coffee shops - uk, december...

Coffee Shops - UK, December 2014

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v 101013 Single

Table of Contents Coffee Shops UK, December 2014

© Mintel Group Ltd. All rights reserved. v

INTRODUCTION ..................................................................................................................................... 9

Definition ......................................................................................................................................... 9 Abbreviations .................................................................................................................................. 9

EXECUTIVE SUMMARY ....................................................................................................................... 10

The market .................................................................................................................................... 10 Figure 1: UK coffee shops market size and forecast, 2009-19 .......................................................................... 10

Market factors ............................................................................................................................... 11 Companies, brands and innovation .............................................................................................. 11

Companies ....................................................................................................................................................... 11 Figure 2: Outlet numbers of the three largest UK coffee shop chains, 2011 and 2013-14 ................................ 12 Who’s innovating? ............................................................................................................................................ 12

The consumer ............................................................................................................................... 13 Outlets used to buy hot drinks out of home ....................................................................................................... 13 Figure 3: Outlets used to buy hot drinks out of home, July 2013 and September 2014 .................................... 13 Frequency of using a coffee shop ..................................................................................................................... 14 Figure 4: Frequency of using coffee shops, September 2014 ........................................................................... 14 Reasons for buying hot drinks out of home ....................................................................................................... 15 Figure 5: Reasons for buying hot drinks out of home, September 2014 ........................................................... 15 Attitudes towards buying hot drinks out of home............................................................................................... 16 Figure 6: Attitudes towards buying hot drinks out of home, September 2014 ................................................... 16 Interest in products and services when buying coffee out of home ................................................................... 17 Figure 7: Interest in products and services when buying hot drinks out of home, September 2014 .................. 17 Specialist coffee shops’ menu enticements ...................................................................................................... 18 Figure 8: Coffee shops’ menu enticements, September 2014 .......................................................................... 18

What we think................................................................................................................................ 19

ISSUES AND INSIGHTS ....................................................................................................................... 20

Diversifying selling formats offers scope for growth ..................................................................... 20 The facts ........................................................................................................................................................... 20 The implications................................................................................................................................................ 20

Operators must tap into brand personality trends to foster loyalty ............................................... 20 The facts ........................................................................................................................................................... 20 The implications................................................................................................................................................ 21

Scope for further menu expansion ................................................................................................ 21 The facts ........................................................................................................................................................... 21 The implications................................................................................................................................................ 22

Diversifying drinks ranges could help create standout ................................................................. 22 The facts ........................................................................................................................................................... 22 The implications................................................................................................................................................ 22

TREND APPLICATION ......................................................................................................................... 24

Extend My Brand .......................................................................................................................... 24 Data Creators ................................................................................................................................ 24 Many Mes ...................................................................................................................................... 25

MARKET DRIVERS .............................................................................................................................. 26

Key points ..................................................................................................................................... 26 In-home coffee consumption holds steady ................................................................................... 26

Figure 9: UK household purchases of coffee and tea, 1974-2012 .................................................................... 26 Coffee prices ................................................................................................................................. 27

Figure 10: RPI: coffee and other hot drinks, Q1 2010-Q3 2014 ........................................................................ 27 Despite momentum in the economy, income squeeze continues in 2014 ................................... 27 The ageing population poses a challenge to coffee shops ........................................................... 28

Figure 11: Trends in the age structure of the UK population, 2009-19 .............................................................. 28

STRENGTHS AND WEAKNESSES ..................................................................................................... 30

Strengths ....................................................................................................................................... 30 Weaknesses.................................................................................................................................. 30


© Mintel Group Ltd. All rights reserved. vi

COMPETITIVE CONTEXT .................................................................................................................... 31

Key points ..................................................................................................................................... 31 In home ......................................................................................................................................... 31

The in-home coffee market ............................................................................................................................... 31 Coffee pods ...................................................................................................................................................... 32 Figure 12: Ownership of coffee pod machines, by age, April 2014 ................................................................... 33 Flavoured coffee ............................................................................................................................................... 34

Out of home .................................................................................................................................. 36 Competition from non-specialist operators intensifies ....................................................................................... 36 Greggs.............................................................................................................................................................. 36 Fast food brands............................................................................................................................................... 37 Lunch and other snacking operators ................................................................................................................. 37 Pizza/pasta restaurants .................................................................................................................................... 38 Pubs ................................................................................................................................................................. 38

WHO’S INNOVATING? ......................................................................................................................... 40

Key points ..................................................................................................................................... 40 Food expansion: blurring boundaries between categories ........................................................... 40 Packaging trends .......................................................................................................................... 41

Creating standout ............................................................................................................................................. 41 Playing on Play Ethic ........................................................................................................................................ 41

‘Green’ trends................................................................................................................................ 42 Globalisation issues ...................................................................................................................... 42

MARKET SIZE AND FORECAST ......................................................................................................... 43

Key points ..................................................................................................................................... 43 Coffee shops expected to retain growth ....................................................................................... 43

Figure 13: UK coffee shops market size and forecast, at current and 2014 prices, 2009-19 ............................. 43 Outlet diversification continues ......................................................................................................................... 44 Branding concerns come to the fore ................................................................................................................. 44 Food growth opportunities ................................................................................................................................ 44

Forecast ........................................................................................................................................ 44 Figure 14: UK coffee shops market size and forecast, 2009-19 ........................................................................ 45 Forecast methodology ...................................................................................................................................... 45

MARKET SHARE .................................................................................................................................. 47

Key points ..................................................................................................................................... 47 Costa Coffee remains the dominant operator ............................................................................... 47

Figure 15: Outlet numbers of selected UK coffee shops, 2011 and 2013-14 .................................................... 47

COMPANIES AND PRODUCTS ........................................................................................................... 49

Key points ..................................................................................................................................... 49 SPECIALIST COFFEE SHOP OPERATORS ................................................................................................. 49

Costa Coffee ................................................................................................................................. 49 Financial performance ...................................................................................................................................... 49 Recent developments – Stores ......................................................................................................................... 50 Recent developments – Food and drink ........................................................................................................... 50 Recent developments – Other .......................................................................................................................... 51

Starbucks ...................................................................................................................................... 51 Financial performance ...................................................................................................................................... 52 Figure 16: Financial performance of Starbucks Coffee Limited UK, 2009-13 .................................................... 52 Recent developments – Food and drink ........................................................................................................... 52 Recent developments – Other .......................................................................................................................... 53

Caffè Nero ..................................................................................................................................... 54 Financial performance ...................................................................................................................................... 54 Figure 17: Financial performance of Caffè Nero Group Limited, 2010-14 ......................................................... 54 Recent developments ....................................................................................................................................... 54

Coffee Republic ............................................................................................................................ 55 Recent developments ....................................................................................................................................... 55

BRAND COMMUNICATION AND PROMOTION ................................................................................. 56


© Mintel Group Ltd. All rights reserved. vii

Key points ..................................................................................................................................... 56 Above-the-line adspend has fallen amongst most brands bar Starbucks .................................... 56

Figure 18: Advertising expenditure on selected coffee shop brands, 2010-14 .................................................. 56 Figure 19: Advertising expenditure on selected coffee shop brands, by media type, 2014* .............................. 57

Online and social media channels ................................................................................................ 57 Driving recommendation through free gifts ....................................................................................................... 57 Starbucks looks to integrated media to show ‘special coffee moments’ ............................................................ 58 Figure 20: Internet penetration, ever used, by age and gender, Q1 2011 Q1-Q1 2014 .................................... 58

Brands play on Play Ethic to bolster positive connotations .......................................................... 58

BRAND RESEARCH............................................................................................................................. 60

Brand map..................................................................................................................................... 60 Figure 21: Attitudes towards and usage of brands in the coffee shop sector, September 2014 ........................ 60 Correspondence analysis ................................................................................................................................. 61

Brand attitudes .............................................................................................................................. 62 Figure 22: Attitudes, by coffee shop brand, September 2014 ........................................................................... 62

Brand personality .......................................................................................................................... 63 Figure 23: Coffee shop brand personality – Macro image, September 2014 .................................................... 63 Figure 24: Coffee shop brand personality – Micro image, September 2014...................................................... 64

Brand experience .......................................................................................................................... 65 Figure 25: Coffee shop brand usage, September 2014 .................................................................................... 65 Figure 26: Satisfaction with various coffee shop brands, September 2014 ....................................................... 66 Figure 27: Consideration of coffee shop brands, September 2014 ................................................................... 67

Brand recommendation ................................................................................................................. 68 Figure 28: Recommendation of selected coffee shop brands, September 2014 ............................................... 68

THE CONSUMER – WHO BUYS COFFEE OUT OF HOME AND WHERE DO THEY GO? .............. 70

Key points ..................................................................................................................................... 70 Venues visited ............................................................................................................................... 70

