After more than a decade of rapid growth, the UK branded coffee shop market is defying all previous expectations as coffee wins the hearts and wallets of many British consumers. There appears to be no end to the trend to café culture which began more than a decade ago, with coffee achieving a current growth rate 7 to 8 times that of the British economy.
Allegra’s latest and very comprehensive report is summarised below, and indicates clearly that ALL hospitality businesses need to ensure that their ‘coffee offering’ at least meets customer expectations – or they will lose business as a result.
7.5% growth in 2012 to £5.8 billion turnover
The latest annual report – Project Cafe 12 – by management consultants Allegra Strategies, which includes a national survey of 25,000 consumers, reveals that the total UK coffee shop market grew by 7.5% in 2012 to reach £5.8 billion in turnover.
The market which includes branded coffee chains, independent coffee shops and non-specialist operators, grew to 15,723 outlets. The total number of coffee shop outlets grew by 4% over the past year alone.
Strong resilience of coffee chains
In particular, branded coffee chains such as Costa Coffee, Starbucks Coffee Company, Caffè Nero, Pret A Manger and EAT, have shown strong resilience in the face of a very challenging UK economy. Consumers are gravitating to brands they enjoy and trust and this has added pressure on weak mid-sized chains and low quality independent shops who are slowly fading out of the market.
Good artisan independents, however, are thriving also.
Branded coffee chain segment still growing
The UK branded coffee chain segment now stands at 5,225 outlets. Sales were very robust in 2012, growing by 10% to an estimated turnover of £2.3 billion. The market has doubled in the past six years and is now 10 times the size it was 15 years ago, at a time many thought it was already saturated.
The three leading chains in the UK are Costa Coffee (1,552 outlets), Starbucks Coffee Company (757) and Caffè Nero (530). These three now command a 54% combined share of the branded coffee chain market.
The branded coffee shop segment still has room to grow. Allegra analysts believe that successful brands of the future have to tune into consumer lives to stay relevant as increasingly savvy and choosy consumers seek authentic and original experiences.
The sales growth is being underpinned this year by widening consumer participation and further embedding of coffee culture into UK lifestyles. With limited price increases by major chains, industry like-for-like sales growth of 3.5% has been achieved by new consumers enjoying coffee houses, better operating standards and menu innovation.
UK consumers are clearly embracing the growing coffee culture trend and demonstrating their love of coffee, enabling the sector to substantially outperform the wider retail market, which in contrast, has grown at a sluggish pace of 1-2% over the past 4-5 years.
Jeffrey Young, Managing Director, Allegra Strategies said:
“The UK coffee shop market continues to astound even the most optimistic of forecasters, by growing significantly in value, in outlet numbers and also in the social psyche of the nation. As consumers gain more opportunity to consume quality coffee through more outlets, they are making it part of their lifestyle. Britain has become a ‘new nation of coffee drinkers’. Long live the cup of tea, but more and more consumers seek and enjoy quality coffee.”
“High quality ‘artisan’ independent coffee shops are also fuelling consumer demand and driving the branded coffee shop sector to increase focus on authentic interiors, barista technique and to introduce a wider range of crafted coffees such as flat white and cortado.”
“This focus on quality in all areas can only continue to drive a thriving industry over the next 3-5 years and beyond. The entry of Tesco into the market this year with its Harris + Hoole joint venture signals a new era of competition is about to emerge, with quite possibly further M&A activity.”
1 in 5 visit coffee shops daily
This year Allegra’s research with more than 25,000 consumers shows British coffee shop visitors refuse to give up on their regular coffee out of home, with 49% stating they are maintaining their coffee shop visits compared with last year. 1 in 5 consumers surveyed now visit coffee shops daily compared with 1 in 9 in 2009.
Coffee shop visitors drink on average 3 cups of coffee per week in coffee shops. This is still far less than the quantity drunk at home (10 cups per week) or at work (6 cups per week) and far less than tea overall, but it indicates significant room for further growth as coffee becomes one of the nation’s favourite beverages.
Historically reserved as a ‘special’ treat, coffee is now established as an everyday beverage. A majority of the UK adult population incorporate coffee into their regular beverage repertoire. The genuine love and appreciation of coffee is growing as consumer palates become more sophisticated and knowledge increases.
