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Coffee Shops - UK - October 2013

“Trends in the retail market demonstrate operators’ attempts to foster a greater sense of emotional connection between consumer and coffee producer in order to gain market share. Coffee shop operators could do well to apply this principle to the out-of-home environment as well seeing as 22% of out-of-home hot drink purchasers state they prefer coffee shops which support producers.”

– Helena Spicer, Senior Foodservice Analyst

Some questions answered in this report include:

  • How can operators further leverage the wide range of occasions associated with the ritual of coffee drinking?
  • What areas can operators develop to win over older users?
  • How can operators leverage product origin more effectively?
  • What initiatives can help operators to further appeal to younger consumers?

Coffee shops continue to benefit from consumers’ commitment to regular treat purchases, a trend which is likely to endure as consumer confidence levels recover in 2013.

However, competition in the market continues to intensify with the growth in product range and improvement in the quality of coffee offered by cheaper, non-specialist operators which appeal particularly to the price-sensitive 16-24-year-olds. Lack of brand differentiation and brand loyalty are also enduring challenges facing the specialist coffee shop market, whilst consumer trust in the Starbucks brand in particular has been damaged in 2012/13 over the publicity surrounding its UK corporation tax payments.

Operators have increasingly focused on exploring new selling strategies and formats in order to address the potential saturation of the market, looking to reach new audiences in locations such as petrol stations, hospitals and garden centres. However, going forward, high street locations may have to offer more of a leisure experience in order to address the drop-off in usage amongst older consumers, for whom the added value of speed of service and menu range becomes less relevant.

Definition

This report covers those 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, 2008-18
            • Market factors
              • Companies, brands and innovation
                • Companies
                  • Figure 2: Outlet numbers of selected leading specialist coffee chains, 2011 and 2013
                • 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
                    • Frequency of visiting coffee shops
                      • Figure 4: Frequency of using a coffee shop, July 2013
                    • Factors which influence venue choice
                      • Figure 5: Factors influencing where hot drinks are purchased out of home, July 2013
                    • Factors which influence drink choice out of home
                      • Figure 6: Factors affecting out-of-home drinks choice, July 2013
                    • Attitudes towards out-of-home coffee
                      • Figure 7: Attitudes towards coffee out of home, July 2013
                    • What we think
                    • Issues in the Market

                        • How can operators further leverage the wide range of occasions associated with the ritual of coffee drinking?
                          • What areas can operators develop to win over older users?
                            • How can operators leverage product origin more effectively?
                              • What initiatives can help operators to further appeal to younger consumers?
                              • Trend Application

                                  • Responsive brands
                                    • Fostering local partnerships and connections
                                      • Human versus robot
                                      • Market Drivers

                                        • Key points
                                          • Consumer confidence nearly reaches pre-recession levels in 2013
                                            • Figure 8: Consumer Confidence Index, January 2007-September 2013
                                          • Trends in the price of coffee
                                            • Figure 9: Retail price indices for coffee and other hot drinks, 2008-13
                                          • Starbucks loses customer trust following tax avoidance
                                            • Figure 10: Trust in selected brands in the coffee shops sector, December 2010 and August 2013
                                          • Demographic trends
                                            • Figure 11: Trends in the age structure of the UK population, 2008-18
                                        • Competitive Context

                                          • Key points
                                            • In home
                                              • In-home coffee goes from strength to strength
                                                • Tea consumption is in decline
                                                  • Growth predicted for hot chocolate and malted drinks
                                                    • Soft drinks
                                                      • Out of home
                                                        • Snacking operators
                                                          • Fast food operators
                                                            • Lunch operators
                                                            • Who’s Innovating?

                                                              • Key points
                                                                • Expansion of tailored concepts to meet the needs of additional distribution channels
                                                                  • Flavoured coffee drinks
                                                                    • New food launches
                                                                    • Market Size and Forecast

                                                                      • Key points
                                                                        • Coffee shops market size and forecast
                                                                          • Figure 12: UK coffee shops market size and forecast, at current and 2013 prices, 2008-18
                                                                          • Figure 13: UK coffee shops market size and forecast, 2008-18
                                                                        • Forecast methodology
                                                                        • Market Share

