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Coffee Shops - UK - December 2015

“The out-of-home hot drinks market continues to attract attention from non-specialists, putting pressure on specialist coffee shop operators to offer a point of difference. As such, the larger specialist players are refreshing their offer with a renewed focus on food, technology and store formats in order to increase their competitive edge.”

– Richard Ford, Senior Food and Drink Analyst

This report looks at the following areas:

  • Reducing waiting times should win customer favour
  • Coffee subscriptions: a threat and an opportunity for UK coffee shops
  • Operators experiment with late night and alcohol trials in a competitive landscape

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Table of contents

  1. Overview

    • What you need to know
      • Products covered in this report
      • Executive Summary

          • The market
            • The coffee shop market is estimated to see 6% value growth in 2015
              • Forecast
                • Figure 1: UK coffee shops market size and forecast, 2010-20
              • Growth in real wages should prompt greater frequency of consumption
                • National Living Wage is likely to prompt price rises for consumers
                  • Stalled growth in the core 16-34 user group
                    • Companies and brands
                      • Costa aims for 2,500 stores by 2020
                        • Starbucks starts serving alcohol
                          • Caffè Nero and Starbucks expand hot food
                            • Investment pours into SMEs
                              • Second Cup enters the UK market
                                • Starbucks and Costa launch new formats
                                  • The consumer
                                    • Three quarters of Brits buy hot drinks out-of-home
                                      • Figure 2: Outlets used to buy hot drinks out-of-home, July 2013, September 2014 and September 2015
                                    • Specialist coffee shops are used more widely for sitting in than for a takeaway
                                      • Figure 3: Frequency of using coffee shops, July 2013, September 2014 and September 2015
                                    • Coffee is the most popular drink bought at specialist coffee shops
                                      • Figure 4: Types of hot drinks purchased at specialist coffee shops, September 2015
                                    • Location and high quality coffee are seen as important by over half of buyers
                                      • Figure 5: Factors influencing where hot drinks are purchased out-of-home, September 2015
                                    • Limited edition coffee appeals to 29% of consumers
                                      • Figure 6: Interest in coffee shop product concepts
                                    • 47% of hot drinks buyers prefer venues offering customisation
                                      • Figure 7: Coffee shop buying behaviours and preferences, September 2015
                                    • Traditional British baked goods are popular with half of out-of-home hot drink buyers
                                      • Figure 8: Interest in complementary products/services at coffee shops, September 2015
                                    • What we think
                                    • Issues and Insights

                                      • Reducing waiting times should win customer favour
                                        • The facts
                                          • The implications
                                            • Coffee subscriptions: a threat and an opportunity for UK coffee shops
                                              • The facts
                                                • The implications
                                                  • Operators experiment with late night and alcohol trials in a competitive landscape
                                                    • The facts
                                                      • The implications
                                                      • The Market – What You Need to Know

                                                        • Growth in real wages should benefit coffee shops
                                                          • The National Living Wage will increase operators’ costs
                                                            • Stalled growth in the core 16-34 user group
                                                              • The coffee shops market is estimated to grow by 6% in 2015
                                                                • Market growth of 26% is expected in 2015-20
                                                                • Market Size and Forecast

                                                                  • UK coffee shops value growth estimated at 6% in 2015
                                                                    • Figure 9: UK coffee shops market size and forecast, at current and 2015 prices, 2010-20
                                                                  • Forecast
                                                                    • Figure 10: UK coffee shops market size and forecast, 2010-20
                                                                • Market Drivers

                                                                  • Growth in real wages should prompt greater frequency of consumption
                                                                    • Figure 11: Trends in how respondents would describe their financial situation, February 2009-September 2015
                                                                  • The introduction of the National Living Wage is likely to prompt price rises for consumers
                                                                    • Concern over future coffee bean supplies
                                                                      • Stalled growth in the core 16-34 user group may affect market growth going forward
                                                                        • Figure 12: Trends in the age structure of the UK population, 2010-15 and 2015-20
                                                                    • Key Players – What You Need to Know

                                                                      • Costa aims for 2,500 stores by 2020
                                                                        • Investment pours into SMEs
                                                                          • Second Cup enters the UK market
                                                                            • Starbucks trials serving alcohol
                                                                              • Caffè Nero and Starbucks extend their hot food ranges
                                                                                • Starbucks and Costa launch new store formats
                                                                                  • Apps help to cut queueing time
                                                                                  • Market Share