Figure 29: Outlets used to buy hot drinks out of home, July 2013 and September 2014 .................................. 71 Competition from non-specialists ...................................................................................................................... 71 The threat from free coffee ............................................................................................................................... 72 One in five people don’t drink hot drinks out of home ....................................................................................... 72

Frequency of visiting coffee shops ............................................................................................... 73 Figure 30: Frequency of using coffee shops, July 2013 and September 2014 .................................................. 73 Figure 31: Frequency of using coffee shops, September 2014 ......................................................................... 74

THE CONSUMER – REASONS FOR BUYING COFFEE OUT OF HOME .......................................... 75

Key points ..................................................................................................................................... 75 REASONS FOR BUYING HOT DRINKS OUT OF HOME ................................................................................. 75

Figure 32: Reasons for buying hot drinks out of home, September 2014.......................................................... 75 Two in five turn to hot drinks for a break, equal share to relax .......................................................................... 76

Convenience drives one in four hot drink buyers.......................................................................... 76 Self-service machines ...................................................................................................................................... 76 Ready-to-drink products ................................................................................................................................... 77 Vending opportunities ....................................................................................................................................... 79 Coffee karts ...................................................................................................................................................... 81

Slow it all down ............................................................................................................................. 81 Coffee in the meal context ............................................................................................................ 82

THE CONSUMER – ATTITUDES TOWARDS BUYING COFFEE OUT OF HOME ............................ 83

Key points ..................................................................................................................................... 83 MORE THAN A QUARTER LIKE TO VARY WHERE THEY GO FOR COFFEE ..................................................... 83

Figure 33: Attitudes towards buying hot drinks out of home, September 2014 ................................................. 84 Standout products ......................................................................................................................... 85 Highlighting the venues’ coffee credentials .................................................................................. 85

THE CONSUMER – INTEREST IN PRODUCTS AND SERVICES WHEN BUYING COFFEE OUT OF HOME .............................................................................................................................................. 86

Key points ..................................................................................................................................... 86 WIDER SERVICE FORMATS APPEAL MOST TO THE 16-34S ....................................................................... 86


© Mintel Group Ltd. All rights reserved. viii

Figure 34: Interest in products and services when buying hot drinks out of home, September 2014 ................ 87 TAILORED SERVICE FORMATS ............................................................................................................... 87

Drive-throughs and self-service machines .................................................................................... 87 Mobile units ................................................................................................................................... 88

SMARTPHONE TECHNOLOGY ................................................................................................................. 88 Digital loyalty schemes, promotions and payment apps ............................................................... 89

Smartphone payments ..................................................................................................................................... 89 Location-based marketing ............................................................................................................. 90 ‘Push’ marketing ........................................................................................................................... 90 In-store wireless charging ............................................................................................................. 91 Video content can help promote new services ............................................................................. 91

THE CONSUMER – SPECIALIST COFFEE SHOPS’ MENU ENTICEMENTS ................................... 92

Key points ..................................................................................................................................... 92 MENU ENTICEMENTS ............................................................................................................................ 92

Figure 35: Coffee shops’ menu enticements, September 2014 ........................................................................ 93 Localism ........................................................................................................................................ 93 Food expansion opportunities ....................................................................................................... 94

Hot sandwiches ................................................................................................................................................ 94 Wider product categories .................................................................................................................................. 94 Wider menus linked to trials of other meal occasions ....................................................................................... 94

Drinks expansion opportunities ..................................................................................................... 95 Soft drinks ........................................................................................................................................................ 95 Dessert coffees................................................................................................................................................. 96

Tea innovation .............................................................................................................................. 96

APPENDIX – MARKET SIZE AND FORECAST .................................................................................. 97

Figure 36: Best- and worst-case forecasts for UK coffee shops market, 2014-19 ............................................. 97

UK RESEARCH METHODOLOGY ....................................................................................................... 99

Consumer research .......................................................................................................................... 99 Sampling and weighting ...................................................................................................................................... 99 Definitions ....................................................................................................................................................... 101 Qualitative Research.......................................................................................................................................... 102 Further Analysis ............................................................................................................................................... 102 Brand & Social Media Research ......................................................................................................................... 103

Trade research .............................................................................................................................. 103 Informal ........................................................................................................................................................... 103 Formal ............................................................................................................................................................. 103 Desk research ................................................................................................................................................... 103

Statistical Forecasting ................................................................................................................... 104

Introduction Coffee Shops UK, December 2014

© Mintel Group Ltd. All rights reserved. 9

Introduction Consumers’ overall frequency of purchasing hot drinks out of home has remained relatively

unchanged between 2013 and 2014 despite improvements in consumer confidence over the period.

That said, the largest player in the market, Costa Coffee, has managed to continue to increase customer

transactions in 2014.

Developments such as expanding food menus and mobile apps to push promotions are increasingly

common as specialists fight for market share of the out-of-home hot drinks market, not just from each

other but also from non-specialist competitors increasingly targeting this occasion.

Outlet diversification continues to be a key trend as operators look to develop a stable of different

outlet formats in order to cater to the contrasting demands of various locations and help bolster usage.

For example, express/self-service units cater for grab-and-go occasions while at the other end of the

spectrum, café/restaurant-like venues target more leisure-focused locations. Various operators are also

working with retailers to create in-store catering outlets to benefit from the shared footfall.

Definition

This report covers those foodservice establishments where coffee is the primary sales item. They are

based on the European and North American coffee shop models, typified by Starbucks, Costa Coffee,

Caffè Nero and Coffee Republic, offering a wide variety of coffee drinks, eg cappuccino, latte, mocha,

etc. Other items are usually on sale, such as pastries, tea, coffee beans, etc. However, the food offer

may be restricted.

Coffee shops include venues such as individual stores, kiosks and concessions. These may operate in a

number of locations – motorway service areas (MSAs), health clubs and hospitals, for example, as

well as standalone outlets. However, they must be independent of the facility they are located in.

This report does not include other establishments that sell coffee, such as restaurants, tea shops or

traditional cafés, except as a means of comparison. Nor does it include sandwich shops, such as Pret A

Manger or EAT, although these are mentioned in the consumer research for comparative purposes.

Market sizes at constant 2014 prices have been calculated using Mintel’s foodservice deflator.

Crown copyright material is reproduced with the permission of the Controller of HMSO and the

Queen’s Printer for Scotland.

Abbreviations CSR Corporate social responsibility EBITDA Earnings before interest, taxes, depreciation, and amortization GNPD Global New Products Database. For further details, please contact Mintel

on 020 7606 4533 Nielsen Media Research For further information, please contact

[email protected] NPD New Product Development USP Unique selling point

http://reports.mintel.com/sinatra/oxygen/display/684202/display/id=54691


Executive Summary Coffee Shops UK, December 2014


Executive Summary “In the face of rising competition from non-specialists, the onus is on coffee shops to continue to

evolve to re-establish their points of difference and reasons for visit in a changing marketplace,

such as creating more unique products on sale, collaborating with producers of local goods

such as bakery items and/or offering additional services such as the ability to pre-order.”

– Helena Childe, Senior Foodservice Analyst

The market FIGURE 1: UK COFFEE SHOPS MARKET SIZE AND FORECAST, 2009-19

(£m)1,450

Best case (£m)1,811

Worst case (£m)1,590

Mintel forecast (£m)1,701

800

1,000

1,200

1,400

1,600

1,800

2,000

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Mark

et

valu

e (

£m

)

95%

Confidence intervals

90%

70%

50%

Actual Forecast

Est.

0

SOURCE: MINTEL

The coffee shop market recorded an estimated 3.5% increase in sales between 2013 and 2014 to an

estimated £1.45 billion. This was largely driven by inflation. Research for this report shows that

consumers’ overall frequency of purchasing hot drinks out of home has remained relatively unchanged

between 2013 and 2014 despite improvements in consumer confidence. An exception to the rule, the

largest player in the market, Costa Coffee, reported like-for-like sales growth of 6.1% in its UK stores

driven by a 5% increase in customer transactions, for the six months to 28 August 2014.

Going forward, coffee shops should benefit from rising consumer confidence and income. However,

the onus is on operators to increase frequency of visit and spend per head proactively through both

menu expansion and more tailored outlet designs to ensure that market value growth is not just

inflation-led in future.

Growth in the coffee shop market will also largely be dependent upon operators’ ability to respond to

increasing competition from non-specialist competitors, such as efforts to revamp their own brands to

re-assert their USPs (unique selling points) and place in the wider eating out market. This will be

essential to help counter the fact that more than a fifth (22%) of users think that hot drinks from other

shops (eg bakeries) are better value for money than hot drinks from specialist coffee shops.



