in a structured and holistic way. We do, however make sure that they are used across our key service providers.”
He explained that, in order to reach so many locations with its branded coffee, while simultaneously delivering fresh, locally relevant cuisine, he and the international supply chain team used strategic partners and were also working to form a global 3rd party logistics (3PL) network. These aspects back up the company’s commitment to customer centricity; covering its end-consumers, its franchise and joint venture partners.
Jakubowski said: “We have a broad range of partnerships in the logistics area ranging from global companies such as Kuehne+Nagel, HAVI or DHL to specialised freight forwarders which have proved themselves in the last years of dynamic growth.
Those relationships were key during the initial years of Costa’s international developments. Transcargo, for example, has provided us with great freighting services and has a strong understanding of how important collaboration and customer centricity is, two notions at the heart of Costa’s international supply chain.”
“Partnerships are important throughout the entire supply base covering all categories and types of operations. Bells of Lazonby is a good example of collaboration in a category and has supported our ambition to have a strong supply base with great coverage that will enable us to support Costa Coffee shops around the world.
“Bells were able to support us very swiftly in developing or adapting products for foreign markets. With such support we were able to bring the great proposition of the Costa sweet range to all corners of the world.
“Monin, the world famous flavoured syrup provider is a prime example of a great understanding of local legal requirements and what needs to happen to deliver products to remote countries at speed. This is very often fundamental for the successful launch of our campaign drinks.
“We also are appreciative of partnerships with suppliers who share our ambition and are ready to support us with services that reach out of their core competency. A great example is CSM, the baking company who, through its excellent understanding of local markets internationally, can support us with insights and quick product adaptations.
“We emphasise the need for collaborative planning, forecasting and replenishment. We have partners that understand the international environment and are able to deliver a great service in the nuanced world of global trade.”
Since Costa is quickly becoming a globally recognisable brand, it is stepping up its efforts to ensure that its employees are enthused with this sense of pride and direction. Its efforts to this end have received a variety of awards in recent years which Jakubowski was keen to recognise: “In Costa international supply chain we have implemented an innovation panel managed by the Project Manager which identifies opportunities to innovate in our field and bring our operations ahead of the curve. We look at innovations constantly”.
Furthermore, the company has recently been commended in the press for raising its employee’s pay ahead of the UK National Living Wage; this has been backed up by a commitment of between £15 and £20 million to ensure that it is correctly executed. It has also made the Times Top 25 Big Companies to Work For. Additionally, Costa is looking to employ 2,000 additional apprentices across its stores, offering them an invaluable experience, by 2020.
Having developed a solid, three-pronged business model, Costa has proved time and time and again that it is possible to retain local relevance while having global scope; the culmination of this has been its healthy financial and territorial growth.