Future prognosis

14 August, 2009
Following Coffee Republic's and O'Briens' administrations, what does this mean for the sector? Key Note retail analyst Dominic Fenn, editor of the Coffee & Sandwich Shops Report (July 2009), gives his view
Page 14 

The major chains of Costa, Starbucks and Caffè Nero have been careful to choose sites at locations with high footfall or general tourist attractions, and have benefited from this. Older, established coffee and sandwich shops may not now be best located in comparison. Within a range of different types of locations, outlets of national branded chains have opened at new sites, such as regional or local out-of-town shopping centres, and traditional high street shopping areas. In the latter, outlets have replaced closed-down shop units - sometimes less successful independent coffee or sandwich shops.

The only major branded casualty recently in the UK has been Coffee Republic. This company has had a chequered history and a major restructuring in the recent past towards largely franchises in the UK and abroad. The second-largest branded coffee shop operator in the UK, Starbucks' problems have mainly been in the US and, in March, the company said it would be opening more outlets in the Greater London area.

My feeling is that, although all customers tend to agree that coffee and food sold at branded coffee shop chains are quite expensive, there are few equivalent alternatives. Older cafés can be unattractive places to visit, even if cheaper, and the range and quality of foods and drinks can be much inferior. More upmarket cafés and restaurants can be equally expensive, and serve only meals, rather than snack sweets and savouries. Good coffee shops are regarded as a 'cheap luxury'.

Some good modern and more upmarket independent coffee and snack food shops are certainly appearing, but their challenge in growing from one or a small number of local outlets is that potential customers will tend to gravitate towards the major brands, knowing the standard of food and drink they will get. I can see some operators, particularly those with 50 or fewer outlets or where coffee shops are only a part of the business, reducing outlet numbers or selling out altogether. This will strengthen the remaining businesses.

Although branded coffee shops were identified early in this recession as possible, if not probable, early sufferers from reduced discretionary spending, this appears to have been merely a temporary setback. Customers have shown themselves unwilling to give up their visits to coffee shops. They value the peace and quiet from shopping or travelling, for drinking and eating, in an attractive environment.





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