Market factors

In-home tea consumption is in long-term decline, while coffee consumption has enjoyed a modest

uplift since the recession. In light of the former, other areas may hold more potential for out-of-home

specialist coffee shops looking to extend their drinks range and appeal to non-coffee drinkers. For

example, some 15% of out-of-home hot drink purchasers are very interested in made-to-order fruit

juices/smoothies in-store, rising to around a quarter of those aged 16-34.

The UK consumer price index for coffee and other hot drinks has remained largely unchanged in 2014

up to Q3, the latest point for which data were available at the time of writing. In such a price-sensitive

market as this, any price reductions that coffee shops could pass onto consumers could be beneficial.

Underscoring the intensely competitive nature of the market, a quarter (24%) of those who buy hot

drinks out of home say that price is more important to them than brand of coffee chain.

Although the UK economy is picking up speed, the continued income squeeze has affected household

finances for much of 2014, limiting consumers’ ability to spend on treats such as out-of-home coffee.

Unsurprisingly, takeaway coffees are most frequently bought by out-of-home coffee drinkers in

households earning £50,000 or more.

Britain’s ageing population could pose a challenge to the specialist coffee shop market given that

usage of hot drinks out of home tends to fall as consumers age and leave employment. Independent

venues are best placed to benefit from this demographic trend given that over-55s are more likely than

most to use these venues.

Companies, brands and innovation

Companies

Concerns of market saturation continue to resonate throughout the market, as evidenced by the widely

varying trends in outlet development across various brands. For example, whilst Costa Coffee

continues with confident outlet expansion, Starbucks’ store numbers have remained relatively

unchanged in recent years.



FIGURE 2: OUTLET NUMBERS OF THE THREE LARGEST UK COFFEE SHOP CHAINS, 2011 AND 2013-14

1,302

739

509

1,656

730

540

1,840

731

548

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Costa Coffee Starbucks Caffè Nero

Outlet

num

bers

2011 2013* 2014**

* as of August 2013 ** as of November/December 2014 SOURCE: COMPANY WEBSITES/MINTEL

As well as the outlet expansion, Costa Coffee reports strong financial results in 2013/14. It continues

to invest in targeted service formats such as its self-service machines and is trialling a more

independent-feel sit-in outlet. It also continues to explore partnerships with retailers such as

Debenhams and Primark to benefit from their footfall.

Starbucks has been consolidating its estate. It has also been focusing on increasing food sales with new

product launches and trial partnerships such as with healthy fast food provider POD.

Caffè Nero had been growing its outlet portfolio in 2013 with expansion being a key part of its

strategy for growth going forward.

Who’s innovating?

Food menu expansion has been a key trend in terms of innovation in the coffee shop market as leading

players attempt to win share of the lunchtime market from operators such as Pret A Manger and EAT.

For example, Costa Coffee has been expanding its food range in 2014 including a number of new hot

sandwich additions. Meanwhile, Starbucks launched a trial with healthy food provider POD in

September 2014, in three Central London stores.

Recent packaging trends in the market reflect the need to create better standout (eg a greater use of

colour and translucent packaging) in a highly competitive market as the lines between categories such

as lunch venue and coffee shop become increasingly blurred.

Packaging is also being used to create more emotive and playful engagement with consumers, also

providing opportunities for more crowdsourced marketing content via social media sites, as seen for

example with Costa Coffee’s Christmas-themed mugs and the related Twitter handle.



‘Green’ initiatives in the coffee shop market of late include strategies to more ethically dispose of

waste and to reduce wastage and overheads altogether. For example, Costa stated that it had also

launched a new cup in summer 2014 designed to eliminate the need for an additional sleeve or double

cupping.

The big players in the coffee shop market have been fighting against the negative associations of being

large multinational corporations for a number of years now. Some recent marketing campaigns have

therefore focused on the positive sides and benefits to consumers of a global brand.

The consumer

Outlets used to buy hot drinks out of home FIGURE 3: OUTLETS USED TO BUY HOT DRINKS OUT OF HOME, JULY 2013 AND SEPTEMBER 2014

“Thinking specifically about drinking tea, coffee or other hot drinks (non-alcoholic) out of the home, from which of the following have you bought a hot drink in the last three months?

Please do not include purchases made as part of a meal.” Base: 2,001 internet users aged 16+

7

20

3

7

7

12

14

15

19

24

26

27

40

5

19

5

10

9

15

17

15

20

28

27

30

41

0 5 10 15 20 25 30 35 40 45

I do not drink tea/coffee/other hot drinks

I do not drink tea/coffee/other hot drinks out of home

Other specialist/branded coffee shop (eg Coffee Republic)

Sandwich shop (eg Pret A Manger)

Coffee shops in-store (eg inside department stores)**

Restaurant/pub/hotel (not as part of a meal)

Caffè Nero

Bakery (eg Greggs)

Coffee shops in supermarkets (eg Tesco)*

Starbucks

Fast food chain (eg McDonald's)

Independent coffee shop/café

Costa Coffee

%

2013 2014

* full statement reads: Coffee shops in supermarkets (eg Tesco, Asda, Sainsbury’s, Waitrose) ** full statement reads: Coffee shops in-store (eg inside a department store/bookstore) SOURCE: LIGHTSPEED GMI/MINTEL

Nearly three quarters (73%) of consumers have purchased hot drinks out of home in the three months

to September 2014, with Costa Coffee enjoying the highest usage reflecting its widespread store

portfolio.



Affluence is a central factor which affects consumers’ likelihood of purchasing hot drinks out of home,

as expected, given the high price premium compared to in-home alternatives.

Whilst only 7% of adults say that they don’t drink tea/coffee etc, around a fifth say they don’t drink

them out of home, representing a significant opportunity to grow the market. A quarter (26%) of over-

55s say that they do not drink hot drinks out of home.

In comparison, those aged 16-24 are the most likely to agree that they do not drink hot drinks at all,

suggesting that coffee shops should widen their non-caffeinated drinks ranges in order to bolster their

appeal amongst these consumers.

Frequency of using a coffee shop FIGURE 4: FREQUENCY OF USING COFFEE SHOPS, SEPTEMBER 2014

“You’ve said that you’ve visited a specialist coffee shop (eg Starbucks) in the last three months. How often do you visit coffee shops to sit-in or takeaway?”

Base: 1,013 internet users aged 16+ who have bought hot drinks from a specialist coffee shop in the last three months

24

28

17

22

15

22

18

23

26

5

Takeaway

Sit-in

%

Once a week or more

About once a fortnight

About once a month

At least once in the last three months, but less than once a month

Never

SOURCE: LIGHTSPEED GMI/MINTEL

More than a quarter (28%) of specialist coffee shop users visit a coffee shop to sit in once a week or

more, with 24% buying a takeaway drink from these venues as often. Usage has remained consistent

between 2013 and 2014, despite the UK’s improving economy and rising consumer confidence.

Men are amongst the most likely to use specialist coffee shops once a week or more either to sit in or

for a takeaway.



Reasons for buying hot drinks out of home FIGURE 5: REASONS FOR BUYING HOT DRINKS OUT OF HOME, SEPTEMBER 2014

“Thinking specifically about drinking tea, coffee or other hot drinks (non-alcoholic) out of the home, for which, if any, of the following reasons have you done so, in the last three months? Please select all that apply.”

Base: 1,459 internet users aged 16+ who have bought hot drinks out of home in the last three months

3

5

6

7

12

13

16

25

26

34

37

38

39

0 5 10 15 20 25 30 35 40 45

Other

For a business meeting

For something different to my normal coffee breaks

To take advantage of a promotional deal

For a chance to get out of the house/office

For a caffeine fix/hit

For breakfast

For lunch

For a quick drink

To catch up with friends

To relax/unwind

As part of a day out

For a break/coffee break

%


Whilst 39% of out-of-home hot drink purchasers buy hot drinks out of home for a break/coffee break,

38% do so as part of a day out, highlighting the need for the venues to deliver on everyday and special-

occasion experiences.

Contrasting demands on coffee shops are shown by the fact that whilst 37% buy hot drinks out of

home to relax/unwind, more than a quarter (26%) are just looking for a quick drink, underscoring the

importance of service formats to cater for both ends of the spectrum.

Consumers are also looking to buy hot drinks as part of a wider range of meal occasions with 25%

buying hot drinks out of home for lunch and 16% doing so for breakfast, continuing to provide

impetus for operators to invest in their food offering.



Attitudes towards buying hot drinks out of home FIGURE 6: ATTITUDES TOWARDS BUYING HOT DRINKS OUT OF HOME, SEPTEMBER 2014

“Thinking about drinking coffee, tea and other hot drinks out of home, which of the following statements, if any, do you agree with? Please choose all that apply.”


