Costa Coffee brews a fresh digital blend to fuel its global ambitions

Kenny MacIver — September 2019

Following its acquisition by Coca-Cola, Costa Coffee has been rapidly building a brand-new IT function capable of scaling up its retail operations globally. CIO Phil Scully outlines the unique prospect.

• Watch Costa Coffee’s Phil Scully speaking at Fujitsu’s ActivateNow 2020 flagship digital event

Phil Scully has the kind of opportunity that most CIOs can only dream of. The CIO of UK-headquartered Costa Coffee, the world’s second-largest coffee retail chain, has the rare chance to create an IT organization — and its technology estate — afresh, swapping legacy IT for new platforms, applications and a ramped-up talent base.

For that, he can thank Coca-Cola. The beverage giant’s £3.9 billion ($4.9bn) acquisition of Costa Coffee from British hospitality group Whitbread (completed in January 2019), is part of Coca-Cola’s strategy to build a global coffee brand that will rival the ubiquitous Starbucks. And to do so it has not only set up Costa Coffee as a distinct entity but is investing in a new foundation of digital platforms to fuel its ambition.

“It’s as close to a greenfield IT opportunity as you’ll ever get,” says Scully, “a rare opportunity that I’m hugely privileged to be able to take.”

Rather than integrate with Coca-Cola’s IT, Costa Coffee will connect to it. “As a separate business we’ll have our own systems, which means we’re in the process of standing up our own enterprise systems, support, security and everything else.”
Making the transition

Before it gets there, though, Costa Coffee needs to work through a short-term transition — with some inevitable frustrations for an organization keen to move quickly. To ensure a degree of continuity, for the next year the company will continue to draw on the systems it shares with its former parent, Whitbread, under a series of technology service agreements (TSAs) for HR, ERP, supply chain and other core systems.

But alongside that legacy resource, it has taken with it a bedrock of customer-facing platforms that were developed and deployed in the build-up to its spin-off.

“CostaWarsaw”

Since Scully took over as CIO two years ago, Costa Coffee has taken huge strides in digital transformation. The majority of that progress has focused on enhancing customer and in-store capabilities, he highlights. “We’ve built a strong click-and-collect offering, a new web platform, a new loyalty platform and mobile app, and supported a unified customer view with a complete renovation of integration and middleware,” he outlines.

He cites just one example of how these capabilities are already unlocking customer value. “We recently connected our loyalty scheme to our Costa Express machines so customers can now use that across both stores and the machines. But it also gives us good visibility into sales transactions, movement between machines and stores and more.”

Costa Coffee would like to move faster and apply that kind of innovation to back-end systems but, for the sake of stability, its enterprise systems are under a change freeze until they are separated from Whitbread’s. “A wholesale transformation is not possible [at this stage],” he says. That separation of its IT estate still has six months to run, but “once we have our arms around those enterprise and operational systems, we will transform them and start to do the things we really want to do.”

As well as enterprise applications, Costa Coffee relied on Whitbread for helpdesk, operational support, service delivery, change control, information security, and process and incident management. “None of those exist in a standalone Costa Coffee until we create them, staff them and apply our own processes and ways of working. Those all need to be ready to go when those TSAs close out and the systems are ours.”
The Coca-Cola challenge

As Costa Coffee takes hold of its own IT destiny, the pressure will be on to build an advanced digital capability that will drive Coca-Cola’s and Costa Coffee’s ambitions in the coffee sector, where Costa Coffee already commands a base of almost 4,000 retail outlets in 32 countries (including close to 2,500 in the UK and 500 in China).

And cloud IT will be a critical element. “We will move completely from a physical data center into the cloud — a big step that will unlock opportunities such as fully upgrading our ERP,” says Scully. “Step one is to containerize some of the highly customized legacy applications and get those into the cloud. Then get on to [new applications] that are more suitable for a modern, ambitious business before retiring that old stuff. But we plan to be a cloud-only business by this time next year.”

