DATA INSIGHT: What does the branded coffee shop market look like after Covid-19?

Costa and Starbucks

The UK’s £3 billion a year branded coffee segment has suffered a near 40% sales decline over the last 12 months, new data has revealed.

According to Project Café UK 2021 – World Coffee Portal’s report on the UK branded coffee shop market – the sector now comprises 9,159 outlets, representing a net decrease of 182 stores over the period.

Ongoing Covid-19 restrictions, including temporary store closures, takeaway-only trading, and the requirement for customers to stay home, have contributed to sharp sales declines at UK branded coffee shops.

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While a steep reduction in daily commuting has decimated footfall at travel hubs and city centres, many neighbourhood outlets have benefitted from increased levels of home working as more customers shop locally.

World Coffee Portal said this dynamic is reflected in the first fall in the number of Greater London-based coffee shops in 20 years.

The UK capital now has 2,330 branded coffee shops ­– down 1.9% on 2019 – but still accounts for more than one quarter of all UK branded cafes.

Nevertheless, the UK’s three largest branded cafe chains, Costa Coffee, Greggs and Starbucks, added 56, 28 and 30 locations to operate 2,681, 2,078 and 1,025 stores respectively. Caffe Nero closed net 16 stores and now operates 648 UK outlets.

Amid widespread trading restrictions and reduced footfall, 59% of industry leaders surveyed by World Coffee Portal reported a year-on-year loss exceeding 5% over the last 12-months. Those loss-making operators report an average negative financial impact of £27,650 per store, per month.

The report said that while 85% of UK consumers typically visit coffee shops at least once a week, just 56% have maintained this frequency during the pandemic.

A growing number of operators, including market leaders Costa Coffee, Greggs, Starbucks and Caffe Nero, have responded by introducing hot beverage and food delivery, with 26% of UK consumers surveyed indicating they would regularly use this service if the option were more readily available.

Drive-thru has also proved fruitful during the pandemic as convenience and safety takes precedent over in-store experience.

Costa Coffee, Starbucks and Tim Hortons possess the UK’s largest branded coffee chain drive-thru presence, with 200, 109 and 10 sites respectively, adding a combined 76 locations during 2020.

World Coffee Portal said the market faces “deep uncertainty” about the timeframe and pace of recovery from Covid-19 in 2021, but it forecasts modest 1.2% outlet growth in 2022.

The total market is projected recover to pre-Covid-19 levels by 2024 and exceed 9,600 outlets by 2025 at 1% CAGR.

The coffee-focused sub-segment is anticipated to exceed 5,700 outlets at 0.9% CAGR, with the food-focused sub-segment expected to exceed 3,800 stores at 1.1% CAGR, it added.

Commenting on the report findings, Allegra Group founder and CEO, Jeffrey Young, said: “While there is no doubt the UK’s branded coffee shops are here to stay, Covid-19 has had a devastating impact over the last 12 months. With the market suffering a near 40% sales decline in 2020, World Coffee Portal forecasts it will take at least three years before the segment returns to pre-pandemic levels.

“Recovery will require significant innovation, discipline and leadership, with successful operators adapting to on-going trading challenges with smart, technology-led solutions and new store formats.

“Unfortunately, we anticipate further casualties over the next 12 to 18 months and further government assistance may well be required to ensure the short-term viability of many coffee shops and the wider hospitality industry.”

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Andrew Seymour

The author Andrew Seymour

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