Yesterday (26 April), the hospitality giant, which owns brands including Costa, Beefeater and Brewers Fayre, said it would cull the proportion of its estate that currently operates in UK high streets from 40% to the low 30s.
Chief executive Alison Brittain said, while they were not unhappy with the high street, there had been a “shift in mood” from consumers towards travel locations.
Brittain’s statement flies in the face of recent research by Project Café2017, led by Allegra World Coffee Portal, which claimed total UK coffee shops would exceed 32,000 outlets by 2025, after growing by 6% last year, and would outnumber pubs by 2030.
Costa sales up
According to a report from The Morning Advertiser’s sister title MCA, Costa’s overall sales are up.
Costa’s like-for-like sales grew 2% in the UK for the year to 2 March but there were signs of slowing spend on the high street in the fourth quarter.
Parent company Whitbread this morning reported its preliminary results for the full year, which showed total sales up 8.2% to £3.1bn with underlying profit before tax up 6.2% to £565.2m.
Costa total sales grew 10.7% during the year with system sales up 12.7% and UK equity like-for-like sales up 2%.
In the fourth quarter, Costa’s total sales were up 9% but like-for-like sales dropped 0.8%, which the company said was due to the timing of the quarter. It said that excluding the timings, like-for-like growth in the fourth quarter was 0.6%.
The company said that sales in travel and drive-thrus - which account for almost 30% of future Costa store growth - continued to do very well in the fourth quarter with high street stores like-for-like sales down just over 1%.
Competing American coffee chain Starbucks recently reported a 60% profit slump in the UK, after it had closed or transferred the leases of many unsuccessful sites.
There is no evidence to suggest coffee shops are in danger of falling and they are in fact in growth, but analysts have noted the segment’s steep incline in recent years has slowed and there is a trend away from the high street.
Opportunity for pubs
As a result, the changing market presents an opportunity for pubs, which must offer good-quality coffee, to better tap into the segment, according to industry experts.
Almost a third of consumers (29%) already go to the pub for a hot drink over any other beverage or meal, said Mintel senior food and drink analyst Richard Caines.
“Coffee is important for the future revenue growth of pubs,” he told The Morning Advertiser.
“We’ve got research that’s showing a trend for people drinking less alcohol, and coffee has been on-trend for a long time. It comes down to the pubs to maximise that.”
To take advantage, pubs must open earlier and increase the quality of their coffee quality to drive sales, advised Caines.
“They need to have a reputation for serving good-quality coffee; it’s an important part of the trend towards pubs focusing on maximising sales throughout the day and not being reliant on the lunchtime and evening trade.”
Current quality is average
Coffee quality in pubs was currently average, research for the Association of Licensed Multiple Retailers (ALMR) by UCC Coffee UK and Ireland showed, with beverages scoring three out of five for quality.
ALMR chief executive Kate Nicholls said: “Even with the slowdown being reported by some coffee shops, there is still an opportunity for pubs and restaurants to capitalise and take advantage of what is still a healthy demand.”
The potential for coffee shops to outnumber pubs – 22,845 outlets compared with 50,000 pubs – had caused concern for some, yet pubs have already adapted to changing consumer trends and could innovate further, Nicholls added.
Pubs were continuing to evolve, added the British Beer & Pub Association's Brigid Simmonds.
“Pubs have become more family friendly and there’s no reason why pubs can’t become a destination for those looking for an alternative to a high street coffee store,” said Simmonds.
“While coffee shops may outnumber pubs in the future, there are still 50,000 pubs across Britain and pubs have the added advantage of offering a unique role at the heart of local communities, which can’t easily by replaced by any other type of business,” she added.
(Initial research carried out by Helen Gilbert)