13

12

12

13

15

17

19

22

24

25

27

0 5 10 15 20 25 30

None of these

I would be willing to use a self-service coffee machine in a

coffee shop if it meant that I'd get my coffee quicker

Speed of service is more important than friendliness of

staff

I would prefer to use coffee shops where I could see the

coffee being roasted (eg behind the order counter)

I would visit coffee shops in the evening more if more

outlets were open later

I would go to coffee shops more if the atmosphere felt less

rushed

I prefer coffee shops that have unique products on sale (eg

Frappuccino)

Hot drinks from other shops (eg bakeries) are better value

for money than hot drinks from specialist coffee shops*

Price is more important to me than the brand of coffee

chain

I prefer to use larger coffee shop chains (eg Costa Coffee,

Starbucks) as you know what to expect in terms of quality

I like to vary where I go for coffee/other hot drinks out of

home

%

* full statement reads: Hot drinks from other shops (eg bakeries, fast food venues) are better value for money than hot drinks from specialist coffee shops (eg Starbucks, Costa Coffee) SOURCE: LIGHTSPEED GMI/MINTEL

Signalling a lack of brand loyalty in this market and consumer promiscuity is the fact that more than a

quarter (27%) of out-of-home hot drink purchasers say that they like to vary where they go for

coffee/other hot drinks out of home. Time-limited products could play a role in creating a sense of

newness at venues to curb such switching.

A quarter (24%) state that price is more important to them than the brand of coffee chain,

demonstrating the price sensitivity of the market and the significant threat posed by rising competition

from cheaper, non-specialist options. More than a fifth (22%) of users think that hot drinks from other

shops (eg bakeries) are better value for money than those from specialist coffee shops.

Product innovation and standout is important in a market where a fifth (19%) say that they prefer

coffee shops that have unique products on sale.

Experiential features such as roasteries would appeal to the 13% of users who would prefer coffee

shops where they could see the coffee being roasted (eg behind the counter). These could help elevate

the credentials of the more artisan coffee brands/venues.



Interest in products and services when buying coffee out of home FIGURE 7: INTEREST IN PRODUCTS AND SERVICES WHEN BUYING HOT DRINKS OUT OF HOME, SEPTEMBER 2014

“Now thinking about buying tea/coffee/hot drinks out of home, which of the following, if any, have you used and which would you be interested in using if available?”


8

9

10

10

10

11

13

15

20

20

36

32

26

36

31

46

41

35

35

30

56

59

64

54

59

43

46

49

45

50

Pre-ordering before you get to the venue

An app that provides nutritional information on their food

and drink (eg calories)

The ability to participate in live/interactive online

competitions run by specialist coffee shops*

Customised offers sent to your smartphone based on

factors such as your location, time of day etc

Smartphone payments (eg pay by app on the phone)

Charging stations for electrical devices (eg phones,

laptops) at the venue

Smartphone loyalty/rewards app (eg digital loyalty card

on your mobile phone)

Coffee kart (mobile coffee van eg in car park, outside

train station)

Coffee shop-branded self-service coffee machines (eg

Costa Express)

A drive-through service

%

Have used Haven't used but would be interested in using Haven't used and not interested in using

* full statement reads: The ability to participate in live/interactive online competitions (eg via Twitter, Facebook, brand website) run by specialist coffee shops (eg Starbucks, Costa Coffee) SOURCE: LIGHTSPEED GMI/MINTEL

Among coffee shop operators, Costa Coffee is particularly active in creating a stable of different outlet

concepts to appeal to varying consumer demands. For example, 30% of out-of-home hot drink buyers

haven’t used a drive-through service but would like to, whilst 35% would be interested in using self-

service formats.

With a growing number of non-specialist operators offering a wide range of coffee drinks, mobile

units can help specialist coffee shop operators to expand their presence; 35% of out-of-home hot drink

buyers haven’t used a coffee kart but would be interested in doing so.

Mobile technology is also increasingly big business in the coffee shop market with 36% of out-of-

home coffee purchasers interested in customised offers sent to their smartphones whilst 31% show an

interest in using smartphone payments at coffee shops. There is considerable interest in more mobile

technology services in the coffee shop market with demand for concepts such as payment apps peaking

amongst men and those aged 16-34.



Specialist coffee shops’ menu enticements FIGURE 8: COFFEE SHOPS’ MENU ENTICEMENTS, SEPTEMBER 2014

“Thinking specifically about specialist coffee shops (eg Starbucks, Costa Coffee), which of the following options, if any, are you interested in seeing on the menu in the future?”


10

10

11

12

15

16

16

17

22

21

22

33

30

36

40

35

45

51

21

24

29

25

22

23

22

21

15

21

20

13

16

13

11

13

9

5

27

24

14

17

14

11

14

8

6

Alcohol (wine, beer, liqueur coffee)^

Options to design your own tea (eg mix/blend different types

of tea leaves together)

Other goods produced by local independent businesses (eg

cups/mugs, soft drinks)

Coffee made with rare coffee beans (eg unusual/limited

coffee ranges)

Made-to-order fruit juices/smoothies

A wider range of savoury meal options (eg pies, soups, pizza

slices)

Ice cream drinks (eg affogato, milkshakes)

A wider range of savoury snacks (eg sausage rolls, pasties,

tapas dishes, cheese & crackers)

Baked goods made by a local bakery

%

Very interested Fairly interested Neither interested nor disinterested

Not very interested Not at all interested

^ asked to 1,397 internet users aged 18+ who have bought hot drinks out of home SOURCE: LIGHTSPEED GMI/MINTEL

Around a fifth (22%) of out-of-home hot drink purchasers are very interested in seeing baked goods

made by a local bakery on the menu at specialist coffee shops in the future, whilst one in 10 (11%) are

very interested in other goods produced by local independent businesses (eg cups/mugs, soft drinks).

This highlights the potential for specialist coffee shops to tap into the wider trend for buying local to

help add personality to their brands as well as to be seen as less corporate.

While coffee shop operators are already chasing their share of the lunch pound, there is demand for

them to take food menu innovation further. For example, 17% of out-of-home hot drink purchasers are

very interested in seeing more savoury snacks (eg sausage rolls) on menus and 16% are very interested

in seeing a wider range of savoury meals (eg pies, soups). This is linked to an increasing blurring

between categories such as the product offer at coffee shops and lunchtime operators.

There is limited demand for more adult products with one in 10 users very interested in seeing alcohol

served on menus. Some venues are using new menu additions to help develop their relevance as an

evening venue, such as Starbucks in the US with its Evenings menu, while Timberyard in the UK

launched a range of liqueur coffees in November 2014.



What we think

Hot drinks out of home remain a popular area of discretionary spending for UK consumers. However,

the fact that overall usage of coffee shops has remained consistent between 2013 and 2014, despite the

UK’s improving economy, means that many operators are currently failing to translate rising consumer

confidence into considerable uplifts in footfall.

In the face of rising competition from non-specialists and given low levels of brand loyalty, the onus is

on coffee shops to continue to evolve to re-establish their points of difference and reasons to visit in a

changing marketplace, such as creating more unique products on sale, collaborating with producers of

local goods such as bakery items and/or offering additional services such as the ability to pre-order. In

the short term, some are focused on retaining their share of the market, using developments in mobile

technology such as ‘push’ marketing techniques, to ensure their brands’ promotions are heard above

the noise of an increasingly crowded marketplace.

The growth in smaller artisan chains in recent years such as Coffee#1 and Harris + Hoole also

represents further competition in the market, and should push all operators in the market to ensure that

they equally have a strong brand personality and market position. Whilst collaborations with local

producers (eg pop-ups) could help with brand personality trends, add a sense of urgency to visit and

appeal to those looking for variety, consumer research suggests that coffee karts and more drive-

throughs would also appeal and help meet demand for more convenience-driven purchasing

opportunities.

Issues and Insights Coffee Shops UK, December 2014


Issues and Insights “In a market with low brand loyalty, operators could benefit from building a deeper

relationship with fans to foster real loyalty rather than just catering to consumers’ bargain-

hunting and promiscuous spending behaviour.”

– Helena Childe, Senior Foodservice Analyst

Diversifying selling formats offers scope for growth

The facts

Contrasting demands on coffee shops are shown by the fact that, whilst 37% buy hot drinks out of

home to relax/unwind, more than a quarter (26%) are just looking for a quick drink.

Concerns of market saturation continue to resonate in the market. Whilst Costa Coffee continues

with confident outlet expansion, Starbucks’ store numbers have remained relatively unchanged in

recent years.

Three in 10 (30%) out-of-home hot drink buyers haven’t used a drive-through service but would

like to whilst 35% haven’t used a coffee kart but would be interested in doing so.

