Costa Express

A Demand Sensing Case Study

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Highlights
  • Machine telemetry data from 7000 self-serve coffee supports demand-driven auto-replenishment
  • Costa achieved growth targets 3 years ahead of schedule without adding headcount
  • 20% reduction in field stock held at partner sites and 30%reduction in annual logistics costs
  • Significant customer service improvements achieved

Project and Objectives

After an initial success in 2011 with a few hundred self-manned coffee bars, Costa Express hatched ambitious plans to grow in less than five years to 3000 airports, railway stations, convenience stores and other locations with growing demand for high quality coffee on the go. To sustain its revenue sharing model, Costa needed visibility and control over its supply chain and accurate stock replenishment at the order-line level.

Costa Express’ unmanned coffee bars used integrated telemetry that provided real-time reporting on machine performance and drink sales. But shortly after Chris Clowes joined Costa Express as Supply Chain Manager in April 2012, he discovered that the real-time sales data wasn’t being used for replenishment. Because there was no system in place to consolidate and analyze that data, the team relied on a manual spreadsheet-based estimates based on current stock holding and average cup sales. A “Brand Guardian” supported 800 stations, including training partners, replenishing stock and giving advice on how to maximize sales and improve the coffee experience. But this approach was not able to scale with the business. Indeed the company was adding partners much faster than expected, and Clowes wanted to ensure growth remained profitable.

Clowes’ team evaluated several supply chain planning software providers, selecting ToolsGroup. Costa chose the hosted SaaS version of the software to accelerate the implementation and realize the benefits more quickly.

While ToolsGroup’s consultants were working on the system design and data analysis, Costa Express initiated a major supply chain transformation, adding a new logistics/warehousing partner, a new IT system, and a new process of purchasing stock directly from the suppliers. At the same time, the company’s coffee stations expanded by 25 percent.

Despite these various challenges, the implementation went live within six months. According to Clowes, “The flexibility of ToolsGroup’s consultants during all this change was world-class. The original model they developed needed to be adapted several times during the implementation, but they didn’t blink - just got on with it.”

Day-to-Day

Before implementing ToolsGroup’s software, Costa Express used to estimate how much stock to supply each site with at the end of each month using figures provided by the partners. Now, Costa compares the actual sales data to the levels of inventory declared in the sites to give far better visibility and control.

ToolsGroup’s SO99+ software uses the actual sales data provided by the unmanned coffee stations to forecast demand, optimize inventory and generate replenishment proposals for Costa Express’ distribution and procurement operations. This enables Costa Express to optimally manage the supply of ingredients from the central warehouse in Andover out to 2600+ sites.

Clowes commented, “In some countries that we’re entering, we’re legally required to make month-end declarations, so our new level of forecasting accuracy is extremely helpful.”

Results & Benefits

In only six months after going live with SO99+, Costa Express measured some major operational savings and service improvements including:
  • 20% reduction in field stock being held at partner sites
  • 50% fewer delivery refusals by partners
  • 30% reduction in annual logistics operating costs and associated annual CO2 savings of 70 (metric) tonnes
  • 10% growth in Net Promoter Score

Finally, because the software has assumed much of the detailed tasks of analyzing data and inventory replenishment, Clowes was able to change the role of Brand Guardians to “Brand Excellence Advisors”, whose sole focus today is helping partners sell and deliver a great customer experience.

Clowes concluded, “So far this project has gone far better than we ever could have imagined. When you make all the changes we did to our supply chain - all during a period of high growth - anything less than a disaster is quite good! As it is, we’ve actually managed to grow our revenue and reduce our inventory costs, so I’m very pleased.”

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Costa Express, a wholly owned subsidiary of Whitbread PLC, is the UK’s largest and fastest growing coffee shop brand. It offers airports and railway stations, hospitals and universities, convenience stores, forecourts and serviced buildings the opportunity to profit from the growing demand for high-quality coffee on the go and the strong Costa brand. It provides partners with the latest self-manned coffee machines, and regular replenishment of coffee and supplies.

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