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1. Market share of UK branded coffee shops, 2015, percentages Figure 1: Market share of UK branded coffee shops, 2015, percentages - Others: 29% - Costa Coffee: 30% - Pret a Manger: 6% - Morrisons: 6% - Tesco: 7% - Caffe Nero: 9% - Starbucks: 13% Figure 2: Number of Starbucks coffee shops worldwide, 2003–2016 Figure 3: Price comparison in selected London coffee retailers, February 2017 - Espresso Double: Starbucks £2.00, Costa Coffee £1.70, Caffe Nero £2.00, Greggs £0.99, McDonald's £0.90 - Latte Medium: Starbucks £2.60, Costa Coffee £2.50, Caffe Nero £2.50, Greggs £1.80, McDonald's £1.79 - Latte Large: Starbucks £2.80, Costa Coffee £2.70, Caffe Nero £2.80, Greggs £2.10, McDonald's £2.09 Extract B Tax on disposable coffee cups? Two and a half billion disposable coffee cups are thrown away every year in the UK, that is, seven million every day - Edexcel - A-Level Economics A - Question 1 - 2018 - Paper 3
Question 1
1. Market share of UK branded coffee shops, 2015, percentages Figure 1: Market share of UK branded coffee shops, 2015, percentages - Others: 29% - Costa Coffee: 30... show full transcript
Worked Solution & Example Answer:1. Market share of UK branded coffee shops, 2015, percentages Figure 1: Market share of UK branded coffee shops, 2015, percentages - Others: 29% - Costa Coffee: 30% - Pret a Manger: 6% - Morrisons: 6% - Tesco: 7% - Caffe Nero: 9% - Starbucks: 13% Figure 2: Number of Starbucks coffee shops worldwide, 2003–2016 Figure 3: Price comparison in selected London coffee retailers, February 2017 - Espresso Double: Starbucks £2.00, Costa Coffee £1.70, Caffe Nero £2.00, Greggs £0.99, McDonald's £0.90 - Latte Medium: Starbucks £2.60, Costa Coffee £2.50, Caffe Nero £2.50, Greggs £1.80, McDonald's £1.79 - Latte Large: Starbucks £2.80, Costa Coffee £2.70, Caffe Nero £2.80, Greggs £2.10, McDonald's £2.09 Extract B Tax on disposable coffee cups? Two and a half billion disposable coffee cups are thrown away every year in the UK, that is, seven million every day - Edexcel - A-Level Economics A - Question 1 - 2018 - Paper 3
Step 1
a) Briefly explain the market structure that describes the UK branded coffee shop market.
Answer
The UK branded coffee shop market exhibits characteristics of an oligopoly. This is defined by a limited number of firms, such as Starbucks, Costa Coffee, and Caffe Nero, which dominate the market share. Within this structure, firms are interdependent; the pricing and marketing strategies of one company significantly influence the others. For instance, from Figure 1, we observe that Costa Coffee holds the largest share at 30%, followed by Starbucks at 13%. This market structure typically leads to non-price competition, where businesses may engage in promotions or enhancements in service quality to attract customers.
Step 2
b) With reference to Figure 3 and other information provided, discuss the price and non-price strategies that Starbucks may use to compete in this market.
Answer
Starbucks employs a mix of price and non-price strategies to maintain its competitive edge.
Price Strategies: Starbucks offers premium pricing for its products, as seen in Figure 3, where its latte medium is priced higher than competitors, suggesting a position of quality. By setting these prices, Starbucks targets a specific demographic willing to pay more for an enhanced coffee experience.
Non-Price Strategies: Starbucks integrates non-price strategies such as brand loyalty programs, creating a community feel through its stores, and emphasizing high-quality product sourcing. Additionally, they engage in marketing campaigns that connect with social values like sustainability, appealing to ethically-conscious consumers. Their strategic choices help differentiate them from competitors like Caffe Nero and Costa Coffee.
Step 3
c) Examine the advantages of using an indirect tax as a means of reducing the use of disposable coffee cups.
Answer
Implementing an indirect tax on disposable coffee cups can yield several advantages. Firstly, it serves as a financial disincentive, encouraging consumers to reduce their usage of such products. Such a tax could lead to increased demand for reusable coffee cups, decreasing environmental harm and promoting sustainability.
Secondly, this approach can generate revenue for local governments, which can be reallocated towards environmental initiatives or recycling programs. Thirdly, an indirect tax can also stimulate businesses to innovate by developing more sustainable alternatives to disposable cups. Overall, this mechanism can effectively address the waste issue associated with disposable coffee cups while benefiting the economy and environment.