This report will aim to analyse the strategic plan of the company Whitbread PLC. The company has been around since 1742, opened by Samuel Whitbread, and is classed as the one of the UK’s oldest and well-respected companies. Whitbread owns several recognisable brands, split into two sub categories, the first being coffee with Costa Brand. The second being hotels and hospitality, which include Premier Inn, Brewers Fayre, Beefeater and Table Table (Whitbread.co.uk, n.d.). This report in particular will focus on just one of Whitbread’s core business brands, Costa. The justification for this is that the coffee industry according to Mintel is growing at a rapid rate, which will be explained later within the report, and within the overall strategic report for Whitbread there is heavy focus on expanding the Costa brand both within the United Kingdom, and abroad. An area which this assignment will focus on is the Costa Express side of the business.1.2Costa Coffee OverviewThe first Costa brand was founded in 197, and in 1978 the first store opened in London. Between 1978 and 1995 the original founders opened 40 stores, and were then bought out by Whitbread . who grew the business further (Whitbread.co.uk, n.d.). Figure 1: Whitbread market price* *Correct as of 8th November 2017, 17:12 GMT (Markets.ft.com, 2017).2.1 What is Strategy?Strategy itself has many definitions, for example Porter would argue that for a company to have an effective strategy, it must be flexible in order to respond to consumers changing wants and needs, and to remain competitive with the industry. He also argues that companies should “Benchmark continuously to achieve the best practise” (Porter, 1998). Position was once at the heart of strategy, however in today’s world, it is classed as being too static for the changing environment, and forward moving technologies (Lampel et al., 2014). For companies to remain competitive, it is claimed that they need to distinguish between operational effectiveness and strategy. High operational improvements have often been dramatic, with many companies being frustrated at the inability to translate them changes, and gains into a sustainable profit. Various management tools have taken the place of strategy (Lampel et al., 2014). It is also fair to say that one strategy for one business may be different for another, as they can use different strategic processes (Cinar, 2010, p.3). Businesses must also adapt their strategies as time goes on, this can be for reasons such as a change in consumer habits, economical factors and competition (Cinar, 2010, p.3).This report will use the 5P’s of strategy which was developed by Henry Mintzberg (this is explained fully in section 2.3) 2.3 The 5Ps of Strategy overviewMintzberg suggests that there are five different ways in which the phrase ‘strategy’ can be used, he developed a model and named it the ‘5Ps of strategy’, with each P having a specific title. These are as follows: Plan,Pattern,Ploy,Position,Perspective (Mintzberg, Ahlstrand and Lampel, 2009).This report in particular will focus on strategy as position, but will offer a brief insight to another P within its Reflection (Section 4).PUT IN (Mintzberg, 1987) SOMEWHERE2.3 Theoretical model: Porter’s 5 forcesStrategy as position is defined in Mintzberg’s eyes as a means of locating an organisation within its environment and industry (Mintzberg, 1974, p.4), and helps provide a greater insight to The five forces framework was developed by Michael E Porter in 1980, when he published his book ‘Competitive Strategy’. The five forces are designed to shape the structure of industries and in particular establish the various rules of competition and the main reasons why an industry is profitable (Porter, 2008). The five forces are the treated which are posed by:The intensity of competitive rivalryThreat of new entrantsBargaining power of buyersThreat of substitutionBargaining power of suppliers (Porter, 1992).Based on porter’s 5 forces The end goal of a competitive strategy for a company within the industry which it operates in, is to establish a position in which they can rigorously defend themselves against competitive forces or they can influence them in such a way, that they actually end up working in the company’s favour (Porter, 2004). The next section of the report aims to explore forces further.2.31 Intensity of Competitive RivalryCompetition in an industry works to put down the rate of return on invested capital to the competitive floor rate of return, and where rivalry is particularly intense, companies often fight to attract the most customers through price cuts to goods and services, bold marketing campaigns and increased customer service through extended warranties for example (Porter, 2004). It is often the case that rivalry occurs when one firm in the industry sees an opportunity to improve its current position. Porter goes on to say that if there is a price war between the competition in the industry, it normally results in lower profitability for all those participating within the war (Porter, 2004), thus consequently, the consumer becomes better off during this time, as they can benefit from lower priced goods and services (Ford, 2017).This force will also look at other competitors which operate within the same industry, and will assess the intensity, which can be based on many factors such as the number of competitors, Exit barriers, Industry growth, competitor size (Jurevicius, 2017).2.32 Threat of New EntrantsNew entrants to an industry bring new capacity, and a goal to obtain market share, and often resources. The threat of entry depends on the various barriers to entry which are within market, and how quick companies are to react or retaliate within the market when this occurs (Porter, 2004). Porter identified seven main barriers to entry, which are:Economies of scaleProduct DifferentiationCapital RequirementsSwitching CostsAccess to Distribution ChannelsGovernment PolicyCost Disadvantages Independent of scale (Porter, 2004)2.33 Threat of SubstitutionSubstitute products are products which can do the same or similar function as an existing product on the market, and sometimes the threat of substitution is downstream or indirect, meaning a substitute replaces a buyers industry product. “Substitutes limit the potential returns of an industry by placing a ceiling on the prices firms in the industry can profitably charge” (Porter, 2004). 