Despite market turbulence and a more cautious approach to growth, UK branded coffee chains remain positive.
Project Café UK 2020, Allegra World Coffee Portal’s report on the UK café industry, reveals that the £10.5 billion market comprises 25,892 sites across branded, independent and non-specialist operators.
The UK branded coffee shop segment now comprises 8,222 outlets, with significantly reduced outlet growth of 0.9%. Allegra said this is indicative of restrained investment in the context of Brexit uncertainty and tough high street trading.
Despite market turbulence and a more cautious approach to outlet growth among the UK’s branded coffee chains, trading at existing sites remains positive. Forty percent of industry leaders surveyed reported a 5 per cent-plus trading uplift in 2019, up 9 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.
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.
World Coffee Portal 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.
5th 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 prestigious 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.
Greater clarity on the UK’s future relationship with the European Union alongside the consummation of major M&A activity, including Coca-Cola’s purchase of Costa Coffee, and Causeway Capital’s rebuilding of the troubled 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 thru, ready-to-drink (RTD) and non-specialist locations.
World Coffee Portal forecasts the UK branded coffee shop segment will exceed 9,400 outlets by the end of 2024, displaying five-year growth of 2.7 per cent CAGR. The coffee-focused sub-segment, which includes market leaders Costa Coffee, Starbucks and Caffè Nero, is predicted to exceed 6,000 outlets by the end of 2024, displaying growth of 2.4 per cent CAGR. The food-focused sub-segment, which is led by Greggs, Pret A Manger, and Krispy Kreme, is anticipated to exceed 3,300 outlets, growing at 3.4 per cent CAGR.
Commenting on the research, Allegra Group CEO and Founder, Jeffrey Young, said “Following two years of tough trading the UK coffee shop market has held up well against significant headwinds.
“We expect outlet growth to regain momentum during the next 2-3 years and forecast better times ahead for those operators that can readily capitalise on opportunities and adapt to the challenges in what will remain a highly competitive market.”