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Coffee Shops - UK - February 2009

ISSUES IN THE MARKET
Main issues
Definition
Abbreviations
FUTURE OPPORTUNITIES
Australian influences
Specialists losing USP of customisation
MARKET IN BRIEF
Period of consolidation in prospect as boom times fade
A £1 billion-plus market
Costa seemingly outperforming Starbucks
Still plenty of opportunities for market growth longer-term… but it will take work
Independents and in-store restaurants challenge specialists
INTERNAL MARKET ENVIRONMENT
Key points
Stagnation in visitor numbers
Figure 1: Trends in visiting coffee shops, 2007-08
Opportunities to increase frequency?
Figure 2: Frequency of visiting coffee shops, 2007-08
Instant coffee predominates
Figure 3: Trends in in-home instant coffee consumption, 2006-08
Ground coffee usage on the up
Figure 4: Trends in in-home fresh ground coffee consumption, 2006-08
Tea: An opportunity for coffee shop operators?
Figure 5: Trends in in-home tea consumption, 2004-08
Coffee price trends: A major factor affecting retail prices
Figure 6: Trends in the price of coffee, 2003-07
Figure 7: Trends in the price of coffee, 2008
Per capita consumption: Room for growth
Figure 8: Per capita consumption of coffee in selected countries, 2003 and 2007
Ethical issues
Figure 9: Sales of Fairtrade hot beverages in the UK, 2003-07
The National Minimum Wage
Rising utility costs
BROADER MARKET ENVIRONMENT
Key points
The reality of recession
Figure 10: Trends in personal disposable income and consumer expenditure, 2003-13
How will the economic slowdown impact on consumer expenditure habits?
Figure 11: Areas where consumers would cut back spending, July 2008
Continued growth for pre-/no family target market
Figure 12: Forecast adult population trends, by lifestage, 2003-13
COMPETITIVE CONTEXT
Key points
JD Wetherspoon
Eat
Pret A Manger
McDonald’s
Burger King
Wild Bean Café
STRENGTHS AND WEAKNESSES IN THE MARKET
Strengths
Growth potential for UK market
Brand equity
Product quality and consistency
Product range
Economy of scale
Weaknesses
Vulnerable to economic downturn?
Lack of differentiation
Becoming ubiquitous?
Increased competition from non-specialists
WHO’S INNOVATING?
Key points
Ethical offers gathers momentum
Starbucks launches instant coffee
Flavour of the month…
… as seasonal variations keep the offer fresh
Healthy options becoming more prevalent
Getting creative in the kitchen
BB’s opts for digital in-store promotion
Coffee Republic trials contactless payment
MARKET SIZE AND FORECAST
Key points
Figure 13: Market size and forecast of coffee shops, at current and 2008 prices*, 2003-13
Sales growth and new store openings drive market
Slowdown in past 12 months…
…worse to come but long-term growth still expected
MARKET SHARE
Key points
Figure 14: Leading operators in the UK coffee shop market, 2008
COMPANIES AND PRODUCTS
Key points
 MAJOR PLAYERS
Costa Ltd
Figure 15: Costa UK outlets by type, 2007-08
Figure 16: Key financial indicators for Costa Ltd, 2007-08
Starbucks Coffee Company (UK) Ltd
Figure 17: Starbucks outlets in the UK by type, 2007-08
Figure 18: Key financial indicators for Starbucks Coffee Company (UK) Ltd, 2007-08
Caffè Nero Group Ltd
Figure 19: Key financial indicators for Caffè Nero Group Ltd, 2007-08
BB’s Coffee & Muffins Ltd