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

                                                                            • Key points
                                                                              • Specialist coffee shop operators
                                                                                • Figure 15: Outlet numbers of selected specialist coffee chains, 2011 and 2013
                                                                              • 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, 2009-12
                                                                                          • Recent developments – stores
                                                                                            • Recent developments – food and drink
                                                                                              • Recent developments – promotions
                                                                                                • Recent developments – other
                                                                                                  • Caffè Nero
                                                                                                    • Financial performance
                                                                                                      • Figure 17: Financial performance of Caffè Nero Group Limited, 2010-13
                                                                                                    • Recent developments
                                                                                                      • Coffee Republic
                                                                                                        • Recent developments
                                                                                                          • Case study: New entrant – Harris + Hoole (H+H)
                                                                                                          • Brand Communication and Promotion

                                                                                                            • Key points
                                                                                                              • Operators look to advertising to remain top of mind
                                                                                                                • Alternative payment methods
                                                                                                                • Brand Research

                                                                                                                  • Brand map
                                                                                                                      • Figure 18: Attitudes towards and usage of brands in the coffee shops sector, August 2013
                                                                                                                    • Correspondence analysis
                                                                                                                      • Brand attitudes
                                                                                                                        • Figure 19: Attitudes, by coffee shops brand, August 2013
                                                                                                                      • Brand personality
                                                                                                                        • Figure 20: Coffee shops brand personality – macro image, August 2013
                                                                                                                        • Figure 21: Coffee shops brand personality – micro image, August 2013
                                                                                                                      • Brand experience
                                                                                                                        • Figure 22: Coffee shops brand usage, August 2013
                                                                                                                        • Figure 23: Satisfaction with various coffee shops brands, August 2013
                                                                                                                        • Figure 24: Consideration of coffee shops brands, August 2013
                                                                                                                        • Figure 25: Consumer perceptions of current coffee shops brand performance, August 2013
                                                                                                                      • Brand index
                                                                                                                        • Figure 26: Coffee shops brand index, August 2013
                                                                                                                      • Target group analysis
                                                                                                                        • Figure 27: Target groups, August 2013
                                                                                                                        • Figure 28: Coffee shops brand usage, by target groups, August 2013
                                                                                                                      • Group One – Conformists
                                                                                                                        • Group Two – Simply the Best
                                                                                                                          • Group Three – Shelf Stalkers
                                                                                                                            • Group Four – Habitual Shoppers
                                                                                                                              • Group Five – Individualists
                                                                                                                              • Who Buys Coffee Out of Home and Where do They Go?

                                                                                                                                • Key points
                                                                                                                                  • Outlets used to buy hot drinks out of home
                                                                                                                                    • Figure 29: Outlets used to buy hot drinks out of home, July 2013
                                                                                                                                  • Frequency of visiting coffee shops
                                                                                                                                    • Figure 30: Frequency of using a coffee shop, July 2013
                                                                                                                                • Factors Influencing where Hot Drinks are Purchased Out of Home

                                                                                                                                  • Key points
                                                                                                                                    • Convenience trumps brand in venue choice
                                                                                                                                      • Figure 31: Factors influencing where hot drinks are purchased out of home, July 2013
                                                                                                                                    • Young consumers are price-focused
                                                                                                                                      • Older consumers are looking for more pleasant environments
                                                                                                                                      • Factors Affecting Out-of-home Drinks Choice

                                                                                                                                        • Key points
                                                                                                                                          • Demand for safe adventure
                                                                                                                                            • Figure 32: Factors affecting out-of-home drinks choice, July 2013
                                                                                                                                          • Price versus authenticity
                                                                                                                                            • The ‘treat’ nature of out-of-home hot drinks affects demand for low-calorie or low-fat options
                                                                                                                                              • Charitable contributions fail to motivate purchases but can work to improve CSR perceptions
                                                                                                                                              • Attitudes Towards Out-of-home Coffee

                                                                                                                                                • Key points
                                                                                                                                                  • Poor value-for-money perceptions affecting customer retention as consumers age and speed of service loses relevancy
                                                                                                                                                    • Figure 33: Attitudes towards coffee out of home, July 2013
                                                                                                                                                  • More than one in ten have cut back their expenditure at coffee shops
                                                                                                                                                    • Are UK consumers really coffee connoisseurs?
                                                                                                                                                      • The potential of click-and-collect services
                                                                                                                                                      • Appendix – Market Size and Forecast

