UK coffee chains achieve £1.3bn sales rebound in 2021.

UK coff ee chains achieve £1.3bn sales rebound in 2021

Project Café UK 2022, World Coffee Portal’s defi nitive report on the UK branded coffee shop market, has revealed that following extremely diffi cult trading in 2020 and sustained uncertainty in 2021 the £4.4bn ($6bn) segment grew 43% in 2021 to regain 87% of pre-pandemic market value with outlet numbers exceeding 2019 levels.

However, the planned VAT rise, new Covid-19 variants and ongoing staff shortages represent signifi cant market headwinds in the year ahead, they warn, and could damage the recovery for those operators unable to adapt to tough market realities. The £4.4bn UK branded coffee shop market recovered to 87% of pre-pandemic value, achieving a better-than-anticipated £1.3bn sales rebound in 2021 with the UK market recovering to pre-pandemic levels in terms of outlets (growing by 3.5% to reach 9,540 stores, report the researchers). New Covid-19 variants, the planned reinstatement of VAT to 20%, infl ation and severe staff shortages represent signifi cant short to medium term challenges for the industry, they propose.

In addition, the World Coffee Portal (WCP) - a global information platform delivering insight on the global coffee, café and related food-to-go sectors - forecasts the UK branded coffee shop market will surpass pre-pandemic sales by the end of 2023, reaching £5.8bn over the next fi ve years at 5.8% CAGR. The UK market will exceed 10,500 outlets by the end of 2026, they anticipate, displaying fi ve-year outlet growth of 2.1% CAGR.

Market leaders Costa Coffee, Greggs and Starbucks all added locations to reach 2,791, 2,176 and 1,089 outlets respectively, they found. Most operators have achieved year-on-year growth, with 55% experiencing a sales uplift of more than 5%. Industry leaders are also more optimistic, with 56% indicating the current trading environment is positive, up from just 15% in the year previous. 75% surveyed expect trading conditions to improve over the next 12 months.

After a summer of relative trading normality in 2021, the Omicron variant highlighted the unpredictable nature of the pandemic, feel the researchers, with the possibility of new Covid-19 waves looming over hospitality businesses in 2022. Nevertheless, just 16% of industry leaders surveyed believe Covid-19 will have a longterm negative impact on out of home coffee demand, down from 33% in 2020.

The planned reinstatement of VAT from 12.5% to 20% in April 2022, the rising cost of living, higher import costs, supply chain disruption and squeezed consumer income could further erode already thin sales margins for UK coffee shops in the year ahead. Meanwhile, a severe shortage of hospitality staff driven by the pandemic and exacerbated by the curtailment of European workers after Brexit presents another signifi cant headwind for UK coffee shops, they add, with just 6% of industry leaders surveyed feeling more confi dent about Brexit and its impact on the hospitality industry than 12 months ago. In the longerterm, these factors could compel operators to raise prices, with further store closures and redundancies a very real possibility in 2022, the researchers suggest.

At the same time, UK branded coffee chains continue to diversify store portfolios and sales propositions in the wake of the pandemic, with drive-thru, smaller format coffee shops, neighbourhood locations and delivery all becoming more prevalent, they point out. The UK drive-thru market now comprises 578 stores, they state, with market leader Costa Coffee adding 75 locations since 2020 for a total of 275. Starbucks operates 270 sites and Leon opened its fi rst drive-thru store in 2021. Highlighting the commercial potential of the format, 57% of UK consumers surveyed say they would purchase beverages from a drive- thru if the facility were more readily available.

Meanwhile, digital sales including loyalty schemes, click & collect, and beverage delivery are also on the ascendence in the UK, they discovered (70% of UK consumers surveyed have downloaded a coffee shop loyalty app, with 35% indicating they have purchased a beverage to collect from a coffee shop over the last 12 months).

While a growing number of operators are investing in beverage delivery, challenges surrounding spillage, temperature and cost remain, it was revealed. Nevertheless, while just 16% of consumers surveyed have ordered beverage for delivery over the last 12 months, nearly a quarter (24%) would consider trying the service if it were more readily available.

Coffee shops continue to be an intrinsic part of communities and daily routines across the UK. Meanwhile, sustained consumer interest in higher quality at-home coffee and premium equipment looks set to elevate standards across the market. Indeed, World Coffee Portal anticipates this focus on quality will encourage further scaling of boutique concepts, with 5th wave coffee shops fi nding new audiences among increasingly savvy and coffee-loving consumers (the coffee-focused segment is predicted to grow at 2% CAGR over the next fi ve years to exceed 6,200 outlets, while the food-focused segment is anticipated to grow at 2.3% CAGR to exceed 4,300 outlets).

Commenting on the report fi ndings, Allegra Group founder and CEO, Jeffrey Young, said: “I am heartened to see the UK coffee shop market proving so resilient in times of incredibly diffi cult trading, with store numbers exceeding pre-pandemic levels and sales estimated at just under 90% of 2019 trading.

“Throughout the pandemic we’ve seen coffee venues playing a vital role in the lives of British consumers and communities across the country, which should provide much optimism for the next decade of trading.

“However, the current climate is not without its risks or uncertainty. Record infl ation is placing further pressure on consumers’ disposable income, with chronic staff shortages and the risk of VAT returning to 20% causing potentially devastating effects for the UK coffee shop market, and indeed the entire hospitality industry.”

WCP conducted over 150 online surveys, consultations and in-depth interviews with leading industry insiders, decision makers and key staff were carried out, as well as over 35,000 online surveys with UK coffee shop consumers, including over 5,000 from the Allegra independent consumer panel. Desk research across company websites, published accounts, industry associations, trade press and news articles was also carried out.