Globally, the sale of coffee makes up $ 42.5 billion

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The discovery of coffee dates back to earlier than the fifteenth century in the Horn of Africa, where coffee trees originated in Ethiopia. The drinking and cultivation of coffee then began to spread in the Arab world, starting first in Yemen and despite an attempt by the Arab government to impose a ban on the cultivation of coffee elsewhere, the Dutch had brought back live coffee plants to be grown in greenhouses in Netherlands. Arabian coffeehouses soon began to act as venues for where social and business life could be conducted in comfortable settings, and in time began to serve as centres for political activities that over the decades coffeehouses were banned numerous times but kept on reappearing until the imposition of tax was finally introduced to both coffee and coffeehouses. Within time, the cultivation of coffee had expanded to numerous Asian, Latin American and European regions, hence introducing the coffee trade that continued to flourish (Refer to appendix: Statistics of coffee exports to all destinations from coffee-producing countries year 1980-1999 and year 2000 to date). From the statistics, this thrive in coffee exports can be seen in countries such as Brazil, where exported coffee started from 15 million in 1980, increasing by 3 million in 1989 and continuously growing its peak to 30 million in 2009, constant growth in coffee exports in its origin country, Ethiopia with a figure of 1-2 million and when Vietnam also participated in the coffee trade in 1982, starting with 69 thousand coffee exports, its output grew to 17 million last year. These staggering statistics are enough to clarify the strong position of coffee in the global economy.

Throughout the years, the innovation of coffee has driven global growth in the market as businesses look to meet consumer demands for taste and functionality. From a French press style coffee served with no milk (i.e. Black Coffee), to different types of lattes such as the Caffe Latte made with a single shot of espresso in steamed milk, the Cafe Macchiato which is a stronger version of the Caffe Latte made with more servings of espresso, and different types of Cappucinos from dry to Mocha, and also ready-to drink coffee, coffee consumers have enjoyed various types of coffee mixed using different methods and quantity though with the similar ingredients. One particular new type of coffee that has now caught the attention of many coffee connoisseurs is the ‘Flat White’. Originated from New Zealand and Australia, the Flat White is stronger than a latte, made with two to three shots of espresso topped with creamy, well-frothed milk and it has less foam compared to a cappuccino. It is the coffee that since its launch in January 2010 has contributed to an increase in sales by almost 10% for Costa Coffee in the three months to the middle of February. Costa’s competitor, Starbucks was the first to introduce the Flat White but only in London, leaving Whitbread, which owns Costa, to launch it nationwide and with the sales that the Flat White had brought into Costa which also generates revenue to Whitbread, the company has named Costa as the fastest growing part of its empire. In Costa’s press release for the launching of the Flat White, Costa’s Italian Master of Coffee, Gennaro Pelliccia comments on the specialty coffee, “If you look at coffee on menus in the UK, we have Lattes and Cappuccinos that some people find too weak or too frothy. There is an Espresso for those who like a strong flavour and Americano for those who simply like black coffee. However, up until now, there has been a gap in the UK market for a rich, yet smooth and creamy coffee. The Flat White fills this space perfectly. It offers something for all coffee lovers”. The development of the Flat White was to offer a premium product to coffee consumers that would not be widely available at other competing coffee shops. In an independent survey by Tangible Branding Limited (2010), 62 percent of the respondents who identified themselves as ‘Coffee Lovers’ preferred Costa’s Flat White to Starbucks. Costa takes pride in its expert baristas who take perfection to new heights, with a time-critical, heat-sensitive 5-step process that creates a flawless, velvety-smooth Flat White every time. Costa is serious about its staff training; before any staff pull a single espresso shot, every one of them goes through rigorous professional training. Costa’s Flat White secret is in the blend of coffee they use – Mocha Italia – a unique, perfectly balanced blend, made from slow-roasted beans that the retail outlet has been using since 1971.

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Costa’s launching of the Flat White has added more chances for the retail outlet to perform better than its competitor, Starbucks. According to an article by the Guardian UK 9th July 2010, Starbucks’ losses in Britain were almost up to 10 million pounds, suggesting that Starbucks was losing grounds to Costa Coffee. Costa’s problem-solving strategies are perhaps more broader and customer-friendly than Starbucks. The business sets aims to fulfil the specific needs of city customers, and does research on the market carefully, discovering that city customers wanted high speed of service, express till areas for customers who are in a rush, and a more relaxed atmosphere with zoned seating areas. Despite recession in the UK, Costa Coffee has weathered the recession rather well. British consumers are more demanding with their choice of outlet, moving more towards authentic individual coffee shops serving hand-crafted quality coffee and the Flat White has played this role with satisfaction. Following Whitbread’s growth strategy during the recession in Britain, Costa has expanded its business to hospitals and universities, bringing in more coffee consumers who did not forgo their coffee despite the recession, and with the introduction of the Flat White, gave coffee lovers more option for their morning cup of coffee and as a result of expansion and a new product, the business enjoyed profits of 36.2 million pounds in 2009 and revenue was up 23 percent to 341 million pounds and Whitbread has had 32 consecutive quarters of like for like sales growth with Costa, seeing an increase of 5.5 percent last year.

According to Schumpeter’s theory of entrepreneurship and innovation, there are two crucial distinctions to innovation: gradual and discrete changes. Gradual change relates to a product or process improvement which relies on the continuance of an existing technology and processes, focusing more on customer satisfaction. Discrete change, on the other hand, is product or process transformation. It breaks from the existing technology and processes, has no collection on previous data on market reaction or customer response, is unpredictable and difficult for businesses, customers, stakeholders, etc. For Coffee, it falls under the category of gradual change. The Flat White, though considered to be a specialty coffee, still undergoes the existing technology and processes, with the same raw materials made for other types of coffee. Since its launch by Costa Coffee, the Flat White may enjoy the attention it gets from customers during the short term but during the long term, customers will begin to perceive it as any other type of coffee and sales might not be as large as it was in the short term, unless Costa Coffee expands its market more in other countries, hence introducing the Flat White to new consumers. This strategy has already been implemented, in which by 2005, with the organisation’s core values of quality, customer satisfaction and employee development has now made Costa the number two international coffee shop operator with over 1,600 stores: 1,069 in the UK and 531 overseas. Costa has expanded its business to large and fast growing regions such as China, the Middle East, Russia, and Central Europe and not only does this expansion help generate revenue for Whitbread, it also helps to boost the UK economy. For example, with the cafe culture spreading in the United Arab Emirates, consumers’ expectations of coffee they can purchase to prepare at home will rise to meet what they expect from a coffee shop, something that will take greater time and resources for domestic manufacturers to develop on their own especially if it involves a premium type of coffee such as the Flat White which typically requires professional skills to prepare the perfect brew. Costa’s coffee sales would not be significantly affected by any given economic situation in any country as coffee shops are perceived as a cheap alternative to dining out and a venue for socializing, especially among younger people. The establishment of its chain shops abroad also brings in foreign direct investments*

Joseph Alois Schumpeter theorized that entrepreneurship leads to creative activity which brings forth economic development in a sense that economic development takes place when a country’s real national income increases overall a period of time wherein the role of entrepreneurs is essential. In the UK, Costa holds the leading 16 percent market share (Gibbons, 2002), followed by 15 percent owned by US-coffee shop, Starbucks, Caffe Nero at 6 percent and Coffee Republic at 5 percent. With these figures, Costa Coffee, though a small part of the hospitality industry, has also contributed to helping to create employment opportunities for many of UK’s residents not currently in employment and whose skill profile would be sufficient to match the needs of the hospitality sector.

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Costa’s future with the Flat White

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