The Garrulous Jay – Costa Living Crisis

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I read a fascinating article last weekend, recounting the success of the Costa Express coffee machine. These 12,000 big burgundy boxes now deliver a profit that is eight times greater than the 2,500 Costa Coffee branches across the UK. They also carry important lessons for other businesses.

Cast your mind back to the 1980s and you may remember a time when chains of coffee shops didn’t exist and the High Street offered only what Sir Keir Starmer likes to call the humble “caff”.

Then, in the 1990s, came the explosion in the new age of coffee shops, driven in large part by Howard Schultz, who joined Starbucks in 1982. There were three defining features of these new outlets: the quality of the coffee, the way it was prepared by an army of baristas, and the environment in which it could be consumed.

This boom in high quality coffee carefully curated in a comfortable shop hardly seems like a market in which a machine would be likely to succeed. But in the 1990s two eagle-eyed entrepreneurs spotted that there were many locations where it still wasn’t possible to buy a decent shot of caffeine.

Inspired by the in-store photocopier business model one of them had seen in the US, they developed the original Costa Express machine and launched it under the Coffee Nation brand, eventually selling to Costa owner Whitbread in 2011. The Costa brand is now part of Coca-Cola.

But many of Costa’s competitors, such as Starbucks and Pret a Manger, are only belatedly entering the coffee machine market today. Others continue to avoid it.

I think these companies may be experiencing a “Costa Living Crisis”: a recognition that their business models have failed to adapt to the way people live today, and the relentless drive towards self-service in certain places some of the time.

Go back several decades and a garage attendant put petrol in your car. More recently it would have been inconceivable that you might self-checkout in a supermarket. And the debate about station ticket office closures has been back in the news this week.

This two-way pull between personalisation and automation has been starkly evident in the world of financial services ever sine the first ATM was put into a branch of Barclays in Enfield in June 1967.

For example, it continues in financial planning today. This highly personal process involves the adviser having a deep understanding of both the client and their needs. But that doesn’t mean the client should be prevented from engaging with the service they receive at every stage without their adviser becoming involved.

To avoid their own Costa Living Crisis, all service businesses need to define their core value proposition and work out which bits they can automate and where human intervention still delivers a meaningful benefit. The client should always be at the forefront of how this is done.

The growth of artificial intelligence is only adding urgency to this imperative.