Coffee shops key to growth in market spend

Distributors can look forward to a steady market supplying coffee machines for foreseeable future as the demand for quality coffee leads to more competitoin between outlets in all sectors.

The total UK coffee shop market is estimated at 18,832 outlets and continues to outperform the UK retail sector with significant sales growth of 10.7% on last year with £7.2 billion total turnover.

According to Allegra World Coffee Portal definitive report, Project Café2015 UK, the branded coffee chain segment recorded £2.9 billion turnover across 5,781 outlets, delivering impressive sales growth of 11.9% and outlet growth of 4.9%, adding 271 stores during 2014.

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After 16 years of considerable growth, the coffee shop sector continues to be one of the most successful in the UK economy.

Costa Coffee (1,821 outlets), Starbucks Coffee Company (824) and Caffè Nero (590) remain the UK’s leading brands with a combined share of 56% of the branded chain market by outlet numbers.

Physical expansion by leading chains is a driver of growth.

Market leader, Costa, added 151 UK outlets and achieved 15% sales growth in calendar 2014.

Coffee quality is considered by consumers to be a given.

Increasing competition provides consumers with better choice of quality coffee at home, at work and wider variety from non-specialists.

Consumer choice of destination is driven by more criteria than ever before, including: habit, coffee shop brand, loyalty scheme and brand of coffee offered.

The non-specialist sector – including pubs, fast food operators, supermarkets and retail stores – have increased their coffee credentials.

This has made them more attractive to consumers and has presented stronger competition for coffee-focused operators.

The sector has outpaced branded chains with outlet growth of 14.5% to reach 7,017 establishments with a strong coffee offer (excluding branded chain partnerships).

Pub groups are responding to the threat coffee shops pose to their role as the traditional community hub.

Pub groups have added a further 648 establishments representing growth of 19%, the main contributor of growth in this sector.

In addition, retail and department stores (including garden centres, bookshops, homeware and supermarkets) added a total 189 stores, representing growth of 10%.

The non-specialist sector took a further 2% share of market to represent 37% of the total coffee shop market compared with branded chains with 31% outlet share and independents with 32% market share.

MARKET TRENDS
The UK coffee shop market is robust with established coffee consumption patterns. The report shows that the UK is becoming a nation of coffee connoisseurs.

Coffee shop visitors drink an estimated 2 billion cups of coffee per year in coffee shops.

Costa is the number one seller of specialty coffee with an estimated 149 million cups sold annually, followed by McDonald’s selling approximately 126 million cups per annum.

Coffee venues increasingly play an important role contributing to the social vibrancy of a community as well as being a large contributor to UK employment and economy.

The report reveals how successful branded chains constantly ensure their image is relevant while retaining brand values in order to engage increasingly progressive consumers.

The significant growth of mid-sized artisan chains such as Harris + Hoole and Coffee#1 signals a new era of competition.

The third wave/artisan coffee has profoundly influenced operator and consumer expectations about coffee quality and store design.

The artisan independent segment is becoming far more regionalised than ever before, with cities such as Bath, Edinburgh, Manchester and York boasting strong artisan independents. Furthermore, strong artisan independents are transforming into small chains, following the success of leading small chains such as Taylor St Baristas and Timberyard.

The gradual decline of instant coffee consumption at home and subsequent premiumisation of the at-home segment further increases the availability of specialty coffee and intensifies competition.

While outside of the report scope, Allegra notes that gourmet vending is outpacing the UK coffee shop market, growing at 27% in 2014 to reach 5,237 units and is worth an estimated £230 million.

MARKET GROWTH
Allegra predicts the total UK coffee shop market will exceed 27,000 outlets and £16.5 billion turnover by 2020, driven by branded coffee chain expansion and non-specialist operator growth.

The branded coffee shop segment is forecast to exceed £5 billion across 7,870 outlets by 2020 with outlets predicted to grow at 5.3% compound and revenue at 10.0% compound over the next 5 years.

It is estimated that the UK has the long-term potential to comfortably host more than 9,500 branded coffee shops.

The future coffee shop marketplace will be shaped by further increasing consumer participation and more savvy consumers, with the desire for premium quality coffee anywhere and anytime, driving improved coffee offers across a broader set of channels.

Consumers will become even more informed about the subtleties of coffee preparation and delivery from bean to cup, in particular origin, roast, as well as the importance of milk foaming and water quality.

Allegra expects to see a significant increase of multi-brand strategies by leading operators and increased non-specialist investment in artisan brand concepts.

Allegra Group Managing Director, Jeffrey Young commented, “The UK coffee shop industry is showing consistent strong growth in both sales and outlets. Britain is fast becoming a nation of coffee connoisseurs.

The UK consumer increasingly appreciates a quality cup of coffee and operators must continue to deliver innovation, fantastic quality while genuinely engaging with customers in order to stay ahead of the curve.”

“Quality is a given as UK consumers are even more knowledgeable on the subtleties of coffee preparation and delivery from bean to cup, in particular origin, roast, as well as the importance of milk foaming and water quality.

“With increasingly intense competition, consumers can have great quality coffee at home, at work and from a vast selection of non-specialists.

“As a result they now have far more criteria driving destination choice than ever before. Branded chains are having to work hard to maintain consumer share.”
 

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