Aspirational and mass appeal
The UK coffee landscape has changed significantly in the past decade. Once aspirational brands, Starbucks and Costa, etc. now have broad mass appeal. These brands will continue to grow and influence the wider market. A new breed of exciting and aspirational coffee concepts, primarily led by artisanal independent coffee shops, will grow into small chains and engage coffee connoisseurs, a similar trend to that seen in the wine industry.
However, Allegra’s 2012 report does highlight some trading down behaviour as consumers attempt to save money by purchasing less food in coffee shops and switching from high end independents down to mass appeal branded chains.
Beleaguered high streets benefit from coffee shop expansion
The role of the coffee shop has never been more important in supporting the vitality of UK shopping areas, attracting consumers and contributing to economic uplift of surrounding businesses.
Declining high streets face strong competition from online retailers, out of town shopping centres, retail parks and factory outlets. Despite this, finding suitable sites remains a challenge for coffee shops. Leaders expect rents to flatten over the next 2-3 years, with hope for lower rents as landlords deal with rising retail vacancy rates.
Further market growth is predicted.
Allegra predicts the total UK coffee shop market will exceed 20,000 outlets and £8 billion turnover by 2017, driven by branded coffee chain expansion and non-specialist operator growth.
The branded coffee chain market is expected to grow at 6% compound annual growth and reach 7,000 outlets by 2017 with sales forecast to grow by 10% CAGR and reach £3.7 billion by 2017.
Allegra estimates that the UK has the potential to host well over 8,000 branded coffee shops and potentially beyond 10,000 ultimately.
Growth will be driven by expansion of current brands, as well as new, focused corporate backed brands. These new, corporate backed coffee shops, e.g. Harris + Hoole (Tesco), Greggs Moment and Coffee#1 (SA Brains), signal a new era of competition and is expected to drive new multi-brand strategies from the leading brands as well as increased M&A activity.
Further details from the report include
Market size and growth:
- The total UK coffee shop market is estimated at 15,723 outlets and £5.8 billion turnover in 2012
- Despite a persistently slow economy and low levels of consumer confidence, the UK coffee shop market grew by 7.5% in turnover and 3.8% in outlets in the last year
- The branded coffee chain segment recorded £2.3 billion turnover across 5,225 outlets, delivering impressive sales growth of 10% and outlet growth of 5.2%, adding 261 stores 2012 After 15 years of considerable growth this segment continues to be one of the most successful of the UK economy
- Physical expansion by leading chains remains the core driver of total market growth. In particular, Costa added 183 UK outlets and 22% sales growth in 2012
TOTAL NUMBER OF UK COFFEE SHOP OUTLETS, BY TYPE, AUG 1999-DEC 2017F
- Costa Coffee is the fastest growing operator, adding 183 UK outlets in 2012, with sales growth of 22% and an estimated UK annualised turnover of £648 million
- Starbucks achieved sales growth of 6% with an estimated turnover of £420 million for calendar year 2012. The company opened 14 stores net during 2012 to trade from 757 units
- Caffè Nero trades from 530 UK outlets, with accelerated outlet growth of 8%, adding 40 units, with estimated sales growth of 13% to reach £215 million in 2012
MARKET SHARE BY STORE NUMBERS AND TURNOVER – COFFEE-FOCUSED CHAINS, DECEMBER 2012
Food-focused Pret A Manger and EAT. have a combined estimated annual revenue of £449 million, accounting for a 51% share of sales within the food-focused branded chain segment.
Note: Branded coffee chains include coffee-focused operators such as Costa Coffee, Starbucks Coffee Company, Caffè Nero and AMT, as well as food-focused operators such as Pret A Manger, EAT, Patisserie Valerie and Greggs. Non-specialist operators include department store cafés, supermarket cafés, pub chains, quick service restaurants and petrol forecourts with a strong coffee offer.
Allegra Strategies is a London-based management consultancy recognised as a global research leader in the foodservice and coffee shop sector. Allegra is best known for its definitive reports on the European and UK coffee markets. Allegra has accurately predicted trends in the UK branded coffee shop market since 1999. The report is considered by the industry as ‘the bible’ of the coffee sector.
Allegra Strategies Limited
No 1 Northumberland Avenue
London WC2N 5BW
+44(0)20 7691 8800