Coffee shops beat the chill with rapid expansion

Consumers are helping big chains to defy the downturn. James Thompson reports

Many of the UK's biggest coffee shop chains and independent cafes have been defying the recession by going on an expansion spree.

The six big multiple chains – including Caffe Nero and Costa Coffee – ramped up their combined shop numbers by 47 per cent to 2,095 in the UK over the year to September 2009, said The Local Data Company, although some chains have found the going tough.

Ben Price, the finance director of Caffe Nero, said: "We have traded pretty well through the whole recession and our like-for-like sales have stayed positive. It is about a coffee being a regular daily treat for people today, and it's the change of habits over the last 10 years, and that has been sustained through the downturn."

Independents also grew their shop estate by 12.5 per cent in the top 10 cities, to 2,486, and actually grew their overall share of the market by 1 per cent to 70 per cent.

Economists had been expecting coffee shops to suffer from consumers cutting back on everyday spend during the worst recession since the Second World War, but some, such as Whitbread-owned Costa Coffee, have positively prospered: the store that it opened in Cardiff last week took its UK total to 1,000.

The chain posted operating profit, before exceptionals, up by 72.6 per cent at £12.6m for the six months ending 27 August. John Derkach, the managing director of Costa Coffee, said: "Places like Costa offer enormous value for money. For a couple of pounds you can get a decent cup of coffee and 45 minutes of peace and quiet in a nice environment." The chain, which operates in 23 countries, said the average transaction in its shops was £3.70.

Two other key drivers of the growth in coffee shops are that they are a far more pleasant environment than in years gone by, offering, for example, Wi-Fi for business meetings, and operators have been able to strike cheap property deals given the plethora of empty shops on the high street. Jeffrey Young, the managing director of Allegra, said: "Café culture itself is enormously powerful, and it is the modern form of the pub for many consumers."

On property, Mr Price said: "It is certainly a good time to be buying boxes at the moment, because there are a lot of vacant units." But a pattern appears to be emerging as to where the chains are expanding. The Local Data Company said the chains only grew their shop numbers by 4.9 per cent in the UK's biggest cities. Its director Matthew Hopkinson said: "Multiples are going into regional towns and rural areas far more aggressively."

However, it has not all been plain sailing for the multiple chains. Coffee Republic, and Limerick-based BB's Coffee & Muffins, have collapsed over recent months, but have subsequently emerged out of administration.

BB's Coffee & Muffins – which had 37 company-owned stores and 111 franchised stores – appointed the accountancy firm PKF as administrators on 6 October. PKF sold 16 company-operated shops to a new company Kapelad, which is now in discussions with former franchisees about buying more stores.

Coffee Republic fell into administration in July, but was rescued by property company Arab Investment. In September, the coffee chain, which now has 143 outlets in the UK and overseas, including concessions, said it plans to open 20 new shops in the UK in the next year. Even the mighty Starbucks said in January it would close a number of its stores in the UK and Ireland.

However, Starbucks has actually grown the overall number of coffee shops in the UK and Ireland from 723 at the end of its last financial year to 745 in the third quarter.

Separately, Denmark's Joe & The Juice is to take on Pret A Manger by opening its first UK store on London's Regent Street next week. It is being advised by the property firm Harper Dennis Hobbs and plans to open 20 stores in the UK by the end of 2011.

47%

Rise in UK cafes run by the big chains.

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