That shift is designed to provide Costa Coffee with a model that is as consistent, repeatable and high-quality as its coffee products are at its thousands of outlets around the world. “We already have that with our coffee; and we have to do it with our IT, our systems, our data management too,” says Scully.
Scale of ambition

“My remit is to enable the business to be as big and as multi-channelled as it wants to be — and that will include many more stores and machines, new countries and territories,” says Scully.

Indeed, one of its largest bottlers, Coca-Cola HBC, has already committed to launch Costa Coffee in at least 10 of its 28 markets next year. Costa Coffee’s recently introduced Ready-to-Drink canned coffee products will also become an important addition to the Coca-Cola beverage portfolio worldwide.

“CostaExpress”

“Such opportunities are enabled, supported, and sometimes even impossible to take without being underpinned by a technology capability,” says Scully. “So my role is to make sure we are the enabler and not the inhibitor to the ambitions of the business.”

Noting Coca-Cola’s heritage in vending machines, Scully says automaton and coffee machines are a key element of that. Costa Coffee already has 11,000 machines in operation globally, with immediate plans to add another 1,200. And those are already a rich source of customer data. “Our Costa Express machines are all connected and feed into a data lake. That’s unlocking insight and giving us a huge opportunity to apply next-generation technologies [such as AI and IoT].”
Fostering a new culture

Such a transformation is naturally demanding a rapid ramp-up of talent. “Because of the new skills we need, and the strategic importance of those, we’re effectively recruiting about 50% additional headcount into the IT function over the next 12 months,” says Scully. That will be through a blend of permanent, contract and outsourced staff. “Until eight months ago, Costa Coffee had never had an IT function, didn’t own a software license, didn’t have a support function. Almost every one of the new team was recruited in the last two years, with 56 coming over directly from Whitbread.”

Its clean sheet is also enabling Costa Coffee to set a new culture for its IT organization. “We aren’t even half way through the journey of defining our culture and our ways of working,” he says, pointing to how he’s had to define and build a security function from scratch.

Scully estimates that by the end of this year the global IT group – including teams in China and Poland — will rise to between 130 and 140.

“There’s now the kind of edge, energy, enthusiasm and ambition at Costa Coffee that you’d find in a start-up.”

That sense of new beginnings is changing the culture of the Costa Coffee organization — not just in IT.

“I think of us now as a really big start-up. There’s now the edge, energy, enthusiasm and ambition that you’d find in a start-up. Indeed, we have to have that mentality if we want to achieve the ambitions we have.”

That manifests itself in several areas. “We now have a flat organization that allows decisions to move at pace right across the business,” he says. There’s also a ‘fail-fast’ attitude: “With so many different things going on, we’re not afraid to try things and then wind them back if they don’t work out.”
Future blend

So how will the Costa Coffee IT operation look in a few years’ time? Scully sees as an engine for value for both the customer and the business.

“From a customer perspective, Costa Coffee’s products will be much more accessible — wherever you are, wherever you want them. Click and collect, from machines, delivered to your home or office or bought in a store: all those purchasing touchpoints are just going to be far more available to customers around the world.

“That’s hugely exciting for everybody here as our digital technology will make buying coffee a far faster, more frictionless customer experience with easier payment services, reduced queuing times and our ability to recognize loyal customers.”

“PhilScully”

At a business level, “Costa Coffee’s data will be democratized and business more automated, with capabilities in the places where our people need them. That will free up time in our operations to focus on our customers and our coffee rather than on things like manual stock counts and checks,” he says.

Strategically, it will also see the IT group enabling a truly global coffee retailer. “Coca-Cola is a hugely ambitious company; you don’t spend $5 billion on a business to let it stand still. We have fabulous support not just from the CEO for Costa Coffee but also all the way up through the Coca-Cola organization; they understand the importance of technology in taking a business globally and are hugely supportive of our mission and the need for technology to be part of that journey.”

And that means constantly adapting. “Every retailer, every consumer goods business today is driven by customer choice and speed of service, brand loyalty and an absolute need for convenience. There is a lot of technology underneath that customer service, whether that’s a mobile app, artificial intelligence, personalization or facial recognition.

“And we’re always going to be transforming to take advantage of technologies that will get us the right mix of quality and convenience for our customer.”

First published September 2019