Estimated at 22,845 outlets, the total UK coffee shop market delivered a growth of 6% in outlets and 12% in turnover to reach £8.9 billion in 2016.
Project Café2017 UK, the definitive report from Allegra World Coffee Portal, reveals the branded coffee shop chain sector contributed to the total market growth, adding 445 new stores to reach an estimated 6,940 outlets, representing a growth of 6.9%. With an estimated annual turnover of £3.7 billion, chains delivered an impressive sales growth of 11.2% in 2016. After 18 years of considerable continued growth, the coffee shop market is one of the most successful in the UK economy and is set to outnumber pubs by 2030 as coffee shops become the new local.
Costa Coffee, Starbucks Coffee Company, and Caffè Nero remain the UK’s leading chains with a 53% outlet share of the branded coffee shop market. Market leader Costa operates 2,121 UK outlets, adding 129 units in 2016, and Starbucks and Caffè Nero operate 898 and 650 UK outlets respectively. For the 7th year in a row, Costa has been voted the nation’s favourite coffee shop chain by Allegra’s independent panel of 5,000 consumers, ahead of Starbucks and Caffè Nero. However, Starbucks has seen a notable rise in popularity in 2016.
Changing market dynamics and the emergence of The 5th Wave
Leading chains continue to expand and enjoy positive like-for-like sales growth, albeit at a slowing pace. However, according to Allegra, small and medium sized boutique chains such as Coffee#1, Joe & the Juice, and Taylor St. Baristas are gaining momentum and driving the comparable sales growth across the sector, ahead of the leading chains.
Increased merger and acquisition activity throughout 2016 signifies the strength of the vibrant coffee shop market in the UK. Activity such as Whitbread’s 49% acquisition of Pure, Tchibo’s acquisition of Matthew Algie, and Caffè Nero’s purchase of Harris+Hoole signals further market convergence.
Allegra identifies that a new ‘5th Wave – The Business of Coffee,’ presents an important new era for the global coffee industry. The 5th Wave encompasses a compelling combination of all four previous waves – Tradition, Chains, Artisan, and Science – where high quality boutique chains will be a major feature of the market going forward. These highly targeted operators are adopting a more advanced set of business practices to deliver authentic, artisan concepts at scale.
“There has been a powerful change in industry dynamics over the last year. As boutique chains continue to expand and drive sales of premium quality coffee, we observe a shift in the competitive market set,” said Allegra Group CEO, Jeffrey Young.
The UK has become a nation of coffee drinkers, with coffee shop visitors purchasing an estimated 2.3 billion cups of coffee per year in stores. Consumers are more knowledgeable and empowered with choice than ever before, and the rise of artisan coffee has driven the desire for premium quality coffee. Leading chains continue to respond to this trend with improved store experience and product. With 8,200 machines, gourmet vending units now outnumber the branded chain market, meeting the growing consumer demand for specialty coffee anywhere and anytime.
The Future Marketplace
The UK branded coffee shop segment is forecast to reach 9,400 outlets to record over £6 billion annual revenue by 2021. Over the next 3-5 years, branded chains will continue to perform strongly and meet intensifying competition through innovative strategies. Allegra predicts the total UK coffee shop market will exceed 32,000 outlets and a turnover of £16 billion by 2025, with an annual outlet growth of 6%. As coffee shops are increasingly viewed as the local of choice by British consumers, coffee shops are set to outnumber pubs in the UK by 2030.
Economic uncertainty around Brexit will continue. The industry is faced with increasing costs and unstable currency as a result of the 15% decline in the pound relative to the euro following the referendum. These are ongoing challenges for operators and suppliers. Allegra warns that a hard Brexit would pose significant issues around access to labour and continued rising pressure on costs.
“We are entering an exciting, yet challenging era for the UK coffee industry within a global context. One that will ultimately see the leading brands compete on excellence in an environment where winning is everything” says Young.
The Project Café2017 UK Report is available to purchase from Allegra World Coffee Portal.
 The total coffee shop market includes branded coffee-focused and food-focused chains, independents, and non-specialist players including supermarket cafés, department store cafés, retail shops with cafés, pubs, hotels, motorway service stations, forecourts and fast food outlets.