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Sales at coffee chain Costa have increased by almost 9% in the first quarter as owner Whitbread (WTB) reported a “good” start to the year.
A good performance in the expanding travel and drive thru channels at Costa helped UK like-for-like sales rise 1.1% in 13 weeks to 1 June, with total sales up 8.7%, driven by international and new openings. However, the like-for-like growth represented a slow down from the 2.6% recorded for the same period a year ago as sales continued to mature.
Whitbread CEO Alison Brittain has introduced a raft of new initiatives at Costa to help stem the slow down at the chain caused by a steady decline in consumer confidence since the Brexit vote.
Costa has rolled out a cold brew coffee in more than 200 of its stores, with its latest summer ‘Frostino’ and other cooler drinks also available from this month.
Brittain said the business, which has 2,270 stores in the UK, planned to launch further food ranges throughout the year after the introduction of a new breakfast range towards the end of the quarter.
A further 300 Costa Express machines were installed in the period, taking the total to more than 7,101 with another 1,250 planned for this financial year.
International sales increased 17.1% – with almost 10% of that growth coming from favourable currency exchange rates – with “good progress” in China and positive like-for-like growth.
Costa, which already has 440 stores in Asia, aimed to accelerate openings in its international markets, Brittain added.
The new Coasta roastery, opened in May, gives the chain the capacity to grow over the next 20 years.
Whitbread sales rose 7.6% in the quarter, with like-for-like growth of 2.9%, as Premier Inn registered a 9.2% increase.
“We have had a good start to the year, with first quarter sales growth of 7.6%, in line with our expectations,” Brittain said.
“Our continued drive to grow and innovate in our core UK businesses, focus on our strengths internationally and build capabilities to support long-term growth, combined with our ongoing cost efficiency programme, gives us confidence that we will make further good progress this year.”
Shares at Whitbread have soared 5.7% this morning to 4,073p.
Morning update
Consumer trust and loyalty are the key focus areas among consumer and retail executives, while new entrants pose the greatest external challenge, according to a survey by KPMG International and The Consumer Goods Forum (CGF).
A third (33%) of the 526 consumer and retail executives surveyed globally said consumer trust and loyalty would be their top priority for the next two years – ranking above product and pricing (29%) and customer experience (26%).
Further emphasising the significance being placed on trust and loyalty, almost three-quarters of the executives (74%) said they were ‘very’ to ‘critically’ important to their short-term success.
More than a third of the executives (35%) said competition from new entrants marked the greatest external challenge. Meanwhile, declining consumer loyalty (37%), increasing preference to shop and buy online (33%) and increasing expectation for immediate services (30%) were noted as the main consumer-driven disruptors.
“In this age of increased disruption and volatility, change comes thick and fast, and executives of consumer and retail businesses are all too aware of the challenges this presents to their growth prospects, if not their survival,” said Liz Claydon, UK head of consumer markets at KPMG.
“You don’t have to look far to find a new entrant who has swooped in and snapped up market share with an innovative approach that better meets the ever-rising expectations and changing needs of today’s customer. In the eyes of the customer being loyal to a particular brand is not as important as it once was. This means experience has become the primary differentiator in the battleground for success, and the larger players are having to starting thinking like start-ups.
“For established players, paying close attention to consumer trends and launching innovative products is of course one important step towards growth. However, it is often the speed and agility with which they meet ever-changing consumer demands that is perhaps the defining factor. This is where new entrants typically have the upper hand. Significant growth will not come from reacting to a market, it will come from leading it.”
It is the fifth year the Global Consumer Executive Top of Mind survey has been published.
Elsewhere, the low oil price has continued to put pressure on the FTSE 100, which opens 0.2% down to 7,458.80 points.
Ocado continued to slip, falling 0.9% to 298.4p in the early going, joined by B&M European Value Retail, down 1% to 341.5p and Coca-Cola HBC (CCH), down 0.8% to 2,369p.
Compass (CPG), SSP Group (SSPG) and Greencore are all up so far, climbing 0.7% to 1,690p, 0.5% to 498.7p and 0.4% to 252p respectively.
Yesterday in the City
There were a lot of heavy fallers on the retail beat yesterday, led by Marks & Spencer (MKS), which slid 2.6% to 341.6p. Tesco (TSCO), Sainsbury’s (SBRY) and B&M European Value Retail (BME) also fell back, down 1.7% to 168.1p, 1.2% to 254.9p and 1.7% to 345.1p respectively.
After making strong gains in the morning, Ocado (OCDO) slumped 1.7% to 301.2p as investors took a profit on the big jump on Monday.
Premier Foods (PFD), Fever-Tree (FEVR) and Dairy Crest (DCG) ended the day in the red, down 1.9% to 39.8p, 1.8% to 1,670p and 1.7% to 638.5p.
The FTSE 100 also lost ground and early forward momentum to close 0.7% behind (or 51.10 points) to 7,472.71 points as year-to-date lows for the price of oil dragged the blue-chip index back.
Greggs (GRG) moved 1.3% ahead to 1,129p, with Morrisons (MRW) escaping the downward trend to climb 1.2% to 247.5p, and Greencore (GNC) finished 0.8% up at 251p.
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