                                                                                                                                                          • Figure 34: UK coffee shops market size and forecast, at current and 2013 prices, 2008-18
                                                                                                                                                          • Figure 35: UK coffee shops market size and forecast, 2008-18
                                                                                                                                                          • Figure 36: Best- and worst-case forecasts for UK chicken and burger bar market, 2013-18
                                                                                                                                                      • Appendix – Brand Research

                                                                                                                                                          • Figure 37: Brand usage, August 2013
                                                                                                                                                          • Figure 38: Brand commitment, August 2013
                                                                                                                                                          • Figure 39: Brand momentum, August 2013
                                                                                                                                                          • Figure 40: Brand diversity, August 2013
                                                                                                                                                          • Figure 41: Brand satisfaction, August 2013
                                                                                                                                                          • Figure 42: Brand attitude, August 2013
                                                                                                                                                          • Figure 43: Brand image – macro image, August 2013
                                                                                                                                                          • Figure 44: Brand image – macro image, August 2013
                                                                                                                                                          • Figure 45: Profile of target groups, by demographics, August 2013
                                                                                                                                                          • Figure 46: Psychographic segmentation, by target groups, August 2013
                                                                                                                                                          • Figure 47: Brand usage, by target groups, August 2013
                                                                                                                                                        • Brand index
                                                                                                                                                          • Figure 48: Brand index, August 2013
                                                                                                                                                      • Appendix – Who Buys Coffee Out of Home and Where do they Go?

                                                                                                                                                          • Figure 49: Outlets used to buy hot drinks out of home, July 2013
                                                                                                                                                          • Figure 50: Most popular outlets used to buy hot drinks out of home, by demographics, July 2013
                                                                                                                                                          • Figure 51: Next most popular outlets used to buy hot drinks out of home, by demographics, July 2013
                                                                                                                                                          • Figure 52: Other outlets used to buy hot drinks out of home, by demographics, July 2013
                                                                                                                                                          • Figure 53: Factors influencing where hot drinks are purchased out of home, by most popular outlets used to buy hot drinks out of home, July 2013
                                                                                                                                                          • Figure 54: Factors influencing where hot drinks are purchased out of home, by next most popular outlets used to buy hot drinks out of home, July 2013
                                                                                                                                                          • Figure 55: Factors affecting out-of-home drinks choice, by most popular outlets used to buy hot drinks out of home, July 2013
                                                                                                                                                          • Figure 56: Factors affecting out-of-home drinks choice, by next most popular outlets used to buy hot drinks out of home, July 2013
                                                                                                                                                          • Figure 57: Attitudes towards coffee out of home, by most popular outlets used to buy hot drinks out of home, July 2013
                                                                                                                                                          • Figure 58: Attitudes towards coffee out of home, by next most popular outlets used to buy hot drinks out of home, July 2013
                                                                                                                                                          • Figure 59: Outlets used to buy hot drinks out of home, by most popular outlets used to buy hot drinks out of home, July 2013
                                                                                                                                                          • Figure 60: Outlets used to buy hot drinks out of home, by next most popular outlets used to buy hot drinks out of home, July 2013
                                                                                                                                                      • Appendix – Frequency of Visiting Coffee Shops

                                                                                                                                                          • Figure 61: Frequency of using a coffee shop, July 2013
                                                                                                                                                          • Figure 62: Frequency of drinking in a coffee shop, by demographics, July 2013
                                                                                                                                                          • Figure 63: Frequency of having a takeaway from a coffee shop, by demographics, July 2013
                                                                                                                                                      • Appendix – Factors Influencing where Hot Drinks are Purchased Out of Home

                                                                                                                                                          • Figure 64: Factors influencing where hot drinks are purchased out of home, July 2013
                                                                                                                                                          • Figure 65: Most popular factors influencing where hot drinks are purchased out of home, by demographics, July 2013
                                                                                                                                                          • Figure 66: Next most popular factors influencing where hot drinks are purchased out of home, by demographics, July 2013
                                                                                                                                                          • Figure 67: Other factors influencing where hot drinks are purchased out of home, by demographics, July 2013
                                                                                                                                                          • Figure 68: Factors influencing where hot drinks are purchased out of home, by most popular factors influencing where hot drinks are purchased out of home, July 2013
                                                                                                                                                          • Figure 69: Factors influencing where hot drinks are purchased out of home, by next most popular factors influencing where hot drinks are purchased out of home, July 2013
                                                                                                                                                          • Figure 70: Factors affecting out-of-home drinks choice, by most popular attitudes towards coffee out of home, July 2013
                                                                                                                                                          • Figure 71: Factors affecting out-of-home drinks choice, by next most popular attitudes towards coffee out of home, July 2013
                                                                                                                                                          • Figure 72: Attitudes towards coffee out of home, by most popular factors influencing where hot drinks are purchased out of home, July 2013
                                                                                                                                                          • Figure 73: Attitudes towards coffee out of home, by next most popular factors influencing where hot drinks are purchased out of home, July 2013
                                                                                                                                                      • Appendix – Factors Affecting Out-of-home Drinks Choice

