Wake up and smell the profit

The days of tea drinking have gone. The UK is now a coffee drinking nation. You don’t see many branded chains of tea shops anymore so the days of Lyon’s tea houses have long gone,” says Andy Marshall.

Marshall would say that. As the chief operating officer of Costa Coffee’s international arm, he’s hoping that every Brit ditches their cup of tea in favour of a £1.92 ($3) latte or mocha. He’s not wrong though, the once-tea-loving nation is now firmly a country of coffee drinkers.

Four in ten of the 511 million cups of coffee consumed every week are served in coffee shops such as Costa with Britons forking out as much as £2,000 a year on cappuccinos, lattes and espressos, according to research by espresso makers VillaWare.

The UK’s growing passion for coffee saw like-for-like sales at Costa increase by 9.7 percent in the second quarter, boosting parent company Whitbread’s overall sales by 12.9 percent. The financial results were the 38th consecutive quarter of growth for the coffee chain which, despite the economic slump, has continued to tempt consumers seeking a little affordable luxury.

“Costa has been a very resilient brand over this recent uncertainty in the world, particularly in places like the UK, where our like-for-like sales remain very strong - we see no change to that in current trading,” says Marshall.

“Despite the fact that people have reconsidered how they spend their money on key, luxury large items - they may have foregone buying that television for another year or two holidays is now only one holiday - when it comes to that bit of instant gratification and luxury, they don’t seem to want to give up on that, they still want to give themselves a treat,” he adds.

Coffee lovers in the UK would be hard pressed not to find a Costa Coffee to quench their thirst. In the sixteen years since Whitbread acquired the chain from the Italian brothers, Sergio and Bruno Costa, for £12.3m, it has grown the brand into an internationally recognised chain, rivalling the likes of Starbucks and Café Nero.

The Costa brothers established their coffee roastery in Lambeth, London in 1971, supplying local caterers and coffee shops with blended mocha Italia, before branching out into the retail business in 1978. By the time Whitbread purchased the chain the Costas had grown their business to include 41 owned and franchised coffee shops.

Today, it is virtually unrecognisable with some 1,700 outlets across the UK and abroad, making it Britain’s largest coffee shop chain in terms of stores. It has also gained significant prominence in Whitbread’s portfolio with Costa and the budget hotel chain Premier Inn accounting for a combined 85 percent of its overall business.

Whitbread doesn’t plan to stop its expansion drive any time soon. In its home market, Costa is looking to grow its 1,270-plus stores to 2,000 as well as expand its new concept, Costa Express, to 3,000 points of sale.

“I hesitate to give a figure [for our UK shops] because we are opening so many every week that figure is growing and we don’t see yet that we’ve reached any sense of slowing down. That’s really because there are still large towns in the UK that don’t have a Costa or people are still having to travel a fair distance to be able to get great coffee,” says Marshall.

“Every time we set a number, the one thing I can be sure about is we surprise ourselves and it keeps moving forward so I think realistically that could be 2,000-plus over the next three to four years,” he adds.

Whitbread acquired Coffee Nation, owner of 900 self-service machines in service stations and supermarket chain Tesco, for £59.5m in March. Costa, which has since rebranded the business Costa Express, hopes to tap into a relatively new market by placing the coffee machines in hospitals, universities and offices as well as travel hubs such as train stations and airports.

“Coffee is not just about coffee shops anymore. We have clearly become a coffee company rather than just a coffee shop company and our recent acquisition of Coffee Nation provides us premium vendor opportunities [and] has opened up a whole new channel,” explains Marshall.

“We think probably in that space there are 11,000 additional points of distribution for coffee in premium vending. We don’t want to own all of those - we’re looking for 3,000 - so there is space for others as well. But there’s definitely space for 3,000 Costa Expresses over the next five years,” he adds.

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