High Street Coffee Shops Continue To Perform Strongly

UK coffee chain Caffe Nero has reported strong results for its financial year ending May 2013. Profits before tax rose by almost 11% year-on-year (y-o-y) to GBP21.1mn, with sales increasing by 10.7% y-o-y to GBP204mn. Like-for-like sales grew by 2.8%, with the company adding 39 shops to UK high street s .

The company is the third largest coffee chain in the UK in terms of store numbers, behind Starbucks and Costa Coffee , owned by Whitbread PLC . Costa dominates the UK high street coffee scene, having more than 2 , 500 outlets as of 2013 , compared with Starbucks ' 761. Though coffee outlets in the UK increased dramatically a few years ago, many believe that there is still plenty of room for growth . In 2010, Costa recorded revenues of GBP340.9m n , accounting for 23.7% of Whitbread's total revenue. This rose to GBP541.9mn in 2012 , and accounted for more than 30% of Whitbread's revenue . Andy Harrison, chief executive of Whitbread, has said the number of Costa stores in the UK has the potential to increase to 2 , 000 in the next few years. Similarly, Caffe Nero's chief executive, Gerry Ford, has said that his company could get to 750 stores.

Costa Dominates The High Street
Current Number Of UK Coffee Stores By Chain

Though Costa, Caffe Nero and Pret a Manger have all seen sales and profit growth in the UK, US-based Starbucks has historically struggled in the UK. However, the company's fortunes may have turned a corner, with Starbucks announcing positive sales growth in every month of Q313. Starbucks' s ame-store sales in Europe, Middle East and Africa, of which the UK represents the largest market, increased by 2% y-o-y .

Both Starbucks and Costa are increasingly attempting to enter the home coffee market. Earlier this year, Costa introduced its 'Costa at home' coffee machines and pods. Starbucks has long sold coffee to the UK home market, both from its own stores and from supermarkets such as Tesco and Waitrose. However, BMI believes that the market for home consumption of coffee in the UK is unlikely to significantly grow in the short-to - mid-term, with tea being the hot drink of choice for British consumers ( see chart ).

Home Consumption Of Coffee Unlikely To Surge
UK - Tea & Coffee Sales (GBPmn)

With Caffe Nero, Costa and Starbucks all delivering strong sales performances over the past year, the high street coffee market looks far from saturation. Increasing numbers of British consumers enjoy the drink, yet it seems that this trend remains firmly on the high street, with tea continuing to dominate consumption in the home.

This article is tagged to:
Sector: Food & Drink
Geography: United Kingdom

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