Puccino’s Ltd
Coffee Republic plc
Figure 20: Key financial indicators for Coffee Republic plc, 2007-08
Figure 21: Breakdown of total network sales of Coffee Republic by type of outlet, 2007-08
Figure 22: Coffee Republic outlet profile, 2007-08
AMT Coffee Ltd
Figure 23: Key financial indicators for AMT Coffee Ltd, 2007-08
 OTHER PLAYERS
Caffé Ritazza
Coffee Primo
Coffee Nation
BRAND COMMUNICATION AND PROMOTION
Key points
Figure 24: Advertising expenditure on selected coffee shop brands, 2004-07
Starbucks and Costa main advertisers
Figure 25: Advertising expenditure on selected coffee shop brands, by media type, 2007
Mainstream media traditionally avoided
Subtle promotions and sponsorship preferred
Not all publicity is good publicity
Stores provide good promotional platform
Added-value promotions popular
Technology matters…
… while net gains are evident
Students targeted
BRAND ELEMENTS
 BRAND MAP
Figure 26: Attitudes and usage of coffee shop brands, January 2009
 COSTA COFFEE
What the consumer thinks
Figure 27: Attitudes towards the Costa Coffee brand, January 2009
 STARBUCKS
What the consumer thinks
Figure 28: Attitudes towards the Starbucks brand, January 2009
 CAFFè NERO
What the consumer thinks
Figure 29: Attitudes towards the Caffè Nero brand, January 2009
 BB’S COFFEE & MUFFINS
What the consumer thinks
Figure 30: Attitudes towards the BB’s Coffee & Muffins brand, January 2009
 TCHIBO
What the consumer thinks
Figure 31: Attitudes towards the Tchibo brand, January 2009
 COFFEE REPUBLIC
What the consumer thinks
Figure 32: Attitudes towards the Coffee Republic brand, January 2009
 BRAND QUALITIES OF COFFEE SHOP BRANDS
Starbucks seen as overrated
Figure 33: Personalities of various coffee shop brands, January 2009
 EXPERIENCE OF COFFEE SHOP BRANDS
Little familiarity with brands outside of the ‘big three’
Figure 34: Consumer usage of various coffee shop brands, January 2009
 BRAND INTENTIONS FOR COFFEE SHOP BRANDS
Costa and Starbucks have best customer retention
Figure 35: Consideration of various coffee shop brands, January 2009
 BRAND MOMENTUM FOR COFFEE SHOP BRANDS
Lack of direction holding the market back
Figure 36: Momentum of various coffee shop brands, January 2009
 BRAND SATISFACTION FOR COFFEE SHOP BRANDS
Good but not great
Figure 37: Satisfaction with various coffee shop brands, January 2009
 BRAND COMMITMENT TO COFFEE SHOP BRANDS
Brand equity for Starbucks, but Costa consumers show more loyalty
Figure 38: Commitment to various coffee shop brands, January 2009
 ROUND UP
CASE STUDY – STARBUCKS
Key points
Loss of direction
The Burberry experience
The McDonald’s experience
Downsizing down under
COFFEE SHOP USAGE
Key points
Figure 39: Coffee shops visited, October 2008
‘Big two’ are neck-and-neck in the popularity stakes
Major chains appeal equally to men and women and to most ages
An affluent customer base
A different breed of consumer…
What’s Costa’s is Starbucks’ and vice versa
Figure 40: Most popular coffee shops visited, by coffee shops visited, October 2008
Customers go where convenience takes them
Figure 41: Next most popular coffee shops visited, by coffee shops visited, October 2008
ATTITUDES TOWARDS DRINKING TEA/COFFEE OUT-OF-HOME
Key points
Figure 42: Attitudes towards drinking tea/coffee out of home, October 2008
Location bigger than brand
USP?