                                                                                                                                                          • Figure 74: Factors affecting out-of-home drinks choice, July 2013
                                                                                                                                                          • Figure 75: Most popular factors affecting out-of-home drinks choice, by demographics, July 2013
                                                                                                                                                          • Figure 76: Next most popular factors affecting out-of-home drinks choice, by demographics, July 2013
                                                                                                                                                          • Figure 77: Factors affecting out-of-home drinks choice, by most popular factors affecting out-of-home drinks choice, July 2013
                                                                                                                                                          • Figure 78: Factors affecting out-of-home drinks choice, by next most popular factors affecting out-of-home drinks choice, July 2013
                                                                                                                                                          • Figure 79: Factors influencing where hot drinks are purchased out of home, by most popular factors affecting out-of-home drinks choice, July 2013
                                                                                                                                                          • Figure 80: Factors influencing where hot drinks are purchased out of home, by next most popular factors affecting out-of-home drinks choice, July 2013
                                                                                                                                                      • Appendix – Attitudes Towards Out-of-home Coffee

                                                                                                                                                          • Figure 81: Attitudes towards coffee out of home, July 2013
                                                                                                                                                          • Figure 82: Most popular attitudes towards coffee out of home, by demographics, July 2013
                                                                                                                                                          • Figure 83: Next most popular attitudes towards coffee out of home, by demographics, July 2013
                                                                                                                                                          • Figure 84: Other attitudes towards coffee out of home, by demographics, July 2013
                                                                                                                                                          • Figure 85: Attitudes towards coffee out of home, by most popular attitudes towards coffee out of home, July 2013
                                                                                                                                                          • Figure 86: Attitudes towards coffee out of home, by next most popular attitudes towards coffee out of home, July 2013
                                                                                                                                                          • Figure 87: Outlets used to buy hot drinks out of home, by most popular attitudes towards coffee out of home, July 2013
                                                                                                                                                          • Figure 88: Outlets used to buy hot drinks out of home, by next most popular attitudes towards coffee out of home, July 2013
                                                                                                                                                          • Figure 89: Factors influencing where hot drinks are purchased out of home, by most popular attitudes towards coffee out of home, July 2013
                                                                                                                                                          • Figure 90: Factors influencing where hot drinks are purchased out of home, by next most popular attitudes towards coffee out of home, July 2013
                                                                                                                                                          • Figure 91: Factors affecting out-of-home drinks choice, by most popular attitudes towards coffee out of home, July 2013
                                                                                                                                                          • Figure 92: Factors affecting out-of-home drinks choice, by next most popular attitudes towards coffee out of home, July 2013

                                                                                                                                                      Companies Covered

                                                                                                                                                      • Caffé Nero Group Plc
                                                                                                                                                      • Cineworld
                                                                                                                                                      • Costa
                                                                                                                                                      • Enterprise Inns Plc
                                                                                                                                                      • Facebook, Inc.
                                                                                                                                                      • Fior Brands
                                                                                                                                                      • Google, Inc.
                                                                                                                                                      • Grazia
                                                                                                                                                      • J. Sainsbury
                                                                                                                                                      • Kraft Foods UK
                                                                                                                                                      • Little Chef
                                                                                                                                                      • Rainforest Alliance
                                                                                                                                                      • Starbucks Coffee Company UK Ltd
                                                                                                                                                      • Starbucks Corporation
                                                                                                                                                      • Tesco (UK)
                                                                                                                                                      • Union Hand-Roasted
                                                                                                                                                      • Visa Europe
                                                                                                                                                      • Westfield Group
                                                                                                                                                      • Whitbread PLC

                                                                                                                                                      Coffee Shops - UK - October 2013

                                                                                                                                                      £1,995.00 (Excl.Tax)