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Coffee Shops - UK - December 2014

“In a market with low brand loyalty, operators could benefit from building a deeper relationship with fans to foster real loyalty rather than just catering to consumers’ bargain-hunting and promiscuous spending behaviour.”

– Helena Childe, Senior Foodservice Analyst

This report covers the following issues:

  • Diversifying selling formats offers scope for growth
  • Operators must tap into brand personality trends to foster loyalty
  • Scope for further menu expansion
  • Diversifying drinks ranges could help create standout

Consumers’ overall frequency of purchasing hot drinks out of home has remained relatively unchanged between 2013 and 2014 despite improvements in consumer confidence over the period. That said, the largest player in the market, Costa Coffee, has managed to continue to increase customer transactions in 2014.

Developments such as expanding food menus and mobile apps to push promotions are increasingly common as specialists fight for market share of the out-of-home hot drinks market, not just from each other but also from non-specialist competitors increasingly targeting this occasion.

Outlet diversification continues to be a key trend as operators look to develop a stable of different outlet formats in order to cater to the contrasting demands of various locations and help bolster usage. For example, express/self-service units cater for grab-and-go occasions while at the other end of the spectrum, café/restaurant-like venues target more leisure-focused locations. Various operators are also working with retailers to create in-store catering outlets to benefit from the shared footfall.

This report covers those foodservice establishments where coffee is the primary sales item. They are based on the European and North American coffee shop models, typified by Starbucks, Costa Coffee, Caffè Nero and Coffee Republic, offering a wide variety of coffee drinks, eg cappuccino, latte, mocha, etc. Other items are usually on sale, such as pastries, tea, coffee beans, etc. However, the food offer may be restricted.

Coffee shops include venues such as individual stores, kiosks and concessions. These may operate in a number of locations – motorway service areas (MSAs), health clubs and hospitals, for example, as well as standalone outlets. However, they must be independent of the facility they are located in.

This report does not include other establishments that sell coffee, such as restaurants, tea shops or traditional cafés, except as a means of comparison. Nor does it include sandwich shops, such as Pret A Manger or EAT, although these are mentioned in the consumer research for comparative purposes.

 

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Table of contents

  1. Introduction

      • Definition
        • Abbreviations
        • Executive Summary

            • The market
              • Figure 1: UK coffee shops market size and forecast, 2009-19
            • Market factors
              • Companies, brands and innovation
                • Companies
                  • Figure 2: Outlet numbers of the three largest UK coffee shop chains, 2011 and 2013-14
                • Who’s innovating?
                  • The consumer
                    • Outlets used to buy hot drinks out of home
                      • Figure 3: Outlets used to buy hot drinks out of home, July 2013 and September 2014
                    • Frequency of using a coffee shop
                      • Figure 4: Frequency of using coffee shops, September 2014
                    • Reasons for buying hot drinks out of home
                      • Figure 5: Reasons for buying hot drinks out of home, September 2014
                    • Attitudes towards buying hot drinks out of home
                      • Figure 6: Attitudes towards buying hot drinks out of home, September 2014
                    • Interest in products and services when buying coffee out of home
                      • Figure 7: Interest in products and services when buying hot drinks out of home, September 2014
                    • Specialist coffee shops’ menu enticements
                      • Figure 8: Coffee shops’ menu enticements, September 2014
                    • What we think
                    • Issues and Insights

                        • Diversifying selling formats offers scope for growth
                          • The facts
                            • The implications
                              • Operators must tap into brand personality trends to foster loyalty
                                • The facts
                                  • The implications
                                    • Scope for further menu expansion
                                      • The facts
                                        • The implications
                                          • Diversifying drinks ranges could help create standout
                                            • The facts
                                              • The implications
                                              • Trend Application

                                                  • Extend My Brand
                                                    • Data Creators
                                                      • Many Mes
                                                      • Market Drivers

                                                        • Key points
                                                          • In-home coffee consumption holds steady
                                                            • Figure 9: UK household purchases of coffee and tea, 1974-2012
                                                          • Coffee prices
                                                            • Figure 10: RPI: coffee and other hot drinks, Q1 2010-Q3 2014
                                                          • Despite momentum in the economy, income squeeze continues in 2014
                                                            • The ageing population poses a challenge to coffee shops
                                                              • Figure 11: Trends in the age structure of the UK population, 2009-19
                                                          • Strengths and Weaknesses

                                                            • Strengths
                                                              • Weaknesses
                                                              • Competitive Context

                                                                • Key points
                                                                  • In home
                                                                    • The in-home coffee market
                                                                      • Coffee pods
                                                                        • Figure 12: Ownership of coffee pod machines, by age, April 2014
                                                                      • Flavoured coffee
                                                                        • Out of home
                                                                          • Competition from non-specialist operators intensifies
                                                                            • Greggs
                                                                              • Fast food brands
                                                                                • Lunch and other snacking operators
                                                                                  • Pizza/pasta restaurants
                                                                                    • Pubs
                                                                                    • Who’s Innovating?