2.34 Bargaining power of buyersBuyers (customers) compete within the industry by forcing companies within the industry to lower prices and fight for higher quality goods and services, and playing competitors against each other, which can have an impact on the overall profitability within the industry (Porter, 2004, p.24). Buyers can have big impacts with industry if they have the negotiating leverage relative to industry participants, especially if they are price sensitive (HARVARD BUS REVIEW REF).2.35 Bargaining power of suppliersPorter claims that if a firm’s suppliers have ‘bargaining power’ they are able to charge higher prices for their products, or threaten by reducing the quality of goods purchased, by doing so, the firm can suffer through a reduction in profits. Normally for this to occur within the industry, there will be few companies, and the industry will be concentrated more than the one it supplies to (Porter, 2004, p.27). Generic StrategyAlongside the five forces model, Porter devised the Generic Strategy, which consists of three key elements: Cost LeadershipDifferentiation 3a. Cost Focus 3b. Differentiation FocusCost LeadershipThis allows the firm to have a competitive edge by manipulating production costs by charging lower prices to increase its market share, and reducing running costs in order to increase profits. http://www.capsim.com/blog/an-introduction-to-porters-generic-strategies/ DifferentiationThis is when the firm offers a different product or service than its competitors, which is perceived as being unique within its industry. The approach to being ‘different’ can be in the form of new design, brand images or technology to name a few (Porter, 2004, p.37).FocusThe final generic strategy is when a firm seeks out a narrow competitive scope, through selecting a particular segment or a few segments of the market within its industry and thereby tailors its strategy to serving them to the execution of others (Tanwar, 2013). Porter goes on to say that if a firm is to gain a competitive advantage in the market, they must decide which of the above they actually are, or they face being ‘stuck in the middle’ if they cannot decide (Porter, 2004, p.41). Section 3: This section of the report will now analyse Costa’s strategy using the model discussed in section two.Within the Report Whitbread have three main areas which they are focusing on, although they may be generic, they have included in detail within their annual report in relation to how their various business models will play a role in achieving their key focus, including Costa. LOOK AT REPORT TO EXPLAIN THESE, GO BACK 10 YEARS AND SEE IF THESE HAVE CHANGED, COMPARE WITH PREVIOUS YEARS, HAVE THEY BEEN ACHIEVED? WHY YES/NO?For the trading year Whitbread have expanded its Costa brand by opening a further 255 stores worldwide and 1,500 express machines, of which 248 were in international markets (Whitbread PLC, 2017). Taking the grand total up to 3,532 stores and 6,801 machines worldwide. Within the report the company aims to have £2.5 Billion worth of system sales, along with expanding the number of stores to at least 3,000 with in the UK (Whitbread PLC, 2017). Furthermore they see a great chance to exploit their market within China, and for Costa Express they wish to double up their current numbers. The company also has its Customer Heartbread model (appendix 4) to illustrate how the customer is at the heart of everything which Whitbread do, this year it has been developed further by adding in ‘Everyday Efficiency’, which the company claims is to make long term environmental and community changes (Whitbread PLC, 2017), such as Team working and communities, customer wellbeing, energy and environment (Whitbread PLC, 2017).This section of the report will focus on Costa within its market, and how the five forces are relatedCompetitive Rivalry: HIGHWithin the market there are several large competitors such as Starbucks, Café Nero, Pret-a-manger and JD Wetherspoon. A positive point for Costa is that they are currently the market leaders within the UK, as in 2016 they were ranked as the highest Coffee shop in terms of both the number of stores which at the time was 2,218 (Statista, 2017b), and in terms of sales which was over £975 Million (Statista, 2017c). In appendix 2 a bloomberg graph shows how Costa has performed in terms of sales from 2011 to 2017, every year they have increased significantly. The Pub group JD wetherspoon is fighting the likes of Costa and other coffee giants through offering coffee from as little as 99p, compared to the standard price of a latte being £2.40 in Costa (REF). In relation to the costa express part of the company, they too have competition, with Starbucks, who launched their own version called ‘On the go’ just one year after the express launch in 2012 (Baker, 2012). In additon to this Starbucks has started to open its on the go machines in forgien markets such as Russia, as costa https://coffeebi.com/2017/03/27/starbucks-opening-self-service-points-russia/ NEW ENTRANTS: StrongIt would be fair to say that this is a high force as it nearly anyone can set up a coffee business. An example being pub group JD Wetherspoon, who