Visit any coffee shop in the UK right now, and you’re likely to find yourself in a queue. Or at least a wait while the barista is frothing and pouring the click & collect or takeaway orders. It’s a sign of a market that is firmly back on track.
Having suffered a brutal decline in 2020, coffee shops recovered the lion’s share of that business last year, according to latest research from research consultancy Allegra.
The branded market grew £1.3bn to £4.4bn in 2021, found its Project Café UK 2022 report. That’s 87% of its value prior to the pandemic. Allegra MD Jeffrey Young says independents are enjoying similar growth rates, or “perhaps even a bit higher”.
What’s more, Allegra forecasts the branded market will reach £5.8bn over the next five years.
So how have coffee shops managed to bounce back from such tough times? And how will this shape the market in the years ahead?
Of course, the past year’s meteoric growth is largely due to the easing of Covid restrictions. While coffee shops were closed for large periods during 2020, they were open for the majority of 2021 – and customers have been keen to resume their old habits. “I think this period has just highlighted how important the coffee shop segment is to British lifestyles, and it’s shown how resilient the industry is,” says Young.
Proof of that resilience lies in the numbers. Despite market conditions remaining tough last year, the number of branded outlets grew 3.5% to reach 9,540 stores. That’s a full recovery to pre-pandemic levels. It meant big chains had to take the plunge at a time of squeezed margins and sales. Greggs, for example, announced at the start of 2021 that it would continue to open new stores at its pre-Covid rate, despite reeling from its first full-year loss.
This was driven by strategic thinking, rather than blind optimism. Branded chains carefully planned their openings to align with new consumer habits, Young explains. Some spotted fresh opportunities on smaller high streets as more people worked from home. “People are closer to their neighbourhoods, so there are more viable opportunities on local high streets,” says Young.
Drive-thrus
Others looked to new formats such as drive-thrus. There are now 578 such stores in the UK – a trend that has been driven by Costa and Starbucks, which together added 236 new sites in 2021. It’s a format that is increasingly appealing to UK customers, says Young. In Allegra’s consumer research, 57% of respondents said they would purchase beverages from a drive-thru if they were more readily available.
“Drive-thru has proven a very viable concept in the States, and what happens there tends to come here – especially in the quick service landscape,” Young explains. “It’s a safe environment and a convenient one to pick up your coffee.”
With that in mind, he expects the number of sites to only increase. Leon is in a particularly strong position given its acquisition by the Issa brothers, which could pave the way for new sites on their forecourts, Young suggests. (It’s a format that is as yet relatively unexplored by Leon, which only had one drive-thru site last year.)
Online sales
New sites aren’t the only way to drive growth, though. Over the past year, brands have been increasingly pushing online propositions such as click & collect and delivery, in a bid to boost sales through their existing stores.
The former has become a particularly established proposition, with Starbucks, Costa and Caffè Nero all offering click & collect through their apps. According to Allegra’s research, 70% of UK consumers have downloaded a coffee shop loyalty app, and 35% have bought a drink to collect over the past 12 months.
The delivery option hasn’t quite hit the same level of popularity yet. Although most chains offer delivery through Uber Eats, Just Eat or Deliveroo, just 16% of consumers surveyed by Allegra said they had taken up that option in the past year – perhaps because delivery fees can amount to the cost of a coffee itself. More encouragingly, though, nearly a quarter (24%) of consumers said they would consider the service if it is was more readily available.
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Young believes there will be a market for this service – if not a particularly large one – because “consumers are so convenience-driven”. What’s more, these consumers are likely to place larger orders to make delivery fees worthwhile – which offers an opportunity to sell retail products. “Pret is now selling bagged coffee in stores, and that’s available on Deliveroo alongside sandwiches and prepared coffee,” Young says.
Given that many of the big chains have seen strong sales growth in their retail offerings (and are actively promoting these lines in their cafés), it could prove a worthwhile opportunity.
Delivery need not come from a full store, either. Last summer, Motor Fuel Group started offering delivery of beverages prepared at its Costa Express machines via Uber Eats. This machine format has become increasingly important for Costa and the wider branded market. There were 14,628 self-serve coffee machines in the UK last year, double the number seen in 2016, according to Allegra’s Automated Coffee Report 2021.
For now, initiatives such as these are an advantageous addition, rather than core to business. But Young believes the market – both big chains and independents – will increasingly have to adapt to new consumer habits and demands. As he sums up: “If you don’t embrace it, you potentially get left way behind.”
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