Business Growth (Edexcel A Level Economics A): Exam Questions

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)

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 coffee makers), 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)

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 )

Extract C

Why did Thomas Cook shut down?

Thomas Cook Group plc ceased trading on 23 September 2019. The collapse of Thomas Cook left 600000 travellers stranded overseas and approximately 21000 worldwide employees were left without a job.

Thomas Cook’s management said that the failure of rescue talks between banks, shareholders and the UK Government meant it had no choice but to shut down the business.

But in truth the tour operator’s problems go back much further. A disastrous merger in 2007, increased debts, the internet revolution in holiday booking and Brexit uncertainty all contributed to the failure of the business.

In 2007 it merged with MyTravel. Thomas Cook directors had an objective of rapid company growth over short-term profitability. The merger was supposed to create a European giant, promising £75 million-a-year cost savings and a springboard to challenge emerging internet rivals. In reality, Thomas Cook was merging with a company that had only made a profit once in the previous six years, and the deal left the Group with huge debts. In May 2019, the firm reported a £1.5 billion loss.

The role of the management in Thomas Cook’s collapse is being investigated by the UK Government. Thomas Cook executives’ salaries and bonuses have been questioned. Directors received salaries totalling £20 million in the five years before its collapse. The Chief Executive Officer (CEO) earned a £500000 cash bonus in 2017 and about £8.5 million in his five years with the company. It seems that around £4 million of this was in the form of shares. The share price reached £1.46 in 2018, but each share is now worthless.

The CEO said that the directors had worked “exhaustively” to rescue Thomas Cook and create a long-term turnaround strategy. “It is a matter of profound regret to me and the rest of the board that we were not successful.”

The UK prime minister admitted that the government refused to grant £150 million as a subsidy to help rescue Thomas Cook in the short run. The UK prime minister stated: “Clearly, that is a lot of taxpayers’ money and sets up, as people will appreciate, a moral hazard in the case of future such commercial difficulties that companies face. I have questions about whether it’s right that the directors, or whoever, the board, should pay themselves large sums when businesses can go down the tubes like that. One is driven to reflect on whether the directors of these companies are properly incentivised to sort such matters out”.

(Source adapted from: https://www.theguardian.com)

Extract C

Integration in the third‑party food delivery industry

The Competition and Markets Authority (CMA) is watching carefully to prevent any one firm having complete control of the food delivery industry. Just Eat, the market leader, agreed to merge with successful Dutch firm Takeaway.com in 2020, creating a new European leader by revenues. It also bought Grubhub in the US, with 20 million active users. Just Eat uses an aggressive pricing strategy, undercutting delivery fees below the average cost of other firms in the market, that will force them to merge in order to gain some economies of scale. Amazon, having failed with its own delivery company Amazon Restaurants in 2018, has bought 16% of Deliveroo. The CMA took over a year to agree to the partial integration, on the argument that Deliveroo would close down without external investment.

Amazon has unique expertise in marketing, increasing customer share, and, most importantly, efficiency in delivering things. Food delivery is often uneconomical because a single household puts in a single order from a single restaurant at any one time. Tech companies such as Amazon can improve the business: once a meal has been ordered, an app often moves that restaurant to the top of the rankings for that neighbourhood in the hope of getting a second and third delivery.

So why do restaurants turn to these delivery firms? The sheer volume of customers these delivery firms can hold makes it a difficult deal to turn down. But resentment from small business restaurant owners, angry at being wholly dependent on tech companies, is growing. Most restaurants would prefer that customers come in and pick up their orders themselves because they do not have to pay the 30% commission. Restaurant profit margins are small, and the effects of a 20% fall in the external value of the pound since 2016 on food costs are significant, given that over half of their food and drink is sourced outside the UK.

(Source: adapted from https://www.ft.com, https://www.thisismoney.co.uk, https://www.economist.com)

Extract C

What next for the high street?

A high street is typically found in all UK towns and cities. Shops normally encountered in a typical UK high street can include successful small firms such as independent food retailers, cafés, nail and beauty salons, restaurants and charity shops. They differ from out-of-town shopping centres by being more diverse, family-run and offering local or personalised services. Customers are often very loyal. However, the high street may often have limited access by car or expensive parking facilities.

The rise of online retailers such as Amazon and eBay have placed huge pressures on UK high streets, with many well-known shops – and even successful retail chains – forced to close due to lost business. Many high street firms cannot compete on price with online retailers who – because they frequently have very low fixed costs – can significantly undercut the high street shops on price.

Even before online shopping, competition was eroding high street activity, with out-of-town retail parks that were not necessarily cheaper but provide a larger range of shops and offer plentiful parking. They offer a shopping experience that other retailing cannot match – pleasant, safe pedestrian shopping, a clean environment, fun activities for children and spend-the-day-there potential.

While the list of retail and leisure failures might suggest that the high street does not have a future, some analysts argue the opposite. Many believe that the high street is ideally placed to reinvent itself in response to the structural shift in working and shopping patterns that has resulted from the global health crisis 2020–22. The perceived weaknesses of the high street model – its fragmented ownership, lack of centralised coordination and high vacancy rates – become strengths as they lower the barriers to entry for new concepts and operators. They also enable risk taking and innovation that will ultimately lead to a more flourishing and diverse environment on our local high streets. It should be possible for small firms to flourish even when staff shortages are pushing up wages in the high street, and house price falls damage consumer confidence and spending on perceived luxuries.