took it upon themselves to exploit the coffee market, and earlier opening times due to a change in the law, by offering customers coffee from as little as 99p with free refills (Muspratt, 2006). That was back in 2006, now the company is selling over 1 Million cups a week (Monaghan, 2016). Threat of Substitution: STRONGLike competition among rivals, for customers they have the chance to visit any of the other rivals, such as starbucks, who offer pretty much the same product. A difference is that Starbucks is American, Cafe-Nero is Italian and Costa is british, thereby their could be a change in their menus from time to time, which may appeal to certain groups of customers and not to others for example. Another factor is that customers also have the option to save their money and buy coffee beans to have at work or home, which is a massive threat to Costa.Bargaining power of buyers: MediumIf the industry’s products are standardised then buyers are able to find equivalent products from elsewhere which do the same function, again this is high force for Costa as their main rivals such as Starbucks serve the same menu, just with different coffee beans (HBR REF). It should also be noted that buyers have no switching cost, as it is not a ‘durable’ product such as a laptop for instance, which gets more than one use, coffee is a ‘non-durable’ product which will need replaced after one use (https://www.intelligenteconomist.com/durable-non-durable-goods/). Bargaining power of suppliers: LowCurrently Costa acquires its coffee beans from Rainforest Alliance farms (Whitbread PLC, 2017), this is a good thing as it shows the company is being ethical about the suppliers which it uses, and ensures farmers get a fair price for their coffee beans (Costa.co.uk, 2017). However this force itself could be deemed as low as there are many coffee suppliers, so should the Rainforest alliance request a higher price for their goods, and should Costa not wish to pay it, they could just select another supplier, and still be deemed as ethical.For instance, if they go to Fairtrade then they will still be acting ‘ethically’ as they are still in partnership with an ethical organisation who provide them supplies. Generic StrategyIn 2011, Costa acquired the company ‘Coffee Nation’, and used their business model in order to develop what is now known as ‘Costa Express’ (Costa, 2011). The aim at the time was to have 3,000 express machine units operating (REF 2012 REPORT). According to the annual report there are currently 6,801 (Whitbread PLC, 2017). When linking all of the research to the generic strategy, it could be assumed that the Costa Express side of the business is a cost differentiation. This is due to factors such as the low running costs, for instance there is no labour costs associated with the machines, as it is the customer who simply selects the product and the machine makes it. The only cost associated with running the machines are the electricity, and raw materials such as milk and coffee. There is also the person who is present within the facility, such as a service station to refill the machine. However, it should be appreciated that this is not a unique substitute as such. For instance, in 2012, Starbucks launched their own version (Baker, 2012), however, this is nowhere near as popular as costa, resulting in them still dominating in this sector. 4.0 ReflectionGiven the analysis which has been undertaken, it is clear that both Costa and its parent company Whitbread have a good strategy, as they have been able to devise a strategy which is clearly working in terms of the company growing in sales and the number of stores/machines it owns, not just in the UK but also in foreign markets. However, given that the report has only focused on one of the five P’s, it cannot be certain that the strategy is in fact ‘good’, as it has been limited to only one P for analysis. In order to determine this, all of the five P’s would need to be applied to the company to get a more definitive conclusion. In this section the report will look at another one of the five P’s in order to see if the strategy is indeed good. REPHRASE THIS (BRADS)…Mintzberg himself tended to use ‘position’ and ‘perspective’ together when defining his 5 p’s, he defined position as a business looking externally of the firm, looking down at their market and marking an ‘x’ on where their product meets its customer, whereas perspective was more about looking internally into the firm and looking at the firm’s fundamental ways of doing things (Mintzberg et al, 2008, 13). Mintzberg also combined plan with position by stating that a ‘deliberate’ plan and a ‘tangible’ position used together leads to a strategic plan being produced (Mintzberg et al, 2008, 16) , which is one of the main strategic schools of thought in his eyes.Another one of Mintzberg’s P’s is Perspective, and the accompanying model of Collin and Porras 1996 vision framework. For a company’s vision to gain a competitive advantage over others within the industry, they have to combine both the core ideology of the business, which consists of the firm’s core values and purpose, and the envisioned future of the firm (see appendix 3). Core ideology is looking inside the firm and ensuring stakeholders are involved in the process of creating the overall company vision, so they all share the same core values and know the business purpose (Collins and porras, 1996, 66-77). Applying this to whitbread, it is clear that the two key businesses, Costa and Premier Inn, have pretty much the same vision, which is to expand within both the UK and abroad, where the companies have been successful up to now. This could be another key reason why they are doing so well and are maintaining a good stance within the hotel and coffee/hospitality industry.