Quality quest keeps coffee sector full of beans
Despite the economic squeeze, research shows the trend for a daily coffee shot remains strong and it even set to grow, while the growing cafe culture is boosting people’s desire for quality roasts and affecting their at-home coffee drinking habits.
The desire to settle into a comfy café chair and sip a flat white coffee is on the rise, with many justifying the money they spend on these drinks as an affordable treat, according to a report by research consultancy Allegra Strategies.
Despite the economic downturn, a significant percentage of the British public are paying for a daily caffeine fix, with one in 10 visiting a coffee shop every day. In general, visiting a coffee shop has also become a more popular pastime, with 39% of people saying they go more often than they did 12 months ago, says the study.
With the UK coffee market doubling in size since 2005, to an estimated £2.1bn turnover, consumers have more brands to choose from, according to the research. This means that more people are making the decision where to drink based on perceived quality.
We’re becoming a nation of connoisseurs, says Jeffrey Young, managing director at Allegra Strategies. “There has been an emergence of a food culture that has accelerated in the past five years. Our palates have evolved quite substantially and customers have better taste.”
One trend coming from the desire for a good quality blend is the emergence of the mini chain - outlets that provide the quality of coffee expected from good independent shops, but with some scale.
Gail’s Bakery is one such example. With 10 shops dotted around London, Gail’s puts as much emphasis on coffee as it does on the bakery side of the business, claims marketing director Emma King. She says customers expect a high quality cup of coffee to go with a gourmet pastry (see Frontline, below).
While there are opportunities for mini coffee chains to grow, the report highlights that weaker mid-size chains and independents that don’t put an emphasis on quality coffee will suffer. Meanwhile, the major chains continue to expand to cater to the needs of the growing café culture.
Costa, Starbucks and Caffè Nero are the three dominant brands on the UK high street. Whitbread-owned Costa is the fastest growing chain, adding 167 UK outlets in 2011 to take it to a total of more than 1,300 outlets. In second place is Starbucks with around 750 shops, and in third place Nero, which has just over 400. These three coffee chains account for 52% of the market, so it is no surprise that smaller rivals might struggle to captivate those looking for a caffeine injection.
There is an indicator, however, that the economy is impinging on the sector: the amount people are prepared to pay when they visit a café has dropped. Spend per visit is down from £3.50 in 2009 to £3.18 in 2011. Fewer people are regularly buying food with their drinks, according to the research, with 69% saying they do this compared to 71% in 2010.
Many of the coffee-loving community are choosing to spend their disposable income in chains rather than independent shops. In fact, chains are ‘much preferred’ by about 40% of what Allegra’s Young terms the ‘fashion forward’ consumer. He says this is partly due to a strong independent market in the UK spurring on the larger chains to provide a “more artisanal coffee offer” in a well-designed interior.
Location, however, is the most popular reason to choose a particular brand. Forty-five per cent say convenience for where they live is the reason for their choice of where they buy coffee, while 31% say it is quality that motivates them to choose a particular coffee shop.
Only 3% say loyalty cards sway their decision over which coffee shop to buy from; however, Young points out that loyalty cards haven’t been a deciding factor in previous surveys the company has done.
While location has long been the dominant reason, the statistics are moving in flavour’s favour: Allegra research from just a few years ago shows only around 20% of people choosing a coffee shop because of quality.
Young says brands are right to concentrate on quality because as the market grows, people will have several options to visit on the high street and it will be quality that will increasingly become the deciding factor.
The emphasis on taste has had an effect on how coffee is made at home too. While 64% still use instant coffee, ground coffee is now drunk by 54% of people at home. A significant percentage (15%) use whole bean and coffee pods (pre-packaged capsules of different types of coffee) and 12% make instant cappuccinos and lattes.
The way people are making coffee is changing too, with 14% using espresso machines at least once a week and the same percentage using coffee pod machines. Cafetières are the most popular way to make coffee, used by 32% of respondents at least once a week. Filter machines are used by 23% of people.
While the amount of coffee people are drinking is not increasing, the way it is being made in the home is reflective of the café culture that has developed in the UK.
“Consumers are trying to replicate what they can get on the high street by choosing to drink better quality coffee at home,” says Young.
However, this trend isn’t dampening the appetite for shop-bought coffees, claims Young. As the market is set to grow to a £7bn turnover by 2015, those brands that can highlight quality and value will create the most buzz on the UK high streets.
Coffee market size and growth
There are 15,084 branded coffee chains, independents and non-specialist operators in total in the UK, with annual growth of 4.5% in the past 12 months.
18,000 outlets with a £7bn turnover are expected by 2015.
Non-specialist operators, such as M&S Café and JD Wetherspoon, are growing strong. The total number of stores is estimated at 4,708 stores, with a 5.7% growth rate.
There are 4,907 branded coffee chains, with moderate growth at 5.6% in 2011.
Marketing director, Costa
I think Allegra is right: more people are accessing the coffee market. We launched our loyalty card in March 2010, and we’ve seen growth from [monitoring] the database over that period.
But a loyalty card isn’t a reason for having a cup of coffee. We know that consumers have a vast amount of choice in the marketplace and while a loyalty scheme might not be a primary driver of choice, it’s certainly a reason to come back once they have chosen to visit us.
In terms of the hierarchy of need, consumers are looking for high-quality coffee. In recent years that is becoming just as important as the location [the coffee shop is in].
We’ve been identifying opportunities in the market to continue to add interest and variety. The launch of the flat white last year was particularly successful for us.
Design is another area we’ve been looking at. We’ve been adapting our brand design to make it appropriate to local markets by launching a number of metropolitan-style outlets in London, and one in Leeds this year. It enables us to appeal to a more urban customer.
We’re not necessarily seeing the downward spend that’s being reported; however, we’re conscious that we have to deliver a strong value proposition. We’ve been running a number of tests to see whether we can drive incremental growth. Our current test [where a 25% discount on drinks is offered between the hours of 3pm and 5pm] is currently running in about 20 outlets in north London.
We’re keen to find ways to add further value to our customers and learn whether these types of tactics work in the coffee shop market and will help us to grow and develop our business.
Marketing director, Gail’s Artisan Bakery
Often what lets down the people producing bakery products is the coffee, so we put equal emphasis on investing in training our baristas as we do our bakers.
Our customer base is incredibly diverse, but one thing that connects them all is that they’re all true foodies. We have Tube workers and builders coming in to get their coffee and sausage roll right through to the St John’s Wood mummy who wants us to cater for her afternoon tea party for the children.
For us, ‘chain’ has been a bit of a dirty word, because the connotation is that every site you go into you’ll have exactly the same experience and quality will be reduced because of the scale [of the operation]. While we want to run a business, we want it to be high quality and fit in with the local community. Each site we open is very different because we try to fit in to the local environment, but this is more time consuming and costly.
We put a huge amount into community activity because we think that’s what a great bakery on the high street is all about. In our Crouch End store [in north London] we have a weekly story hour for children. For adults, we have the garden party in Hampstead, London - an annual event we’ve been doing for seven years where we close the street and fill it with stalls.
We put lots of emphasis on independent-style customer service. As a chain we sit somewhere in the middle of the larger brands and the independents. We do have scale so we can afford a bit more of that resource to help us with structure that the independents lack.