UK coffee bar market still growing despite recession

A new report by management consultancy Allegra Strategies shows that the number of branded coffee shops will reach 4,000 UK outlets this year, representing an industry growth of more than 5% in the past 12 months, despite the UK being in deep recession.

While many sectors of the economy have faced their worst trading period for 60 years, branded coffee shops remain on track to record a 15^th consecutive year of sales.

Interviews conducted in April 2009 with more than 130 senior coffee executives and key suppliers reveal that trading has been difficult over the past six months, yet branded coffee shop operators have weathered the storm well and remain firmly optimistic about opportunities ahead. Nearly two-​thirds of branded coffee operators have shown flat or growing like-​for-​like sales performance in the last two quarters. The industry remains on track to reach £2bn in consumer spend by 2012.

Nonetheless, the largest operators – Starbucks, Costa Coffee, Caffè Nero and Pret A Manger – remain under intense competition as consumers decrease their average spend in coffee shops and many reduce their number of visits.

Continued growth in outlets by the larger players, as well as firmly entrenched consumer eating-​out behaviour, are main reasons why the sector is holding up well in the economic downturn. Consumers may be trading down when they can, and they’re certainly more demanding with their choice of outlet, but few British consumers, it seems, are prepared to forgo the luxury of their daily or weekly cappuccino, latte or iced Frappuccino. Moreover, in these difficult times, ‘affordable’ treats are an important way for many to get through the recession, and what Allegra calls the ‘I’m worth it’ factor.

The flat white

Other reasons for resilience of this sector include greater availability of speciality coffee products in a variety of venues nationally, and the growing importance of coffee venues for socialising and conducting meetings, and yes, in today’s climate, as a place for high-​flying financial executives to surf the internet and to polish their CVs!

Despite increasing competition in many high footfall locations across the country, the two largest operators – Costa Coffee and Starbucks – have recently made announcements to accelerate their growth plans in the UK. With property vacancies rising and greater availability of suitable sites for coffee shops, the larger, well-​funded players are now able to negotiate better terms and lower rents with landlords who would otherwise be left with empty premises. Also, previously reluctant councils are now taking a more favourable view of branded coffee shops in light of growing retail vacancies on their high streets.

It’s not all positive news, however, for the largest branded chains. Allegra’s research identifies a growing trend towards more authentic individual coffee shops serving hand-​crafted, quality coffee and, increasingly, a trendy beverage called a ‘flat white’. The flat white was developed in antipodean territories such as Australia and New Zealand, which are believed to be several years ahead in terms of latest café culture. The ‘flat white’ can be enjoyed at the very edgiest coffee venues in London, including outlets in Soho, Brick Lane and Hackney’s Broadway Market.

Allegra’s research indicates that today’s consumers are increasingly looking for higher quality coffee, real ‘experience’ and localness. Large, branded, ubiquitous chains frequently don’t fully cater for the needs of the most progressive consumers.

The key business challenges for the industry as a whole firmly relate to the flailing economy, as consumers become much more cautious with their discretionary spend. More than 80% of industry executives surveyed believe it will take 12–18 months before the trading environment recovers fully.

Jeffrey Young, MD of Allegra Strategies, said: “While we’re not predicting economic recovery in 2009, there is some evidence that green shoots are beginning to appear in some areas of the economy. Certainly this is the case in the branded coffee shop sector, with 50% more executives predicting recovery within 12 months than those forecasting that recovery is more than 18 months away. This is encouraging, because economic activity is heavily dependent on the psychology of the market. Furthermore, the branded coffee chains are extremely well placed to enjoy sustained growth in sales and profitability once the economy returns to full force.”

Market facts

• 15 consecutive years of revenue and like-​for-​like sales growth.
• Total branded market estimated at 3,721 outlets in 2008.
• Total market turnover to grow by at least 3% in 2009 with stronger growth forecast for 2010 and 2011.

Industry leader perspectives – highlights

• 70% of executives believe there is still plenty of growth for the UK coffee sector.
• 50% believe that branded chains will gain over independent operators.
• 62% of industry players observe decreasing spend per visit as consumers cut back on spending.
• 83% believe customer expectations have risen as a result of the economic downturn.
• 58% view ethical coffee options such as Fairtrade-​certified and Rainforest Alliance as growing in importance despite the economic downturn.

Industry recognition

Caffè Nero is rated in the 2009 survey as the industry’s ‘Most Admired Brand’, being admired by executives for its quality coffee and authentic feel, followed by Whitbread-​owned Costa Coffee, food-​led Pret A Manger and Starbucks. Monmouth Coffee House was voted as the industry experts’ ‘Favourite Independent Coffee Shop’ in 2009.

Recently launched, Starbucks Via Ready Brew instant coffee was chosen by peers as ‘The Most Innovative Product this Year’.

Source: Allegra Strategies

See also

Latest news

• PepsiCo confirms investments to drive growth
• Circle K renews Xyience Xenergy’s national brand status
• World’s largest collection of liquors to be sold for $8m
• Lindsay Goldberg is new shareholder of Weener Plastik
• Mary J Blige joins forces with Belvedere Vodka