The implications

Concerns of market saturation are evidenced by the widely varying trends in outlet development across

various brands. In response to this and the contrasting demands for coffee shops to offer a relaxed

space by some and speed of service by other users, some operators such as Costa Coffee are

developing a stable of targeted service formats. These range from self-service machines to more

leisure-focused, longer-stay outlets as operators look to better meet the needs of consumers in specific

locations.

Furthermore, brands are looking to widen their selling channels to continue to secure new revenue

streams. For example, Costa Coffee is trialling additional in-store catering partnerships with retailers

such as Debenhams and Primark. The brand is also using its Costa Express self-service machines to

target non-traditional locations such as workplaces, universities and hospitals.

Among less explored channels, drive-throughs and coffee karts can provide specialist operators with a

new platform to increase their accessibility to consumers and bolster usage. While these benefit from a

lower cost base than bricks-and-mortar stores and smaller space requirements, there is a marked

openness among consumers towards such formats.

Operators must tap into brand personality trends to foster loyalty

The facts

The market continues to face intense pressure from non-specialist operators. More than a quarter

(27%) of people had bought hot drinks from fast food chains in the three months to September

2014, with 73% of consumers having bought such drinks out of home overall.

More than a fifth (22%) of users think that hot drinks from other shops (eg bakeries) are better

value for money than those from specialist coffee shops.



Some 10% of out-of-home hot drink purchasers have used customised offers sent to their

smartphone based on factors such as their location, time of day etc. A further 36% haven’t but

would be interested in doing so.

A quarter (27%) of users say that they like to vary where they go for coffee/other hot drinks out of

home, further signalling the lack of brand loyalty in the market.

The implications

Pressure from non-specialist operators continues to intensify, as existing operators improve their

coffee offerings and new ones look to develop theirs. This is particularly challenging for the specialists

given consumers’ price sensitivity and the popular perception that non-specialist venues offer better

value. In the face of this, a number of specialist operators have struggled to assert their value-for-

money credentials and USPs (unique selling points).

The growth of emerging technologies such as ‘push’ marketing (where offers are sent to smartphones

based on the customer’s location or time of day etc) should offer an avenue helping coffee shops to

stay top of mind in the face of the rising number of competitors.

However, in a market with low brand loyalty, operators could benefit from building a deeper

relationship with fans to foster real loyalty rather than just catering to consumers’ bargain-hunting

behaviour. By providing the operators with more detailed data of the customers and their usage habits,

such schemes can help operators to move away from blanket discounts; this also enables them to

ensure the communication is more relevant and therefore more welcome to the recipient.

For example, interest-based marketing techniques (eg building associations to other areas of interest

such as music or fashion) can help such apps to more effectively engage users, adding another layer of

attraction. This should also help to create more of a sense of brand personality and therefore more

emotive connections with consumers. Connecting with consumers along these lines should also help to

prolong engagement with consumers pre-/post-visit and help keep the brand top of mind.

Scope for further menu expansion

The facts

The coffee shop market is estimated to have grown by 3.5% to reach £1.45 billion in 2014. This

has been largely inflation-driven.

A number of players have been widening their food menus in order to better compete for their

share of the lunch pound. For example, Starbucks launched a trial with healthy food

provider POD in September 2014.

Some 17% of out-of-home hot drink purchasers are very interested in seeing more savoury snacks

(eg sausage rolls) on menus and 16% very interested in seeing a wider range of savoury meals (eg

pies, soups).

Some 15% of out-of-home hot drink purchasers say they’d visit coffee shops later in the evening

more if more were open later.

Around a fifth (22%) of out-of-home hot drink purchasers are very interested in seeing baked

goods made by a local bakery on the menu at specialist coffee shops in the future.



The implications

While coffee shop operators are already chasing their share of the lunch pound, there is significant

demand for even wider food ranges at coffee shops such as savoury snacks (eg sausage rolls) and

savoury meals (eg pies, soups). Widening menu ranges could help operators to encourage increased

usage amongst customers.

Goods from other retailers offer a different route to expand menus. This would allow coffee shops to

benefit from both other companies’ product expertise, such as in baked goods, as well as from any

local following they may have built up. If they only offer these local products on a time-limited basis,

for example taking cues from the trend for pop-up concepts, this would inject a sense of urgency to

purchase.

Wider savoury menu ranges, such as tapas, can also help operators to drive relevance in other meal

occasions and at later opening hours. For example, in the US Starbucks has been expanding its

‘Evenings’ menu, announcing in December 2014 plans to roll out the format to thousands of stores

across the country.

The Evenings menu, which includes wine and beer, is available from 4pm at these locations. Dishes

are positioned as more indulgent than the daytime menu, including Parmesan Crusted Chicken

Skewers, Blue Brie & Apricot Preserves Plate, Bacon-Wrapped Dates with Balsamic Glaze, Truffle

Macaroni and Cheese and Truffle Popcorn, among others. Reportedly Starbucks doesn’t want the cafés

to be like bars and is instead targeting areas where people come out of cinemas, for instance.

The interest in later opening hours and a wider menu suggests that similar concepts would also

resonate in the UK.

Diversifying drinks ranges could help create standout

The facts

Whilst only 7% of adults say that they don’t drink tea/coffee etc, around a fifth of the population

say they don’t drink them out of home, representing a significant untapped pool.

Nearly a fifth (19%) of out-of-home hot drink purchasers state that they prefer coffee shops that

have unique products on sale (eg Frappuccino).

Experiential features such as roasteries would appeal to the 13% of users who would prefer coffee

shops where they could see the coffee being roasted (eg behind the counter).

Some 16% of out-of-home hot drink purchasers say they’d be very interested in ice cream drinks

(eg affogato, milkshakes), 15% are very interested in made-to-order fruit juices/smoothies whilst a

further 36% say they’d be fairly interested in such products.

Those aged 16-24 are the most likely to not drink hot drinks out of home at all.

The implications

Creating more unique product ranges or standout products could help operators increase their

competitiveness and build brand loyalty, given the minority interest in coffee shops that have unique

products on sale. This peaks amongst users aged 16-24 and those in full-time education.



In terms of potential future menu development, there is interest in new non-caffeinated drinks such as

ice cream drinks (eg affogato, milkshakes) and made-to-order fruit juices/smoothies. Those aged 16-24

are the most likely to not drink hot drinks out of home at all, suggesting that coffee shops should

widen their non-caffeinated drinks ranges in order to bolster their appeal amongst these consumers.

There are instances of operators attempting to stand out from the crowd further by creating even more

differentiated concepts. For example, in late 2014 the team behind Yorks Bakery Café in Birmingham

opened Yorks Espresso Bar boasting what it claimed to be the UK’s first cold coffee “kegerator”.

Tapping into a US craze, this involves creating a beer-style keg which serves coffee from a tap that

comes complete with its own pub-style pump-clip label. The coffee is brewed for 14 hours at room

temperature, and is said to produce a highly caffeinated cold brew product. Experiential features such

as this service format or in-store bean roasteries could help elevate the credentials of the more artisan

coffee brands/venues and create additional standout.

Trend Application Coffee Shops UK, December 2014


Trend Application Mintel’s approach in this section goes beyond merely identifying trends. We apply trends from Mintel's

trend tool to understand the wider implications of cultural changes, gaining insight into how

companies and brands can translate these into on-the-ground opportunities relevant for the coffee

shop industry.

Extend My Brand

The Mintel Trend Extend My Brand describes how price matters but so too does trust. As such,

brands are learning to leverage their equity to diversify their offers. For instance distrust and

disappointment with the banking sector has opened the doors to outsiders like Tesco and Walmart.

Brand extension is also blooming via the concept of one-stop shopping, where retailers offer ancillary

goods and services alongside their standard fare.

Specialist coffee shop operators have the opportunity to extend into different meal/drinking occasions

given that one in 10 out-of-home hot drink purchasers say they’d be very interested in seeing alcohol

(wine, beer, liqueur coffee) on specialist coffee shop menus, whilst a further 21% would be fairly

interested in this concept. The potential for such developments to drive demand is further evidenced by

the fact that 15% of out-of-home hot drink purchasers say that they would visit coffee shops more if

the atmosphere felt less rushed.

Such concepts are already on trial in other markets globally such as the US. For example, Starbucks

US has been expanding its new ‘Evenings’ menu into 30 sites, it was reported in May 2014, including

stores in Seattle, Portland and Chicago. Reportedly Starbucks does not want the cafés to be like bars

and these are instead designed for people to visit after going to movies and clubs.

The Evenings menu is only available from 4pm at these locations. Wine is sold by the glass and bottle

and beer is sold in bottles. The Evening food menu is similarly positioned as more indulgent, featuring

dishes such as Parmesan Crusted Chicken Skewers, Grilled Vegetable Plate, Truffle Macaroni and

Cheese and Bacon-Wrapped Dates with Balsamic Glaze.