(Source: adapted from https://www.designingbuildings.co.uk/ and https://www2.deloitte. com)

Vodafone–Three UK Merger

Figure 1 — Market shares before merger (2024)

S&P Global Market Intelligence Report

Extract A — Company perspective (2024)

In December 2024, Vodafone and Three UK announced their merger, aiming to combine resources and strengthen their position in the UK mobile market. Company executives highlighted plans to invest heavily in 5G networks, promising faster speeds and wider coverage, including in rural areas. They also stated that joining forces would help reduce duplicated costs, allowing the combined company to offer more reliable services to customers.

Industry observers noted that fewer large providers could change the way consumers experience the market. While some welcomed the potential for improved coverage and new service options, others worried that fewer big players might influence the prices customers pay or slow the introduction of new features. Vodafone–Three assured the public that they would maintain competitive pricing and keep agreements with smaller mobile operators to provide access to their network.

Analysts suggested that the merger could reshape customer choices. With fewer big providers, some consumers might find it harder to switch operators quickly, especially in areas with limited coverage. On the other hand, the company argued that investment in technology would lead to faster, more reliable services, which could benefit everyone. The impact on prices, however, remained uncertain, with potential differences between urban and rural areas.

Extract B — Regulator perspective (CMA, 2025)

The CMA carefully reviewed the Vodafone–Three merger, focusing on how the change might affect consumers and smaller providers. Officials noted that mobile phones are essential services, and significant changes in the number of big providers could influence what customers pay and how quickly new services appear. The review included customer surveys, market data, and discussions with smaller companies that rely on the larger networks to operate.

To address concerns, the CMA required Vodafone–Three to commit to specific measures. These included limits on certain tariff increases, guarantees that smaller operators could continue to access their network, and a major investment plan to improve 5G coverage. Regulators said these measures would help ensure customers benefit from better services while still allowing the company to operate efficiently and cover its costs.

Officials emphasised the ongoing importance of monitoring the market. They noted that even with the commitments in place, some areas could see slower changes or smaller improvements than others. Customers might notice differences in service quality depending on location, and pricing decisions by Vodafone–Three would continue to be watched closely. Analysts commented that how the company balances its investments with day-to-day operations would determine whether consumers see noticeable benefits over the next few years.

Extract C — Consumer and analyst perspectives (2025)

Consumer reactions to the merger were mixed. Some welcomed the promise of faster networks and better coverage, especially in cities where signal strength had previously been a problem. University students and young professionals expressed optimism that faster, more reliable services would make online study and work easier, with fewer interruptions during calls or streaming.

Some local communities have expressed concern that additional mobile masts needed for the merger’s 5G expansion may affect landscapes, create noise during construction, and raise worries about environmental and health impacts.

Other consumers expressed concern that with one fewer major provider, prices could rise and switching options might become more limited. Advocacy groups noted that while some households might see little change, customers in areas served mainly by the two largest providers could face fewer alternatives. Analysts pointed out that even modest price increases could affect low-income users more than others, highlighting regional differences in service experience and affordability.

Economic commentators suggested that the long-term effects of the merger would depend on how the company balances its expansion plans with day-to-day operations. While new 5G infrastructure might improve quality, the reduction in major competitors could subtly influence customer choices and pricing. Smaller operators struggle to enter or expand due to high network costs, but some niche providers continue to compete using existing infrastructure through leasing agreementsConsumers and smaller companies would need to watch whether promised improvements actually materialise across the country or remain concentrated in certain areas.

Extract A

Starbucks in Britain – a loss-making business?

Coffee shops are among the most profitable parts of the food and drink industry, and few are doing quite as well as Starbucks, a US-based transnational company. Starbucks may be complaining of adverse global market conditions but that did not stop the world’s biggest coffee chain from reporting record annual profits in 2016. It made a profit of almost US$4.2 billion for the year, up 16% on 2015. That was mainly the result of a strong performance in its biggest market, America, where revenue rose 11%. The fastest growth was in the China and Asia Pacific region, with revenue up 23%. Howard Schultz, the CEO of Starbucks, said its Chinese coffee shops were the most efficient and profitable. While Starbucks still makes most of its profit in the US, Mr Schultz has said expansion in China will secure its future for “decades to come” and announced plans to more than doublethe number of shops in China to 5 000 by 2021.

However its British subsidiary, at first glance, appears to be doing less well. It has announced its first ever profit in Britain in 2015 – of just £1 million – despite opening its first coffee shop in the UK in 1998. It now has 849 UK outlets. The main reason why Starbucks has reported persistent losses in the UK is not due to a lack of demand for its coffee, but to minimise its tax bill. It is claimed that some of Starbucks’ revenue earned in the UK is transferred to its Dutch subsidiary, which is charged lower rates of tax.

Starbucks is not finding life as easy in Britain as in the USA. It faces competition from home-grown chains such as Costa and Caffè Nero. Accusations of tax avoidance have also damaged Starbucks’ sales to the benefit of its competitors. A survey found that a third less people rated Starbucks as their preferred coffee shop than they did before the tax avoidance allegations were first published.

These issues have forced Starbucks to change its strategy. It has slowed down its expansion plans in the UK and has closed 67 underperforming coffee shops over the past year. It has also tried to repair its reputation by transferring its European headquarters from Amsterdam to London.

(Sources: adapted from The Economist 14 February 2015 http://www.economist.com/)