Caffé Nero edged past Coffee Republic yesterday to become Britain's largest independent coffee bar operator with the purchase of 26 Aroma sites from McDonald's, the fast-food giant.
The Italian-styled chain is believed to have paid about £3.5m for the Aroma units, which McDonald's bought for £10.5m in 2000. The deal, expected to complete next month, will give Caffé Nero 107 outlets, just ahead of Coffee Republic's 105.
Gerry Ford, Caffé Nero's chief executive, said the group would rebrand the Aroma sites, most of which are in London, at a cost of £60,000 per unit by the end of April. He said Caffé Nero would turn a profit from the loss-making Aroma units because "it ran a tighter ship and had better margins".
The purchase, which leaves McDonald's to focus on its 33 per cent stake in Prêt-a-Manger, the sandwich shop chain, will be partly funded by a new £5m loan arranged with Caffé Nero's bank and its venture capitalist backer, Paladin Partners.
Ben Price, the group's finance director, defended City criticisms that the coffee shop market had reached saturation point. "The 'death of coffee' is extremely over done," he said. The last eight out of nine new store openings in London have been profitable from day one, which is not something that tells us we've run out of steam."
David Stoddard, an analyst at Teather & Greenwood, said: "People wanted to be sceptical because the big growth in coffee bars has occurred at the same time as the dot.com boom."
Caffé Nero, which intends to roll out 300 stores by 2005, said underlying sales had increased by 2.5 per cent. Analysts said this compared well with a bleaker trading statement from its rival Coffee Republic last week.
Caffé Nero reported a pre-tax loss of £760,000 for the half-year to 30 November yesterday down from £868,000. Sales jumped 68 per cent to £11.3m. Analysts said the group was on track to make a profit before tax and amortisation next year.