Creatures of habit
Only one in 20 have cut back so far
Men opt for ‘hit and run’
Non-specialists encroaching on the traditional coffee shop market
Figure 43: Most popular attitudes towards drinking tea/coffee out of home, by coffee shops visited, October 2008
Starbucks – down but by no means out
Figure 44: Next most popular attitudes towards drinking tea/coffee out of home, by coffee shops visited, October 2008
Loners tend to order the same thing
Figure 45: Most popular attitudes towards drinking tea/coffee out of home, by attitudes towards drinking tea/coffee out of home, October 2008
Regular routine bolsters catering sales
Figure 46: Next most popular attitudes towards drinking tea/coffee out of home, by attitudes towards drinking tea/coffee out of home, October 2008
ATTITUDES TOWARDS BRANDED/SPECIALIST COFFEE SHOPS
Key points
Figure 47: Most popular attitudes towards branded/specialist coffee shops, October 2008
Demographic traits
Costa leading the way as a treat
Figure 48: Most popular attitudes towards branded/specialist coffee shops, by coffee shops visited, October 2008
Starbucks continues to draw on breadth of choice
Figure 49: Next most popular attitudes towards branded/specialist coffee shops, by coffee shops visited, October 2008
Brand sceptics happy to sit on their own
Figure 50: Most popular attitudes branded/specialist coffee shops, by attitudes towards drinking tea/coffee out of home, October 2008
Weekend usage of branded specialists
Figure 51: Next most popular attitudes branded/specialist coffee shops, by attitudes towards drinking tea/coffee out of home, October 2008
Consumers who want an ordinary cuppa most likely to be put off by prices
Figure 52: Most popular attitudes towards branded/specialist coffee shops, by attitudes towards branded/specialist coffee shops, October 2008
Customers who want choice choose branded outlets
Figure 53: Most popular attitudes towards branded/specialist coffee shops, by attitudes towards branded/specialist coffee shops, October 2008
COFFEE SHOPS TARGETING OPPORTUNITIES
Key points
 BRANDED/SPECIALIST COFFEE SHOP TARGET GROUPS
Loyal
Switchers
Promiscuous
 NON-SPECIALIST/BRANDED OUTLETS TARGET GROUPS
Majority stick to one or two outlets
Older consumers more habitual
More affluent consumers tend to be more adventurous
Figure 54: Repertoire of non-specialist/branded outlets, by types of non-specialist/branded coffee shops visited in the last three months, October 2008
APPENDIX – COFFEE SHOP USAGE
Most popular coffee shops visited, by detailed demographics
Figure 55: Most popular coffee shops visited, by detailed demographics, October 2008
Next most popular coffee shops visited, by detailed demographics
Figure 56: Next most popular coffee shops visited, by detailed demographics, October 2008
APPENDIX – ATTITUDES TOWARDS DRINKING TEA/COFFEE OUT-OF-HOME
Most popular attitudes towards drinking tea/coffee out-of-home, by detailed demographics
Figure 57: Most popular attitudes towards drinking tea/coffee out-of-home, by detailed demographics, October 2008
Next most popular attitudes towards drinking tea/coffee out-of-home, by detailed demographics
Figure 58: Next most popular attitudes towards drinking tea/coffee out-of-home, by detailed demographics, October 2008
APPENDIX – ATTITUDES TOWARDS BRANDED/SPECIALIST COFFEE SHOPS
Most popular attitudes towards branded/specialist coffee shops, by detailed demographics
Figure 59: Most popular attitudes towards branded/specialist coffee shops, by detailed demographics, October 2008
Next most popular attitudes towards branded/specialist coffee shops, by detailed demographics
Figure 60: Next most popular attitudes towards branded/specialist coffee shops, by detailed demographics, October 2008
APPENDIX – COFFEE SHOPS – TARGETING OPPORTUNITIES
Specialist coffee shop repertoire groups, by detailed demographics
Figure 61: Specialist coffee shop repertoire groups, by detailed demographics, October 2008
Specialist coffee shop repertoire groups, by coffee shops visited
Figure 62: Specialist coffee shop repertoire groups, by coffee shops visited, October 2008
Specialist coffee shop repertoire groups, by brand loyalty
Figure 63: Specialist coffee shop repertoire groups, by brand loyalty, October 2008
Repertoire of non-specialist/branded outlets, by detailed demographics
Figure 64: Repertoire of non-specialist/branded outlets, by detailed demographics, October 2008

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