Costa Coffee’s supposedly lacklustre like-for-like sales performance, reported this week, has prompted questions not only about the buoyancy of the coffee market but the grip of the big three chains, writes Peter Martin.
The City wiped almost 5% off the value of parent Whitbread shares over fears about consumer spending at Costa, even though the group as a whole announced a rise in overall revenues and underlying profits. The fact that Costa’s UK operation recorded like-for-like sales growth of just 0.6% in the six months to the end of August obviously rattled investors.
The reality is that Costa’s flat trading is in-line with much of the rest of the out-of-home food and drink sector is seeing flat trading, as witnessed by the latest Coffer Peach Business Tracker. Like-for-like growth across eating-out hasn’t beaten 1% since April, and September saw a fall.
CGA’s latest BrandTrack consumer survey also provides little evidence to suggest the big three coffee shop chains – Costa, Starbucks and Caffe Nero – are struggling any more than anyone else. The frequency of visit and proportion of consumers visiting these brands are essentially flat too.
The research shows that more consumers visit the big three coffee chains than visit independent coffee shops – and, this may surprise many, the gap is actually widening. In all, 62% of the population have visited Costa, Caffe Nero or Starbucks in the past six months, while 37% have visited an independent coffee shop in the same timeframe
A frequency of visit at the big three has remained stable over the past year, although there has been a slight decrease in the proportion of customers visiting at least monthly – with just under half of the customer base visiting at least once a month. In total, 22% of customers of Starbucks, Costa, Caffe Nero visit weekly (up 3% year on year), with 44% visiting monthly (down 2% over the year.)
Despite slightly fewer consumers in general visiting independent coffee shops, there is now a greater overlap between the big three and independents than a year ago – highlighting the increased competition that independents pose to mainstream brands, but also perhaps the enduring popularity of the big names.
Greater choice seems to be increasing people's coffee repertoires without undermining the position of the big three. While consumers like to try something new, convenience, reliability and familiarity are still driving factors. Overall, 45% of big three coffee shop customers use independents (up 2p.p year on year).
Another factor is there are now far more consumers drinking coffee in mainstream pubs and bars than this time last year. As these outlets continue to increase the quality of their drinks offer and leverage drinks as a point of differentiation in a squeezed marketplace. In all, 30% of consumers who either drink coffee at the big three coffee brands, independent coffee shops or at restaurants and pub brands have done so at branded pub and restaurants - up from 21% in April 2016.
Coffee is a competitive marketplace, mirroring the rest of out-of-home, but big brands like Costa are far from in decline.