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Coffee market and its expansion
IT HAS been 10 years since a little-known coffee company named after the US city of Seattle opened its first branded shop in the UK. Like a shot of strong espresso, the move fuelled a boom in cappuccino culture as chains including Starbucks, Costa Coffee, Caffè Nero, Caffè Ritazza and Scotland’s own Beanscene transformed the tea-drinking British into a nation of coffee lovers.
Now, having conquered the US and with UK sales growing strongly, the battleground looks to be moving onto the plains of Europe.
According to market research group Allegra Strategies, the European branded market across the Continent is forecast to continue growing at nearly 9% a year, expanding from 7,000 outlets to more than 11,000 by 2012.
Allegra Strategies says that while all European markets remain dominated by small, independent coffee shop operators, the trend is definitely in favour of well-funded and highly sophisticated brand operators such as Starbucks, Costa Coffee, Caffè Ritazza and the newly created McDonald’s McCafe.
Jeffrey Young, managing director of Allegra Strategies, says: “A number of key markets are showing many of the characteristics of the UK market nearly a decade ago. If the growth achieved in the UK is any indication of future European trends, these markets will be significant in the next few years.
“Future growth will ultimately be dominated by a smaller number of large multi-country operators as smaller local, mainly franchise, players struggle to gain critical mass and are unable to compete with the brand appeal and operational expertise of global leaders.”
The firm’s report says that the UK is by far the most developed market with roughly 3,000 coffee bars - a figure that is still growing by 8% per year - but Europe is potentially massive. According to IGD market research, across Europe 190 billion cups of hot beverages are consumed out of the home each year.
Trends observed in the UK are now filtering into Europe with Germany, the Republic of Ireland, Spain and Poland leading the way and France, Switzerland, Scandinavia and Greece following closely behind.
It is a view echoed by Mark Brumby, drinks and leisure analyst at Blue Oar Securities. He said: “Undoubtedly the Continent is the new battleground. If you look at Europe at the moment there are plenty of McDonald’s and Burger Kings out there, so one presumes that there is not an affliction to these sorts of fast food chains. The likes of Starbucks, Caffè Nero and Costa Coffee are more upmarket so the Continent is an exciting place to be.”
Next week Alan Parker, chief executive of Whitbread, which owns Costa Coffee, will update the market. Costa Coffee sits behind Starbucks as Europe’s second-largest coffee chain with 588 outlets in eight markets. Costa revenues for the six months to August 30 rose 21% to £98.1m and operating profit was £6.6m. Last month Whitbread announced it would open 300 Costa Coffee shops in Beijing and surrounding provinces in the next five years, doubling its target for the Chinese market.
This sits alongside an aggressive opening strategy that will see it have more than 1,000 stores by February.
Presently Starbucks is the leading pan-European coffee bar operator, having ramped up its opening programme with recent forays into Denmark and the Netherlands. Analysts say McDonald’s McCafe has also built up a substantial presence and is expected to roll-out extensively across Continental markets.
Outside Europe, India and China have also experienced huge growth, with international café chains entering the market as well as the development of domestic players.
One particular growth area is ready-to-drink coffee. Created in Japan, these cold milk-and-coffee drinks are often sold in cans or bottles at convenience stores or vending machines.
At the moment Japan is by far the biggest market, drinking around $12bn of RTD coffee a year. With the European carbonated soft drinks market coming under pressure, companies such as Coca-Cola and PepsiCo are turning towards coffee to bolster their sales.
Brace yourself for frappuccino culture.
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