Report
UK coffee shop market reaches all-time high
Research from Project Café10 UK, Allegra’s annual study of the UK coffee shop market, reveals impressive sales growth of 12.9% during the last 12 months by the branded coffee shop segment (eg Costa, Starbucks, Caffè Nero and Pret), exceeding £1.94bn in revenue.
Costa Coffee is the new market leader and is now the UK’s favourite coffee shop
Consumers have never had so much venue choice, with the £5bn UK coffee shop market, including branded chains, independents and non-specialist operators comprising 14,022 outlets in 2010.
The market, particularly the branded coffee shop segment, has demonstrated remarkable buoyancy during the recent economic downturn, comfortably out-performing the wider retail sector.
Jeffrey Young, MD, Allegra Strategies, says: “After more than a decade of analysing this market, I have never seen such exciting developments in the UK coffee shop market. This year, the market grew by more than 12% compared to 2.5% for the UK retail sector, adding more than 800 outlets in 2010 in challenging economic times.
“With increasing quality of coffee, better environments from chains and independents, and greater consumer appreciation of coffee and coffee houses, the market is poised for significant further growth over the next 3–5 years.”
Market size and growth
Within the UK coffee shop market, the branded coffee shop segment is estimated at 4,650 outlets, with growth stable at 6.1% in 2010. Branded coffee chains, including coffee-focused and food-focused operators, account for 33% of outlets and 39% of total market revenue. Further branded coffee shop segment share growth is guaranteed.
However, the established coffee chain operators face increasing pressure on quality and price from high-quality artisanal independents and value-driven non-specialists such as McDonald’s and JD Wetherspoon. It’s these non-specialist operators, together with department store cafes and motorway and forecourt operators, that are the primary driver of total outlet growth, adding 468 sites in the last 12 months, accounting for 54% of overall outlet growth in 2010.
Key players
Revenue growth has been driven by strong performances by the leading three branded coffee chain operators: Costa Coffee, Starbucks and Caffè Nero.
- Costa Coffee reported 35 consecutive quarters of positive like-for-like sales growth.
- Starbucks Coffee Company returned to growth after two years of declining sales.
- Caffè Nero continued its long period of consistent sales growth.
These three established branded chains account for 84% of coffee-focused segment sales (of £1.2bn) with combined revenue of £1.0bn. With 1,175 outlets and £462m annual revenue, Costa Coffee is the new market leader and is now the UK’s favourite coffee shop.
Food-focused leaders, Pret A Manger and Eat, with combined annual revenue of £293m, account for 41% share of the food-focused segment sales of £708m.
Consumer trends
Coffee shops are an integral part of the British lifestyle. Allegra’s research with 16,458 consumers shows that visitor frequency increased in 2010, with 68% of consumers interviewed visiting coffee shops at least once a week (compared to 64% in 2009).
Consumer confidence is returning, and 39% state they visit coffee shops more often than 12 months ago.
The UK coffee shop sector will continue to out-perform retail sales growth. Allegra predicts like-for-like sales growth to continue, with leading brands to average high single-digit comparable sales growth over the next five years.
The branded coffee chain market is set to exceed 5,700 branded outlets, with average compound annual growth of 7.2% and £2.5bn turnover with CAGR of 8.4% over the next three years. The total coffee shop market is expected to exceed 16,700 outlets and £5.9bn turnover by 2013.
Branded chains must continue to proactively respond to evolving consumer demands in order to retain leadership in the coffee shop market.
Non-specialists such as McDonald’s, M&S Café and a growing number of pub chains will lead market growth in outlet numbers. However, branded chains will continue to drive innovation, experience and coffee beverage quality.
Future trends
In future, branded chain coffee shops will come under increasing pressure to provide an authentic experience that cannot be replicated in the home. ‘Third wave’ artisanal independents will also influence how branded chain coffee shops look and feel.
Consumers are looking for a relaxed, comfortable environment. The revitalisation of in-store environments to create a unique, local and inviting retail space will increase consumer loyalty and frequency. The desire to replicate coffee shop espresso-based beverages at home will lead to increased purchasing of more specialist equipment and coffee, and in turn, greater demand for higher quality beverages in coffee shops.
Another issue for future consideration is the growing awareness of sustainability. Branded chains will need to work harder to prove ethical practices beyond simple accreditation. As technology continues to advance, Allegra predicts that many operators will launch mobile apps and develop social networking marketing tools over the next 1–2 years.
Growing online shopping activity provides opportunities for coffee shops to widen channels for peripheral products and services. By 2020, the ‘silver’ consumer will account for 38% of the population. These treat-driven consumers who tend to dwell for longer and spend more, will be increasingly influential in shaping brand performance.
Source: Project Café10
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