02 February 2015 #Commercial Real Estate
The coffee sector in the UK is booming and seems set to continue this trend in the near future. A recent report by Allegra World Coffee Portal predicts turnover in the coffee market will rise from £7.2 billion to reach £16.5 billion by 2020.
Currently, there are just short of 19,000 coffee outlets in the UK and the sector as a whole outperformed retail in 2014 with sales growth of 10.7 per cent.
The sector is seeing growth in all areas, from the large brands like Costa, down to the small artisan coffee shops. The non-specialists such as pubs, supermarkets and fast food operators are also selling more coffee.
Costa is the clear market leader with over 1,800 outlets in the UK, selling approximately 149 million cups a year. Surprisingly, McDonald’s are second in the league of cups sold at an estimated 126 million.
The small independents and the artisan coffee shops generally have benefitted from an increase in the consumer’s knowledge of the subtleties of coffee origin, roasting techniques and milk foaming. This has put competitive pressure on the branded chains.
Interestingly, coffee consumption per head in the UK has not grown in recent years. Instead it seems the way we consume coffee has changed. People now visit coffee shops where before they may have got their caffeine hit at home or in the workplace.
Andy Harrison, the chief executive of Whitbread (the parent company of Costa), believes that where previously people met in pubs it is now more appealing (particularly to women and families) to meet in a coffee shop. In contrast to the growing number of coffee outlets, pub closures are on the increase as highlighted in my article on the topic but many are reacting strongly by improving their food and coffee offerings.
The market has also seen some small chains emerging from the artisan operators. A good example would be Taylor Street Baristas. Started in 2006 by three Australians, who disliked the coffee offering in London at the time, they have grown to 9 stores. In an effort to expand further they recently successfully raised over £1.8 million by offering coffee bonds. Investors can choose to either take an 8 per cent return after 4 years or the equivalent to a 12 per cent return by way of store credit.
Coffee shop operators need to consider many issues when choosing a location and taking on a property. In particular the small artisan coffee operators will have many of the same considerations as a pop-up operator (see my article – Popping up Everywhere for a more detailed analysis of these key issues). An area coffee shop operators do need to be particularly wary of is the authorised use. Often a suitable unit will be an A1 retail permitted use and a planning permission will be needed to change that use to either an A3 cafe use or an A5 take-away use (depending on the proposed food offering).
The consumer has embraced coffee shop culture in the UK and this trend seems likely to further expand this lucrative sector for many years to come.