                                                                                    • The UK specialist coffee shops market: background
                                                                                      • Starbucks, Costa Coffee And Caffè Nero explore new directions
                                                                                        • Caffè Nero expands its hot food options
                                                                                          • Costa launches new Costa Fresco format
                                                                                            • Starbucks launches new Starbucks Reserve and Starbucks Evenings in the UK
                                                                                              • Starbucks Reserve
                                                                                                • Figure 13: Photographs showing coffee-making methods at the Starbucks Reserve store in Covent Garden, London
                                                                                              • Starbucks Evenings
                                                                                                • Coffee shop specialists lay out expansion plans
                                                                                                  • Costa aims for 2,500 stores by 2020
                                                                                                      • Figure 14: Outlet numbers of selected UK coffee shops, 2011 and 2013-15
                                                                                                    • Small and medium-sized enterprises attract investment
                                                                                                      • Canada’s Second Cup opens in the UK
                                                                                                      • Brand Communication and Promotion

                                                                                                        • Starbucks is the biggest spender on advertising
                                                                                                          • Figure 15: Recorded above-the-line, online display and direct mail advertising expenditure on selected coffee shops, 2011-15
                                                                                                        • Operators foster greater engagement through social media
                                                                                                          • Big brands seek to portray ‘handcrafted’ coffee
                                                                                                            • Caffè Nero uses lifestyle branding
                                                                                                              • Costa looks to lenticular technology to grab attention of passers-by …
                                                                                                                • … and partners with BuzzFeed
                                                                                                                  • First official International Coffee Day established
                                                                                                                    • Free coffee
                                                                                                                    • Brand Research

                                                                                                                        • What you need to know
                                                                                                                          • Brand map
                                                                                                                            • Figure 16: Attitudes towards and usage of selected coffee shop brands, November 2015
                                                                                                                          • Key brand metrics
                                                                                                                            • Figure 17: Key metrics for selected coffee shop brands, November 2015
                                                                                                                          • Starbucks and Costa have well rounded images influenced by their wide availability
                                                                                                                            • Figure 18: Attitudes, by coffee shop brand, November 2015
                                                                                                                          • Coffee Republic has closest association with negative connotations
                                                                                                                            • Figure 19: Brand personality – Macro image, November 2015
                                                                                                                          • Harris+Hoole is seen as special, whilst BB’s is associated with family
                                                                                                                            • Figure 20: Brand personality – micro image, November 2015
                                                                                                                          • Brand analysis
                                                                                                                            • Costa Coffee enjoys advantageous position over its competitors
                                                                                                                              • Figure 21: User profile of Costa Coffee, November 2015
                                                                                                                              • Figure 22: User profile of Caffè Nero, November 2015
                                                                                                                            • Starbucks’ overall positive image limits impact of unethical associations
                                                                                                                              • Figure 23: User profile of Starbucks, November 2015
                                                                                                                            • BB’s Coffee & Muffins is noted for value and family
                                                                                                                              • Figure 24: User profile of BB’s Coffee & Muffins, November 2015
                                                                                                                            • Harris+Hoole enjoys a special image but low exposure limits usage
                                                                                                                              • Figure 25: User profile of Harris+Hoole, November 2015
                                                                                                                            • Coffee Republic struggles to create a positive brand image
                                                                                                                              • Figure 26: User profile of Coffee Republic, November 2015
                                                                                                                          • Launch Activity and Innovation

                                                                                                                            • Apps
                                                                                                                              • Pre-ordering apps help customers cut down on queuing time
                                                                                                                                • Operators move into coffee subscription services
                                                                                                                                  • Operators look to expand their roasting capability
                                                                                                                                    • In-store roasting
                                                                                                                                      • Figure 27: The coffee roaster in Coffee@33’s store, Brighton
                                                                                                                                    • Cold brew gains traction in the UK
                                                                                                                                      • Draught cold brew/nitro coffee
                                                                                                                                        • Coffee shop industry increases its focus on waste
                                                                                                                                        • The Consumer – What You Need to Know

                                                                                                                                          • Three quarters of Brits buy hot drinks out-of-home
                                                                                                                                            • Specialist coffee shops used more widely for sitting in than for takeaway
                                                                                                                                              • Almost three quarters buy coffee at specialist coffee shops
                                                                                                                                                • Location and high quality are the most important outlet choice factors
                                                                                                                                                  • Limited edition coffee appeals to 29% of consumers
                                                                                                                                                    • 47% of hot drinks buyers prefer venues offering customisation
                                                                                                                                                      • Traditional British baked goods would be popular with half of out-of-home hot drink buyers
                                                                                                                                                      • Outlets Used to Buy Hot Drinks Out-of-home