Data Creators

The Mintel Trend Data Creators explores the idea that people create data and that these actions,

movements and behaviour all leave a trail and tell a story. Technology is now allowing people to listen

to this data, learn from it and react.

The growth of emerging technologies such as ‘push’ marketing (where offers are sent to smartphones

based on the customer’s location or time of day etc) should offer a new avenue helping coffee shops to

prompt purchases amongst tech-savvy younger generations. For example, some 10% of out-of-home

hot drink purchasers say they have used customised offers sent to their smartphone based on factors

such as their location, time of day etc, whilst a further 36% say they haven’t but would be interested in

doing so. Operators could also send prompts for products based on additional factors such as weather

to drive relevance.

The efficient collection and use of ‘big data’ through such online loyalty schemes and apps will also

enable coffee shops to better target core users with personalised offers, products and services. For

example, apps allow operators to target lapsed users by sending prompts such as discount vouchers to

fans who haven’t purchased a drink within a set period of time. Such services also allow for other

prompts, such as making product recommendations to create upselling opportunities, of the form “If

you like our hot chocolate, how about trying our time-limited Honey & Almond Hot Chocolate?”

Trend Application Coffee Shops UK, December 2014


Some operators are already experimenting with new ordering services based on such technology. For

example, the Harris + Hoole chain operates a mobile app, which enables customers to create a profile

and details of their favourite coffee, so that they can simply select “my usual” on their phone when

they “check in” to a Harris + Hoole venue. This information appears automatically on the tills,

speeding up the transaction for loyalty customers.

Many Mes

The Mintel Trend Many Mes discusses how consumers are diverse individuals, with multiple identities

and niche interests. This trend means that marketers and retailers are speaking not to one consumer,

or one target group, but to individuals who feel nuanced, complex and ‘individually diverse’. As such,

marketing approaches need to avoid pigeonholing consumers and instead think of them as diverse

individuals.

More than a quarter (27%) of hot drink purchasers say they like to vary where they go for coffee/other

hot drinks out of home. To tap into this demand for variable experiences and retain custom, individual

venues should work to create differentiated venue and menu formats. Time-limited product launches

and products produced in small batches offer one way for coffee shops to inject variety onto their

menus. For example, in Chicago in the US, independent venue Bad Wolf Coffee eschews a food menu

in favour of small batches of pastries baked daily such as spicy pumpkin raisin madeleines and custard

canelés.

Venues could further leverage interest in changeable concepts by tapping into the expertise of other

local businesses. For example, more than a fifth (22%) of out-of-home hot drink purchasers say they

are very interested in baked goods made by a local bakery and 11% say would be very interested in

seeing other goods produced by local, independent businesses (eg cups/mugs, soft drinks) being sold.

For example, Square Root London creates small-batch sodas which are described as handmade in

Hackney. As well as stocking ‘all year’ variants such as ginger beer, lemonade, root beer and cascara

club, the company also sells seasonal options such as cucumber, apple and bergamot. Collaborating

with such local soft drinks makers could help coffee shops build standout as well as positioning them

as being in touch with the local community.

Market Drivers Coffee Shops UK, December 2014


Market Drivers

Key points

In-home tea consumption is in long-term decline, while coffee consumption has enjoyed a

modest uplift since the recession.

The UK consumer price index for coffee and other hot drinks has remained largely

unchanged in 2014 up to Q3, the latest point for which data were available at the time of

writing.

Although the UK economy is picking up speed, the continued income squeeze has affected

household finances for much of 2014, limiting consumers’ ability to spend on treats such as

out-of-home coffee.

Britain’s ageing population could pose a challenge to the specialist coffee shop market given

that usage of hot drinks out of home tends to fall as consumers age and leave employment.

Independent venues are best placed to benefit from this demographic trend.

In-home coffee consumption holds steady FIGURE 9: UK HOUSEHOLD PURCHASES OF COFFEE AND TEA, 1974-2012

0

10

20

30

40

50

60

70

80

Gra

ms p

er

pers

on p

er

week

Coffee Tea

* does not include coffee essences Taken from Tea and Other Hot Drinks – UK, July 2014 SOURCE: DEFRA FAMILY FOOD SURVEY 2012/MINTEL



Household purchases of tea are in long-term decline whilst coffee purchases have remained steadier,

largely posting slow growth since 2005. Tea’s decline is partly down to the growth in purchases of

other drinks, such as mineral water and fruit juices. These have grown substantially over the longer

term, although soft drinks have been in decline since the turn of the century. For more information see

Mintel’s Tea and Other Hot Drinks – UK, July 2014.

With tea consumption generally in decline, other areas may hold more potential for out-of-home

specialist coffee shops looking to extend their drinks range and appeal to non-coffee drinkers. For

example, some 15% of out-of-home hot drink purchasers are very interested in made-to-order fruit

juices/smoothies in-store, rising to around a quarter of those aged 16-34. Meanwhile, a further 36%

say they’d be fairly interested in seeing more of these on specialist coffee shops’ menus.

Coffee prices FIGURE 10: RPI: COFFEE AND OTHER HOT DRINKS, Q1 2010-Q3 2014

90

95

100

105

110

115

120

125

130

Q1

2010

Q3

2010

Q1

2011

Q3

2011

Q1

2012

Q3

2012

Q1

2013

Q3

2013

Q1

2014

Q3

2014

Index (

Q1 2

010=

100)

SOURCE: OFFICE FOR NATIONAL STATISTICS/MINTEL

The UK consumer price index for coffee and other hot drinks has remained largely unchanged in 2014

up to Q3, the latest point for which data were available at the time of writing.

In such a price-sensitive market as this, any price reductions that coffee shops could pass onto

consumers could be beneficial. Underscoring the intensely competitive nature of the market, a quarter

(24%) of those who buy hot drinks out of home say that price is more important to them than brand of

coffee chain (see The Consumer – Attitudes towards Buying Coffee Out of Home section). The growth

in alternatives from lower-cost non-specialists such as fast food brands, lunch operators, bakeries and

pubs puts further pressure on menu prices at specialist coffee shops.

Despite momentum in the economy, income squeeze continues in 2014

Although the UK economy is picking up speed, the continued income squeeze has still affected

household finances for much of 2014. The population as a whole isn’t feeling the benefit of the

recovery, as discussed in Mintel’s Consumers and the Economic Outlook: Quarterly Update – UK,

October 2014. Confidence is stagnating: people are still more positive than they were in 2012 and

early 2013, but there had been no real improvement since the start of 2014 by autumn of the year.



Meanwhile, the inflation has for several years risen ahead of average pay, this trend continuing well

into 2014, continuing to put a squeeze on household finances. This has continued to limit consumers’

ability to spend on treats, with items such as out-of-home coffee remaining at risk of being

‘economised’ out of their budgets. Unsurprisingly, takeaway coffees are most frequently bought by

out-of-home coffee drinkers in households earning £50,000 or more.

The ageing population poses a challenge to coffee shops FIGURE 11: TRENDS IN THE AGE STRUCTURE OF THE UK POPULATION, 2009-19 2009 2014 (proj) 2019 (proj) % change % change

000s % 000s % 000s % 2009-14 2014-19

0-4 3,779 6.1 4,118 6.4 4,187 6.3 +9.0 +1.7 5-9 3,405 5.5 3,792 5.9 4,129 6.2 +11.4 +8.9 10-14 3,612 5.8 3,423 5.3 3,804 5.7 -5.2 +11.1 15-19 3,964 6.4 3,693 5.7 3,496 5.2 -6.8 -5.3 20-24 4,256 6.9 4,345 6.8 4,052 6.1 +2.1 -6.7 25-34 7,993 12.9 8,950 13.9 9,472 14.2 +12.0 +5.8 35-44 9,012 14.6 8,187 12.7 8,211 12.3 -9.2 +0.3 45-54 8,350 13.5 9,075 14.1 8,893 13.3 +8.7 -2.0 55-64 7,315 11.8 7,266 11.3 7,996 12.0 -0.7 +10.0 65+ 10,100 16.3 11,423 17.8 12,465 18.7 +13.1 +9.1 Total 61,787 100.0 64,271 100.0 66,705 100.0 +4.0 +3.8

SOURCE: OFFICE FOR NATIONAL STATISTICS/MINTEL

Britain’s ageing population could pose a challenge to the specialist coffee shop market given that the

tendency to drink hot drinks out of home falls as consumers age and leave employment. Independent

venues are better placed to benefit from this demographic trend given that over-55s are more likely

than most to use these venues (see The Consumer – Who Buys Coffee Out of Home and Where Do

They Go? section).