                                                                                      • Key points
                                                                                        • Food expansion: blurring boundaries between categories
                                                                                          • Packaging trends
                                                                                            • Creating standout
                                                                                              • Playing on Play Ethic
                                                                                                • ‘Green’ trends
                                                                                                  • Globalisation issues
                                                                                                  • Market Size and Forecast

                                                                                                    • Key points
                                                                                                      • Coffee shops expected to retain growth
                                                                                                        • Figure 13: UK coffee shops market size and forecast, at current and 2014 prices, 2009-19
                                                                                                      • Outlet diversification continues
                                                                                                        • Branding concerns come to the fore
                                                                                                          • Food growth opportunities
                                                                                                            • Forecast
                                                                                                              • Figure 14: UK coffee shops market size and forecast, 2009-19
                                                                                                            • Forecast methodology
                                                                                                            • Market Share

                                                                                                              • Key points
                                                                                                                • Costa Coffee remains the dominant operator
                                                                                                                  • Figure 15: Outlet numbers of selected UK coffee shops, 2011 and 2013-14
                                                                                                              • Companies and Products

                                                                                                                • Key points
                                                                                                                  • Specialist coffee shop operators
                                                                                                                    • Costa Coffee
                                                                                                                      • Financial performance
                                                                                                                        • Recent developments – Stores
                                                                                                                          • Recent developments – Food and drink
                                                                                                                            • Recent developments – Other
                                                                                                                              • Starbucks
                                                                                                                                • Financial performance
                                                                                                                                  • Figure 16: Financial performance of Starbucks Coffee Limited UK, 2009-13
                                                                                                                                • Recent developments – Food and drink
                                                                                                                                  • Recent developments – Other
                                                                                                                                    • Caffè Nero
                                                                                                                                      • Financial performance
                                                                                                                                        • Figure 17: Financial performance of Caffè Nero Group Limited, 2010-14
                                                                                                                                      • Recent developments
                                                                                                                                        • Coffee Republic
                                                                                                                                          • Recent developments
                                                                                                                                          • Brand Communication and Promotion

                                                                                                                                            • Key points
                                                                                                                                              • Above-the-line adspend has fallen amongst most brands bar Starbucks
                                                                                                                                                • Figure 18: Advertising expenditure on selected coffee shop brands, 2010-14
                                                                                                                                                • Figure 19: Advertising expenditure on selected coffee shop brands, by media type, 2014*
                                                                                                                                              • Online and social media channels
                                                                                                                                                • Driving recommendation through free gifts
                                                                                                                                                  • Starbucks looks to integrated media to show ‘special coffee moments’
                                                                                                                                                    • Figure 20: Internet penetration, ever used, by age and gender, Q1 2011 Q1-Q1 2014
                                                                                                                                                  • Brands play on Play Ethic to bolster positive connotations
                                                                                                                                                  • Brand Research

                                                                                                                                                    • Brand map
                                                                                                                                                        • Figure 21: Attitudes towards and usage of brands in the coffee shop sector, September 2014
                                                                                                                                                      • Correspondence analysis
                                                                                                                                                        • Brand attitudes
                                                                                                                                                          • Figure 22: Attitudes, by coffee shop brand, September 2014
                                                                                                                                                        • Brand personality
                                                                                                                                                          • Figure 23: Coffee shop brand personality – Macro image, September 2014
                                                                                                                                                          • Figure 24: Coffee shop brand personality – Micro image, September 2014
                                                                                                                                                        • Brand experience
                                                                                                                                                          • Figure 25: Coffee shop brand usage, September 2014
                                                                                                                                                          • Figure 26: Satisfaction with various coffee shop brands, September 2014
                                                                                                                                                          • Figure 27: Consideration of coffee shop brands, September 2014
                                                                                                                                                        • Brand recommendation
                                                                                                                                                          • Figure 28: Recommendation of selected coffee shop brands, September 2014
                                                                                                                                                      • The Consumer – Who Buys Coffee Out of Home and Where do They Go?

