A LevelEconomics AEdexcelTopic Questions3. Business Behaviour & The Labour Market3.1 Business Growth

Business Growth (Edexcel A Level Economics A)

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1
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‘Bettys’ is a luxury café, first opened in Harrogate in 1919 specialising in afternoon tea service.  Since then it has opened a further five branches in Yorkshire. It has no plans to increase the number of cafés. The six branches have 2 million customers a year.

(Source adapted from: https://www.forbes.com/sites/sarahturner/2018/03/22/the-famed-yorkshire-cafe-that-blends-nostalgia-with-profits-and-conservation/#7eb50cec7a4e)

Explain one likely reason why this business has remained small

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‘Bettys’ is a luxury café, first opened in Harrogate in 1919 specialising in afternoon tea service.  Since then it has opened a further five branches in Yorkshire. It has no plans to increase the number of cafés. The six branches have 2 million customers a year.

(Source adapted from: https://www.forbes.com/sites/sarahturner/2018/03/22/the-famed-yorkshire-cafe-that-blends-nostalgia-with-profits-and-conservation/#7eb50cec7a4e)

Explain why the previous expansion of this business could be described as ‘organic growth’.

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‘Bettys’ is a luxury café, first opened in Harrogate in 1919 specialising in afternoon tea service.  Since then it has opened a further five branches in Yorkshire. It has no plans to increase the number of cafés. The six branches have 2 million customers a year.

(Source adapted from: https://www.forbes.com/sites/sarahturner/2018/03/22/the-famed-yorkshire-cafe-that-blends-nostalgia-with-profits-and-conservation/#7eb50cec7a4e)

Assume ‘Bettys’ merges with a major tea leaf supplier. Which one of the following is most likely to be an advantage as a result of this merger?

  • External economies of scale will increase efficiency

  • Greater control to lower prices of tea

  • Industrial diversification increases risks

  • Lower monopoly power in the café market

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In 2016, the insurance group Esure undertook a demerger with its GoCompare price comparison website.

The most likely reason for this demerger was to:

  • benefit from external economies of scale

  • benefit from internal economies of scale

  • focus more on its core business

  • increase its market share

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5
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Which of the following is not a valid reason why firms may choose to remain small

  • To make less profit

  • To avoid potential diseconomies of scale

  • To provide a more personalised service

  • Inability to access finance for expansion

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6
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A microchip manufacturer takes over one of their key suppliers. This is an example of 

  • Organic growth

  • Horizontal integration

  • Vertical integration

  • Conglomerate integration

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Which of the following would be a likely possible benefit of a demerger for the consumers of a firm?

  • Lower prices due to efficiency savings made

  • Worse customer service as there is less specialisation of staff

  • Smaller workforce provides more opportunity for promotion

  • Increased profits due to reduced diseconomies of scale

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Evaluate the microeconomic and macroeconomic factors that may influence Starbucks’ decision whether to expand in a particular country (25)

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With reference to Extract B, examine the likely benefits to consumers of the integration between BT and EE

Extract B

BT profit rises

BT Group, which includes BT Openreach and BT Retail, reported a rise in profit as revenue increased following the integration of the consumer mobile business, EE. BT finalised the takeover of EE in August 2016, and the integration has resulted in BT controlling 35% of the mobile consumer market. The profit of the UK-based telecommunication group in its second quarter 2017 rose to £566 million.

BT Group chief executive Gavin Patterson said: “We will operate a multi-brand strategy with UK customers being able to choose a mix of BT, EE or Plusnet services, depending on which suits them best. The acquisition enables us to offer great value bundles of services and customers are set to be the winners as we compete for their business”.                

(Source: adapted from www.marketwatch.com (Oct 27 – 2016) and http://home.bt.com/ news/bt-life/bt-to-retain-ee-brand-as-acquisition-confirmed-11364037422234)

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With reference to Extract B, define the term 'horizontal integration' and explain one benefit of this method of growth 

Extract B

BT profit rises

BT Group, which includes BT Openreach and BT Retail, reported a rise in profit as revenue increased following the integration of the consumer mobile business, EE. BT finalised the takeover of EE in August 2016, and the integration has resulted in BT controlling 35% of the mobile consumer market. The profit of the UK-based telecommunication group in its second quarter 2017 rose to £566 million.

BT Group chief executive Gavin Patterson said: “We will operate a multi-brand strategy with UK customers being able to choose a mix of BT, EE or Plusnet services, depending on which suits them best. The acquisition enables us to offer great value bundles of services and customers are set to be the winners as we compete for their business”.                

(Source: adapted from www.marketwatch.com (Oct 27 – 2016) and http://home.bt.com/ news/bt-life/bt-to-retain-ee-brand-as-acquisition-confirmed-11364037422234)

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With reference to extract A, explain one drawback to Coca Cola of acquiring Costa Coffee in a highly competitive market

Extract A

Tough market conditions for coffee shops – but coffee quality is king

UK coffee shop chains have experienced slow growth opportunities and rising costs. In 2019 the UK market leader, Costa Coffee, opened over 60% fewer stores than in 2018, while Starbucks opened just three new stores overall in 2019. By 2020, many costs were rising: staff shortages meant rising wages for baristas (trained coffeemakers), a 6.2% National Minimum Wage increase for over 25-year-olds and rising rents. In a challenging UK economy, consumers placed coffee quality ahead of convenient location when choosing a coffee shop. This demonstrates the need for coffee shops to match rising expectations in the UK’s increasingly crowded coffee shop market in order to stay competitive. Independent coffee shops (total 25892 shops in 2020) remain a threat to the branded coffee shops as they pursue a unique luxury experience for customers. This will often focus on the atmosphere and customer service, luxury food and drink ranges and being a part of the local community. Independent coffee shops run on average profit as low as 2% of revenue, and many go out of business as new chains arrive in a locality. In January 2020, Coca-Cola finalised its £3.9 billion takeover of market leader, Costa Coffee. The Coca-Cola company’s stated aims are to maximise long-term returns to shareholders while being mindful of overall responsibilities such as supporting sustainable communities. Major brands, such as Costa, continue to lead coffee shop expansion in 2020 as competition intensifies.

(Source: adapted from https://www.worldcoffeeportal.com/Latest/InsightAnalysis/2020/ February/5-UK-coffee-shop-market-dynamics-to-watch-in-2020)

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