A number of the big chains in the global coffee shop market are experimenting with less corporate

branding in order to tap into a number of wider trends, such as the ‘Locavore’. However, such

developments should also help them target the growing group of over-55s.

For example, in October 2014 it was reported that Costa was trialling a next-generation high street

format with a more “independent operator” feel in two locations in the UK. The design of the site in

Horsham eschews the brand’s traditional dark brown colouring for a lighter, more mixed colour palette

and use of the logo in-store is smaller and more discreet. It also uses a mixture of different styles of

seating (eg armchairs) whilst one area is set out to look like a living room complete with floor lamp

and one area with a dining room table set-up. Meanwhile, in the US Starbucks continues to experiment

with its La Boulange Bakery brand which it acquired in 2012.



Chains could also hope to improve their exposure to these older consumers by exploring more in-store

catering opportunities in venues this demographic already frequent. For example, in November 2014 it

was reported that Wyevale Garden Centres, the UK's largest garden centre operator, was ramping up

its food and beverage provision across its estate starting with the launch of two further restaurant and

coffee shop concepts. The company, which first launched its Garden Kitchen concept in 2013, has

opened two sites under a new artisan coffee shop format called Coffee Ground at sites in Endsleigh

Garden Centre in Devon and Hemel Hempstead Garden Centre in Hertfordshire. A third Coffee

Ground outlet is due to open in Beaconsfield in early December 2014 and the 140-strong garden centre

group plans further rollout the concept in 2015. Jason Danciger, food and beverage director at the

company, told M&C Report that the Wyevale was also creating a new restaurant concept called

‘Botanic Kitchen’ which is due to launch at a couple of sites in February 2015. He said that the

company also planned further rollout of its Garden Kitchen concept, with 16 set to open by December.

Strengths and Weaknesses Coffee Shops UK, December 2014


Strengths and Weaknesses

Strengths

Committed consumers: Consumers remain committed to buying hot drinks out of home with

nearly three quarters (73%) having done so in the three months to September 2014.

A frequent purchasing habit: More than a quarter (28%) of specialist coffee shop users visit a

coffee shop to sit in once a week or more, with 24% buying a takeaway drink from these venues as

often.

Scope to increase the role of food: There is significant demand for wider food ranges at coffee

shops with 17% very interested in seeing more savoury snacks (eg sausage rolls) on menus and

16% very interested in seeing a wider range of savoury meals (eg pies, soups).

Non-caffeinated drinks opportunities: Applying a similar level of innovation as has been

applied to flavoured coffee drinks in recent years to different drinks categories such as soft drinks

should help operators to appeal to younger consumers who are less likely to drink caffeinated

drinks.

Presence of major operators: The market continues to benefit from the presence of several large

operators, helping to drive visibility of coffee shops, product innovation and investment for

example into stores and new concepts.

Weaknesses

Frequency of buying hot drinks out of home remains unchanged: Frequency of usage has

remained unchanged between 2013 and 2014, despite improving consumer confidence. Although

the UK economy has picked up speed, household finances have remained squeezed for much of

2014, limiting consumers’ ability to spend on treats such as out-of-home hot drinks.

Price-sensitive market: A quarter (24%) of out-of-home hot drink purchasers state that price is

more important to them than the brand of coffee chain.

Lack of brand differentiation and loyalty: The coffee shop market continues to suffer both from

issues of brand differentiation and low loyalty. Consumer promiscuity is also demonstrated by the

fact that more than a quarter (27%) of users say that they like to vary where they go for

coffee/other hot drinks out of home.

Rising non-specialist competition: Fast food, lunch and snacking operators have been expanding

into new consumption occasions in recent years, also developing their coffee and snack offerings.

Full-service venues such as pubs and pizza/pasta restaurants also show further expansion into this

area. More than a fifth (22%) of users think that hot drinks from other shops (eg bakeries) are

better value for money than those from specialist coffee shops.

Ageing population: This poses a challenge to the specialist coffee shop market given that usage

of hot drinks out of home tends to fall as consumers age and leave employment. Independent

venues are likely to benefit from this trend given that over-55s are more likely than most to use

these venues.



Competitive Context

Key points

Within the in-home coffee market overall sales of ground coffee stagnated in 2013, premium

ground coffee continued to win share from mainstream variants, whilst coffee pods continue

to be the star performing segment.

Flavoured variants stand out as an underutilised route for adding value to the instant coffee

segment in retail. However, this could represent increased competition for out-of-home

operators if UK operators adopt the more exciting flavour variants seen in the US market.

Fast food, lunch and snacking operators have been expanding into new consumption

occasions in recent years, also developing their coffee and snack offerings. Full-service

venues such as pubs and pizza/pasta restaurants also show further expansion into this area.

In home

The in-home coffee market

The in-home coffee market is expected to remain on a par with 2013 levels in 2014 in value terms,

according to Mintel’s Coffee – UK, August 2014. While overall sales of ground coffee stagnated in

2013, premium ground coffee continued to win share from mainstream variants during the year, likely

benefiting from the positive consumer sentiment.

Specialist coffees aiming to replicate the coffee shop experience at home continue to pose competition

for the coffee shop market. For example, the phrase “barista style” features prominently on a number

of recently launched ranges and product extensions such as Nescafé Azera Caffé Mocha Flavoured

Barista Style Instant Coffee and Percol NY Barista Style All Bean Instant Coffee.

That these products noticeably undercut coffee shops’ offering on price has remained an appealing

selling point in 2014, as inflation continued to outpace average pay rises for much of the year,

continuing to put rising pressure on household budgets.



Nescafé Azera Caffé Mocha Flavoured Barista Style

Instant Coffee is a blend of instant

coffee and finely ground roasted coffee beans with drinking chocolate, skimmed milk powder,

sugar and vegetable oil. This vegetarian product is free from

artificial flavours and hydrogenated vegetable oil, low in fat, and retails in a 120g recyclable pack containing 6

x 20g sachets, equal to six mug-sized servings. The shelf-stable

product was priced at £1.50.

Tesco Barista Style Instant Coffee has been

repackaged and is now available in an 80g resealable pack that

contains 90% less packaging than the 100g Tesco Barista Style tin.

The medium-strength coffee comprises a blend of 100% arabica instant coffee and

roast and micro ground freeze dried coffee. The shelf-stable

product was priced at £2.

Percol NY Barista Style All Bean Instant Coffee features finely

ground coffee for richness and depth. This product retails in a

recyclable 95g pack. The manufacturer supports Cancer

Research with 50p from every jar donated to the Peter Andre

Foundation. The shelf-stable product was priced at £3.95.

Coffee pods

Coffee pods continue to be the star performing segment of the in-home coffee market, with value and

volume sales growing 41% and 33% respectively in 2013. However, this growth still comes from a

modest base, with coffee pods estimated to account for 7% of the coffee retail market in 2013. As

discussed below, the high initial cost of the machines and the relatively high cost per serving entailed

by the pods have seen ownership of the machines remain low.



FIGURE 12: OWNERSHIP OF COFFEE POD MACHINES, BY AGE, APRIL 2014 Base: 1,236 internet users aged 16+ who drink coffee at home

2324

30

24

37

26

20

26

18

28

16

21

12

19

0

5

10

15

20

25

30

35

40

Yes – I/we have a coffee pod machine in the household

No – I/we don’t have a coffee pod machine in the household but would be interested in buying

one in the future

%

All 16-24 25-34 35-44 45-54 55-64 65+


Some 23% of UK coffee drinkers now report having a coffee pod machine in the home with a further

24% interested in buying one according to Mintel’s Coffee – UK, August 2014. Ownership is biased

towards those with high incomes and younger people with 37% of 25-34-year-olds having a machine

in the household. This represents competition to the out-of-home coffee shop market as these are also

core users of coffee out of home. However, this is limited somewhat given that only 14% of at-home

coffee drinkers view pod machines as matching the quality of coffee from coffee shops (see Mintel’s

Coffee – UK, August 2013).

The convenience appeal of coffee shops in catering for on-the-go demand further insulates them from

competition from in-home products. For example, 23% of those who drink coffee at home say that

they don’t have time on weekday mornings to make coffee with beans/ground coffee, according to

Mintel’s Coffee – UK, August 2014.

Operators such as Costa Coffee also compete in this channel. For example, the Costa Tassimo range,

launched in spring 2012, has been extended since with new drinks variants. For example, in September

2013, Costa launched the Tassimo Costa Caramel Latte pods.

Meanwhile, Starbucks has a long-standing presence in the retail channel through the ready-to-drink

cold coffee drinks launched in spring 2010, as well as its VIA micro ground coffee and coffee beans.



