The battle of the coffee shops continues

This week coffee shops have been back in the UK media. A  short piece on ITV news which highlighted how the national chains continue battle with independents for their share of the £9 billion coffee shop market. It was also reported that Costa Coffee pre-tax profits had fallen (in the BBC and the Guardian). Lots of interesting points raised in these pieces and about how the market is growing, and changing.

I’ve been planning a piece for a while on the whether we have or are close to reaching peak coffee shop in the UK. The rapid growth of coffee shops across the country has had a big impact not only on the make-up of high streets, but of consumer behaviour related to drinking coffee out of the house. But how many is too many, and how many coffee shops can a high street realistically take?  I often visit Leamington Spa, a smallish town in the Midlands which has a busy high street and has a range of great independent cafes (and plenty of chains too). But I was surprised to see that recently two chains had opened opposite each other, (Coffee #1, a growing UK chain, and Second Cup, a Canadian chain), one of which was immediately next to a Starbucks. On the one hand it’s great to see retail space being used, and as soon as these places opened they’ve become pretty busy, but on the other hand, are they really needed, and how will their presence impact on the activity of the nearby independent coffee shops? Something I’ll continue to monitor. According to Allegra Strategies there are already over 20,000 coffee shop outlets in the UK, and this is expected to rise to around 30,000 by 2020, is there really room for this many coffee shops? I realise that not all of these are in the high street, and we are seeing a broader locations for coffee shops, but there has to be a saturation point somewhere.

And the articles about Costa Coffee’s profits suggests that this point may be insight for the standard chain coffee shop its pre-tax profits had fallen 10%, and the rate of like-for-life sales growth was no longer as strong –  despite opening a further 108 stores across the country. Clearly there still seems to be room for more coffee shops, or at least businesses will keep trying to find new places. The Guardian article highlights how chain coffee shops, like Costa, have become too standard, and no longer a novelty in people’s lives, and that actually many people want a higher quality offering. The article suggests that Whitbread hopes the ‘third wave of coffee’ (or the move to a higher quality coffee offering) may continue to drive growth. However, as is pointed out by Allegra Strategies in the article, the coffee shop market has almost moved beyond this already, with consumers desiring more than just quality coffee and food offerings from their coffee shop. If chains like Costa want to keep up their growth targets they are likely to need to do more to cater to the population for whom a flat white with their standard coffee bean is no longer enough. We’ve seen some efforts from the chains to start targeting this market, for example Starbucks opened a Reserve store in London where you can have a broader range of coffees prepared in a range of ways from the standard espresso to the novel siphon, or the new Costa Coffee Coffee House store in Wandsworth with single origin blends on offer, and an enhanced food menu.

In the US it was recently announced that one the largest food companies in the world Nestle had brought a majority stake in Blue Bottle Coffee a growing specialty coffee shop and roaster in the US. It signals that big business had recognised that one trend which may continue to fuel future growth in the coffee shop market is to move more towards specialty coffee. And what a lot of independent coffee shops do so well in the UK, is their fresh food offering; Coffee Architects in Leamington Spa being a very good example, with freshly made cakes and other food.

For many people in the UK, visiting a coffee shop is still that little luxury they choose to continue with despite financial pressures, but for their money they often want quality. For the chains to continue to maintain their position in the coffee shop market, they’re likely to have to start doing something different, or they are likely to reach their saturation point sooner rather than later. So I still need to write my article on the prospect of peak coffee shop in the UK, but the articles in the media this week have given me some more food for thought.