COVID-19 winds back seven years of growth for UK branded coffee shops

The £3 billion (about US$4.2 billion) United Kingdom branded coffee shop market suffered a nearly 40 per cent sales decline over the past 12 months due to COVID, according to the Project Café UK 2021 report.

The total UK branded market now comprises 9159 outlets, a net decrease of 182 stores over the period.

The report says COVID-19 disruptions set back branded UK café chain sales to 2013 levels, wiping nearly £2 billion (about US$2.8 billion) off the market value.

This marks the first time in more than 20 years the UK branded café segment posted negative sales and outlet growth, and 39 and 1.9 per cent respectively.

Ongoing COVID-19 restrictions, leading to temporary store closures and takeaway-only trading, have contributed to a sharp sales decline across UK branded coffee shops. While a steep reduction in daily commuting has decimated footfall at travel hubs and city centres, many neighbourhood outlets have benefitted from increased levels of home working as more customers shop locally.

This dynamic is reflected in the first fall in the number of Greater London-based coffee shops in 20 years. The UK capital now has 2330 branded coffee shops – down 1.9 per cent on 2019 – but still accounts for more than one quarter of all UK branded cafés.

Nevertheless, the UK’s three largest branded café chains, Costa Coffee, Greggs, and Starbucks added 56, 28, and 30 stores to operate 2681, 2078, and 1025 stores respectively. Caffè Nero closed net 16 stores and now operates 648 UK outlets.

Amid widespread trading restrictions and reduced footfall, 59 per cent of industry leaders surveyed by the report revealed a year-on-year loss exceeding 5 per cent over the past 12 months. Those loss-making operators report an average negative financial impact of £27,650 (about US$38,220) per store, per month.

Reflecting the sombre national mood, just 15 per cent of industry leaders surveyed are positive about the current trading environment, down from 69 per cent from 12 months ago.

While 85 per cent of UK consumers surveyed report typically visiting coffee shops at least once a week, just 56 per cent maintained this frequency during the pandemic.

A growing number of operators, including market leaders Costa Coffee, Greggs, Starbucks, and Caffè Nero have responded by introducing hot beverage delivery, with 26 per cent of UK consumers surveyed indicating they would regularly use this service if the option were more readily available.

Drive-thru has also proved fruitful during the pandemic as convenience and safety takes precedent over in-store experience. Costa Coffee, Starbucks, and Tim Hortons possess the UK’s largest branded coffee chain drive-thru presence, with 200, 109, and 10 sites respectively, adding a combined 76 locations during 2020.

The UK branded coffee shop market continues to face deep uncertainty on both the timeframe and pace of recovery from COVID-19 in 2021, with the report forecasting modest 1.2 per cent outlet growth in 2022.

The total market is projected recover to pre-COVID-19 levels by 2024 and exceed 9600 outlets by 2025 at 1 per cent compound annual growth rate (CAGR). The coffee-focused sub-segment is anticipated to exceed 5700 outlets at 0.9 per cent CAGR, with the food-focused sub-segment expected to exceed 3800 stores at 1.1 per cent CAGR.

Image: Costa Coffee

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