                                                                                                                                                        • Key points
                                                                                                                                                          • Venues visited
                                                                                                                                                              • Figure 29: Outlets used to buy hot drinks out of home, July 2013 and September 2014
                                                                                                                                                            • Competition from non-specialists
                                                                                                                                                              • The threat from free coffee
                                                                                                                                                                • One in five people don’t drink hot drinks out of home
                                                                                                                                                                  • Frequency of visiting coffee shops
                                                                                                                                                                      • Figure 30: Frequency of using coffee shops, July 2013 and September 2014
                                                                                                                                                                      • Figure 31: Frequency of using coffee shops, September 2014
                                                                                                                                                                  • The Consumer – Reasons for Buying Coffee Out of Home

                                                                                                                                                                    • Key points
                                                                                                                                                                      • Reasons for buying hot drinks out of home
                                                                                                                                                                          • Figure 32: Reasons for buying hot drinks out of home, September 2014
                                                                                                                                                                        • Two in five turn to hot drinks for a break, equal share to relax
                                                                                                                                                                          • Convenience drives one in four hot drink buyers
                                                                                                                                                                            • Self-service machines
                                                                                                                                                                              • Ready-to-drink products
                                                                                                                                                                                • Vending opportunities
                                                                                                                                                                                  • Coffee karts
                                                                                                                                                                                    • Slow it all down
                                                                                                                                                                                      • Coffee in the meal context
                                                                                                                                                                                      • The Consumer – Attitudes towards Buying Coffee Out of Home

                                                                                                                                                                                        • Key points
                                                                                                                                                                                          • More than a quarter like to vary where they go for coffee
                                                                                                                                                                                              • Figure 33: Attitudes towards buying hot drinks out of home, September 2014
                                                                                                                                                                                            • Standout products
                                                                                                                                                                                              • Highlighting the venues’ coffee credentials
                                                                                                                                                                                              • The Consumer – Interest in Products and Services When Buying Coffee Out of Home

                                                                                                                                                                                                • Key points
                                                                                                                                                                                                  • Wider service formats appeal most to the 16-34s
                                                                                                                                                                                                      • Figure 34: Interest in products and services when buying hot drinks out of home, September 2014
                                                                                                                                                                                                    • Tailored service formats
                                                                                                                                                                                                      • Drive-throughs and self-service machines
                                                                                                                                                                                                        • Mobile units
                                                                                                                                                                                                          • Smartphone technology
                                                                                                                                                                                                            • Digital loyalty schemes, promotions and payment apps
                                                                                                                                                                                                              • Smartphone payments
                                                                                                                                                                                                                • Location-based marketing
                                                                                                                                                                                                                  • ‘Push’ marketing
                                                                                                                                                                                                                    • In-store wireless charging
                                                                                                                                                                                                                      • Video content can help promote new services
                                                                                                                                                                                                                      • The Consumer – Specialist Coffee Shops’ Menu Enticements

                                                                                                                                                                                                                        • Key points
                                                                                                                                                                                                                          • Menu enticements
                                                                                                                                                                                                                              • Figure 35: Coffee shops’ menu enticements, September 2014
                                                                                                                                                                                                                            • Localism
                                                                                                                                                                                                                              • Food expansion opportunities
                                                                                                                                                                                                                                • Hot sandwiches
                                                                                                                                                                                                                                  • Wider product categories
                                                                                                                                                                                                                                    • Wider menus linked to trials of other meal occasions
                                                                                                                                                                                                                                      • Drinks expansion opportunities
                                                                                                                                                                                                                                        • Soft drinks
                                                                                                                                                                                                                                          • Dessert coffees
                                                                                                                                                                                                                                            • Tea innovation
                                                                                                                                                                                                                                            • Appendix – Market Size and Forecast

                                                                                                                                                                                                                                                • Figure 36: Best- and worst-case forecasts for UK coffee shops market, 2014-19

                                                                                                                                                                                                                                            Companies Covered

                                                                                                                                                                                                                                            • Cineworld
                                                                                                                                                                                                                                            • Enterprise Inns Plc
                                                                                                                                                                                                                                            • Greene King Brewing and Retailing Ltd
                                                                                                                                                                                                                                            • Greggs Plc
                                                                                                                                                                                                                                            • JD Wetherspoon
                                                                                                                                                                                                                                            • Leon
                                                                                                                                                                                                                                            • McDonald's Corporation
                                                                                                                                                                                                                                            • Pret A Manger
                                                                                                                                                                                                                                            • Rainforest Alliance
                                                                                                                                                                                                                                            • Selfridges Group
                                                                                                                                                                                                                                            • Starbucks Coffee Company UK Ltd
                                                                                                                                                                                                                                            • Starbucks Corporation
                                                                                                                                                                                                                                            • Whitbread PLC

                                                                                                                                                                                                                                            Coffee Shops - UK - December 2014

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