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UK café sales and outlet growth stall in face of Brexit

From the January 2020 issue.

The £10.5 billion (about US$13.6 billion) United Kingdom café market comprises 25,892 sites across branded, independent, and non-specialist operators, the Project Café UK 2020 report reveals.

The UK branded coffee shop segment now comprises 8222 outlets, with significantly reduced outlet growth of 0.9 per cent indicative of restrained investment in the face of Brexit uncertainty and tough high street trading.

Despite this, trading at existing sites remains positive. Forty per cent of industry leaders surveyed reported a 5-per-cent-plus trading uplift in 2019, up 9 per cent on 2018.

Sales reached £4.5 billion (about US$5.9 billion) in 2019, representing 4.2 per cent growth, down 7 per cent on 2018.

The cost of property, labour, and the impact of Brexit were cited as the top three challenges facing coffee shops, with 56 per cent believing there remains plenty of growth potential for branded café chains in the UK. One third anticipate improved trading conditions over the next 12 months – up 5 per cent on 2018.

Project Café says high operations costs and reduced footfall are compelling many branded coffee chains to raise quality, diversify menus, and focus on customer retention over outlet expansion. The report forecasts the UK coffee shop landscape will undergo further transformation in 2020, with major brands launching new formats, including travel kiosks, drive throughs, and specialised sub-brands.

Prominent examples include Costa Coffee’s updated store format at some existing sites, Pret A Manger’s expansion of its Veggie Pret concept via the acquisition of high street rival Eat, and Grind’s travel hub partnership with SSP. “Fifth wave” operators continue to blur the boundaries between cafés, casual dining, bars, and retail, with Caravan launching its Vardo restaurant concept and opening a café at London’s The Savoy hotel.

Environmental concerns rose significantly in 2019 and were cited by industry leaders as the most important consumer trend affecting the UK coffee shop market – rising from third place in 2018. Reducing reliance on plastic packaging, ensuring proper recycling is conducted, and greater supply chain transparency were cited as the top three initiatives UK coffee shops should widely adopt.

Major UK coffee chains are introducing a growing number of vegan menu items. Nearly one fifth of UK consumers surveyed frequently request a dairy-alternative milk with their coffee shop beverage. This trend is reflected in Costa Coffee’s and Pret A Manger’s removal of plant-based milk surcharges. Both chains significantly expanded their vegan food menus in 2020, while food-focused market leader, Gregg’s, is hoping to build on the success of the vegan sausage roll with the launch of its vegan steak bake.

The report singles out the growing popularity of oat milk in coffee shops, which is now available across the UK’s branded chain segment, including market leaders Costa Coffee, Starbucks, and Caffè Nero.

Greater clarity on the UK’s future relationship with the European Union alongside the consummation of major mergers and acquisitions, including Coca-Cola’s purchase of Costa Coffee, and Causeway Capital’s rebuilding of the Patisserie Valerie brand, will contribute to increased investment and outlet growth in 2020, albeit at a disciplined pace. Growth is also expected across new channels, including drive through, ready-to-drink, and non-specialist locations.

World Coffee Portal forecasts the UK branded coffee shop segment will exceed 9400 outlets by the end of 2024, displaying five-year growth of 2.7 per cent compound annual growth rate.

The coffee-focused sub-segment, which includes market leaders Costa Coffee, Starbucks and Caffè Nero, is predicted to exceed 6000 outlets by the end of 2024, displaying growth of 2.4 per cent compound annual growth rate.

The food-focused sub-segment, led by Greggs, Pret A Manger, and Krispy Kreme, is anticipated to exceed 3300 outlets, growing at 3.4 per cent compound annual growth rate.

The report drew from more than 50 consultations with coffee shop operators, including more than 30 in-depth interviews; more than 100 online surveys with industry insiders, decision makers, and key staff; more than 30,000 online surveys with UK consumers; field research including site visits, data gathering, and pricing analysis; and desk research across company websites, published accounts, industry associations, trade press, and news articles.

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