                                                                                                                                                        • Three quarters of Brits buy hot drinks out-of-home
                                                                                                                                                          • Figure 28: Outlets used to buy hot drinks out-of-home, July 2013, September 2014 and September 2015
                                                                                                                                                        • Costa Coffee is the most widely used coffee shop chain
                                                                                                                                                          • Non-specialists make up a significant part of the market
                                                                                                                                                            • One in seven Brits buy hot drinks from restaurants/pubs/hotels
                                                                                                                                                              • A quarter of Brits use independent coffee shops
                                                                                                                                                                • Half of consumers use two or more outlets to buy hot drinks
                                                                                                                                                                  • Figure 29: Repertoire of coffee shops used, September 2015
                                                                                                                                                              • Frequency of Using Coffee Shops

                                                                                                                                                                • Coffee shops are more popular for sitting in than taking away
                                                                                                                                                                  • Usage remains unchanged since 2013
                                                                                                                                                                    • Figure 30: Frequency of using coffee shops, July 2013, September 2014 and September 2015
                                                                                                                                                                • Hot Drinks Purchases Made at Coffee Shops

                                                                                                                                                                  • Coffee is the most popular drink bought at specialist coffee shops
                                                                                                                                                                    • Boosting interest in tea out-of-home
                                                                                                                                                                      • Figure 31: Types of hot drinks purchased at specialist coffee shops, September 2015
                                                                                                                                                                    • Making coffee shops more appealing to women and the young
                                                                                                                                                                    • Factors Influencing Where Hot Drinks are Purchased Out-of-home

                                                                                                                                                                      • A convenient location and high quality coffee are key
                                                                                                                                                                        • Convenient location
                                                                                                                                                                          • High quality coffee
                                                                                                                                                                            • Figure 32: Factors influencing where hot drinks are purchased out-of-home, September 2015
                                                                                                                                                                          • Friendly staff influences choice of venue for one in three buyers
                                                                                                                                                                            • Short waiting time influences the venue choice of 29% of users
                                                                                                                                                                              • High quality food is important for one in five hot drinks buyers
                                                                                                                                                                              • Interest in Coffee Shop Product Concepts

                                                                                                                                                                                • Limited edition coffee appeals to 29% of consumers
                                                                                                                                                                                  • Figure 33: Interest in coffee shop product concepts, September 2015
                                                                                                                                                                                • One in five interested in coffee made with non-dairy ‘milk’
                                                                                                                                                                                  • Brits are more interested in nitro/draught coffee than in cold-brew
                                                                                                                                                                                  • Coffee Shop Buying Behaviours and Preferences

                                                                                                                                                                                    • Half of hot drinks buyers prefer venues offering customisation
                                                                                                                                                                                      • Figure 34: Coffee shop buying behaviours and preferences, September 2015
                                                                                                                                                                                    • Hot drinks buyers favour production provenance information over roasting provenance
                                                                                                                                                                                      • One in four would drink more decaffeinated coffee out-of-home if available
                                                                                                                                                                                      • Interest in Complementary Products/Services at Coffee Shops

                                                                                                                                                                                        • The role of food in coffee shops is on the rise
                                                                                                                                                                                          • Figure 35: Interest in complementary products/services at coffee shops, September 2015
                                                                                                                                                                                        • Traditional British baked goods garner widest interest amongst out-of-home hot drinks buyers
                                                                                                                                                                                          • 14% of out-of-home hot drinks buyers would be interested in ethnic food at their favourite coffee shop
                                                                                                                                                                                            • Blurring boundaries between coffee and alcoholic drink venues
                                                                                                                                                                                              • There is scope for coffee shops to branch out into ice cream/gelato
                                                                                                                                                                                              • Appendix – Data Sources, Abbreviations and Supporting Information

                                                                                                                                                                                                • Data sources
                                                                                                                                                                                                  • Abbreviations
                                                                                                                                                                                                  • Appendix – Market Size and Forecast

                                                                                                                                                                                                    • Forecast methodology
                                                                                                                                                                                                        • Figure 36: Best- and worst-case forecasts for UK coffee shops market, 2015-20

                                                                                                                                                                                                    Companies Covered

                                                                                                                                                                                                    • Caffé Nero Group Plc
                                                                                                                                                                                                    • 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 2015

                                                                                                                                                                                                    US $2,570.96 (Excl.Tax)