Costa Coffee plc
Premium Pricing & Brand Strategy in a Cost-of-Living Market
A free A-Level Business Studies case study with worksheet, indicative mark scheme and three-board specification mapping. Print-ready for the classroom.
A free A-Level Business Studies case study with worksheet, indicative mark scheme and three-board specification mapping. Print-ready for the classroom.
Most A-Level pricing teaching focuses on cost-leadership examples. Costa Coffee is the flip side — a brand that has held a price premium of 30–60% over budget rivals for over two decades. This lesson uses Costa as the vehicle to teach premium pricing, brand differentiation and the strategic decisions firms make under cost-of-living pressure.
The case is current to 2025–2026 — Coca-Cola's £3.9 bn acquisition, the Costa Express format, the post-pandemic trade-down trend, and the rise of Pret and Caffè Nero as direct competitors.
Differentiation tip: for Year 12, drop Q4 and use Q1–Q3 only. For Year 13 mock-prep, run Q4 as a timed 18-minute exam-style task and mark using the Level 1–4 scheme on page 5.
Costa Coffee was founded in 1971 by Italian brothers Sergio and Bruno Costa in Lambeth, London — initially as a coffee-roasting business supplying London cafes. It opened its first retail store in 1978. By 1995, the chain had grown to 41 outlets, attracting the attention of UK hospitality giant Whitbread, which bought it for £19 million.
Under Whitbread, Costa became the UK's largest coffee shop chain, overtaking Starbucks by 2009. Whitbread invested in store rollout, the Costa Express self-serve format (now over 14,000 machines in petrol stations, supermarkets and offices), and international expansion into China, the Middle East and Eastern Europe.
By 2018, Costa operated more than 4,000 stores worldwide, with 2,400 in the UK. Average UK store revenue: roughly £750,000 per year. Average price of a medium latte: £3.95 — compared to Greggs' £2.60 for an equivalent product.
In August 2018, Whitbread announced the sale of Costa to The Coca-Cola Company for £3.9 billion — a 5× premium on the £19 m purchase price 23 years earlier. The deal completed in January 2019.
Coca-Cola's stated rationale was that Costa gave them an instant entry into a market they could not realistically enter through organic growth, alongside a global B2B distribution network.
The 2022 cost-of-living crisis hit Costa hard. Customers traded down to Greggs (where coffee is £2.50), supermarket meal deals, and home brewing. UK same-store sales growth slowed to under 3 % in 2024. Pret a Manger's premium-but-fresh positioning won younger customers, while Caffè Nero captured the traditional Italian-coffee segment.
By 2025, Costa had responded with: a value range (Smart Saver coffees from £2.95), expanded plant-based options to retain younger customers, and a renewed Costa Club loyalty programme. The brand's challenge for 2026 is whether premium pricing can survive a third year of consumer caution.
Figures are approximate and drawn from publicly reported industry estimates. For teaching purposes only.
| Marketing element | Costa Coffee | Budget rival (e.g. Greggs) |
|---|---|---|
| Pricing strategy | Premium — £3.95 latte | Cost leadership — £2.60 latte |
| Product positioning | Coffee-first specialist | Bakery-first, coffee as add-on |
| Brand promise | Italian heritage, café experience | Affordable everyday treats |
| Place strategy | 2,400 high-street + Express | 2,500+ high street + drive-thru |
| Promotion | Costa Club loyalty, brand campaigns | Social media virality, low-price messaging |
| Target customer | Coffee-led, brand-conscious, repeat | Value-conscious, occasion-driven |
Define the term premium pricing and identify two costs a business may face when using a premium pricing strategy.
Using the case, analyse two ways in which Costa Coffee differentiates itself from budget competitors such as Greggs to justify its premium pricing.
Whitbread sold Costa Coffee to The Coca-Cola Company in 2019 for £3.9 billion — a 200-fold increase on the £19 million it paid in 1995. Analyse the strategic reasons that may have led Whitbread to sell Costa, and explain whether you believe this was the right decision for Whitbread's shareholders at the time.
"Costa Coffee should abandon premium pricing and reposition as a value brand to compete with Greggs and supermarket coffee."
Evaluate this view. Justify your judgement using both the case study and your knowledge of business theory. [18 minutes recommended]
Use these as guidance — they mirror the levels-of-response style used by all three major UK boards. Top-band responses go beyond knowledge into application, analysis and reasoned judgement.
Mapped against the three main UK A-Level Business specifications. Suitable for Year 12 introduction to pricing strategy, or Year 13 synoptic revision linking marketing, finance and external influences.