Tassimo Costa Caramel Latte is a specially crafted blend of coffee beans roasted to perfection to create an

authentic Costa espresso-based caramel latte topped off with a sweet, buttery caramel flavour. It retails in a 488g pack containing 8 x 9g espresso t-discs and 8 x 52g t-discs creamer from lactose- and mineral-reduced ultra-

filtered milk concentrate. The shelf-stable product was priced at £4.99 and features the Rainforest Alliance logo.

Flavoured coffee

Recent in-home product launches which appear to aim to directly compete with out-of-home hot

drinks by tapping into the foodservice menu trends include Nescafé Café Menu Gingerbread Flavour

Latte and Mokate To Go! Caramel Flavoured Latte Macchiato. Syrups such as M&S Café Hazelnut

Syrup and Café Kiss Gingerbread Coffee Syrup also target consumers looking to replicate the coffee

shop experience at home with on-trend flavours. Among the new flavoured launches in the in-home

coffee market, hazelnut, chocolate, caramel and vanilla were the common variants in 2013 according

to Mintel’s Coffee – UK, August 2014.



Nescafé Café Menu Gingerbread Flavour Latte is

new to the range and available for a limited time for winter 2014. This instant coffee with skimmed milk

powder, sugar, gingerbread flavour, and vegetable oil is suitable for vegetarians, low in fat, and features no hydrogenated vegetable oils or artificial flavours. The

product is made with 100% coffee beans and retails in a 168g pack containing eight 21g sachets. The shelf-

stable product was priced at £1.50.

Mokate To Go! Caramel Flavoured Latte Macchiato

contains milk foam in one sachet and instant coffee in another. It can be prepared in five minutes, makes one drink and contains skimmed milk. The product retails in a 22g duo sachet. It was on display at the SIAL 2014

trade show, in Paris.

M&S Café Hazelnut Syrup is now available. This

product is suitable for vegetarians and is to be added to coffee to give a flavour. It retails in a 250ml pack.

The shelf-stable product was priced at £3.

Café Kiss Gingerbread Coffee Syrup is said to add a

new dimension to hot or cold coffee drinks. This premium syrup is created using ginger. The product

retails in a 250ml bottle. The shelf-stable product was priced at £3.15.

Flavoured variants stand out as an underutilised route for adding value to the standard instant segment

in the in-home coffee market, according to Mintel’s Coffee – UK, August 2014 with only 10% of new

instant or ground coffee launches in the UK in 2013 being flavoured.



In comparison, the US instant flavoured coffee market tends to be more adventurous with flavours

such as butter and rum, banana bread, blueberry and French toast. This could represent increased

competition for the out-of-home market in the UK if retail coffee brands were to also adopt these more

exciting flavour variants.

Rising NPD in the in-home market underscores the importance for specialist coffee shop operators to

strengthen their added-value perceptions and continue to develop their offering to ensure USPs. Mini

marshmallows, chocolate sprinkles or salted caramel drizzles offer potential development areas among

customisable drinks toppings.

Out of home

Competition from non-specialist operators intensifies

In the face of a relatively mature eating out market, many operators are now looking to widen the

number of meal occasions they cater to, for example breakfast and lunch, to position themselves as

more flexible leisure venues. As such, operators from a wide number of foodservice categories are also

now chasing their share of the coffee pound. This encroachment on their core menu areas is making

the market increasingly competitive for specialist coffee shop brands.

For example, the grab-and-go sushi operator Abokado also offers more anglicised dishes compared to

some of its competitors such as croissants and bagels in order to draw in a breakfast crowd as well. It

has also been investing in its coffee offer in order to increase its breakfast appeal.

Meanwhile, value retailer 99p Stores’ store of the future “will have a bakery, coffee offer and fresh

produce. We’re testing customer sensitivity to new products” according to its chief operating officer

Tony Brown as stated in its annual report for the year to 1 February 2014 in October 2014.

Greggs

Greggs has been refocusing its strategy on grab-and-go occasions as its core target market rather than

its traditional bakery format since 2013, refurbishing a wide number of outlets to a new faster service

format. It also chose to stop the development of the Greggs Moment coffee shop format, instead

focusing on growing coffee sales within its existing bakery formats.

As part of this shift in strategy the brand has also focused on its hot drinks range. For example,

it refreshed its coffee range at the start of 2014, with marketing aiming to underscore the fact that the

coffee is 100% fair trade and freshly ground to order. Greggs currently offers black coffee, white

coffee, cappuccino, espresso and latte. It states that it uses its own blend of mild, high-grown arabica

beans from Peru and Colombia “allied” with robusta beans from Tanzania.

It attempted to further bolster its coffee credentials in April 2014 when it ran a “Britain’s Got Frothy”

campaign. Coinciding with the TV show Britain’s Got Talent, the campaign’s promotional material

featured pictures of the six judges and presenters on the show represented in milk foam/coffee froth as

latte art.

Meanwhile, Greggs also continues to push its value-for-money positioning. For example, the brand has

stated that the new food product ranges have benefited from coffee also being featured as part of the

price bundles. These have included coffee featuring in a new £2 deal with any sweet bakery item and a

£3 deal with a sandwich as well as being promoted in its £2 breakfast deal.

http://reports.mintel.com/sinatra/oxygen/display/719608/display/id=11603&anchor=hit20




Fast food brands

Selected fast food operators have also looked to drive footfall by expanding their product offering,

including in coffee shop-style products.

McDonald’s unified its premium coffee shop-style drinks and sweet snacks under the McCafé sub-

brand in October 2013. This include coffee shop-style options such as mocha, cappuccino,

espresso, latte, white coffee, hot chocolate, black coffee and tea. It reported in 2014 that sales

across the McCafé drinks range have “grown strongly”.

It continued to add new coffee shop-style products to the range in 2014 including the Chocolate

Chip Iced Frappe and Peach & Passion Fruit iced fruit smoothie in May 2014. For a limited period

in December 2014, the brand also launched a Toffee Latte as part of its hot drinks range. A

chocolate-filled doughnut is another recent new addition to the McCafé range in 2014.

Burger King launched a tropical mango smoothie and a strawberry banana smoothie in summer

2014, a similar move to McDonald’s launch of iced frappes.

Some 9% of fast food diners report visiting fast food venues more often since the improvements to

drinks ranges, signalling the incremental growth fuelled by these, according to Mintel’s Burger and

Chicken Restaurants – UK, August 2014. However, only 16% see the quality of coffee as matching

that of specialist coffee shops, protecting players in the coffee shop market from trading down to a

certain extent. Agreement is higher among men than women and among parents than those without

children in the household, suggesting that the coffee offering has had limited impact in drawing in

non-core users.

Lunch and other snacking operators

Operators in the lunch and snack market also continue to explore the additional revenue streams that

hot drinks and related snacks can offer.

To help bolster the quality perception of its coffee range, Pret A Manger documented the travels of

its coffee team in Peru via its Instagram page in July 2014 as they searched for the best

sustainable coffee.

Healthy fast food operator Leon launched a three-strong range of dairy-, gluten- and wheat-

free milkshakes, made using unsweetened almond milk, in August 2014. The flavours in the range

included Original Vanilla, Banana & Cinnamon and Flaked Chocolate. The chain also serves a

wide range of hot drinks such as filter coffee, latte, cappuccino, mocha, Americano, hot chocolate,

flat white, macchiato, espresso and a range of herbal, black leaf and green teas.

Doughnut specialist Krispy Kreme launched a new range of Kreme Shakes drinks in June 2014, in

four doughnut-inspired varieties; Chocolate Dreamshake, Caramel Crunch, Coffee Kreme and

Strawberries & Cream. It also launched a range of new chillers in Chocolate, Coffee, Mango and

Strawberry flavours. The chain runs a Coffee Club loyalty promotion offering members any

regular coffee or other hot drink for £1.50 Monday-Friday before 12pm, while offering a price

bundle of a regular coffee and two doughnuts for £4.55.








For Christmas 2014 Dunkin’ Donuts launched a new time-limited toffee nut latte. In late 2014 it

also expanded its savoury food range with a Hot Croistrami Sandwich (hot, thinly sliced beef

pastrami on a hot croissant with melted Monterey Jack cheese, sliced pickles and American

mustard). The chain’s standard hot drinks menu includes espresso, tea, hot chocolate, coffee,

cappuccino, latte and Dunkaccino (blend of coffee and hot chocolate flavours). It also offered a

range of iced drinks during the summer such as Iced Dunkaccino, Iced Tea and Iced Coffee.

Pizza/pasta restaurants

A number of pizza/pasta restaurants have been experimenting with breakfast and lunch menus as they

look to widen the number of meal occasions they appeal to. As such, coffee ranges have an increasing

role on menus.

For example, Strada introduced a trial lunch menu in selected restaurants in November 2013, with

light dishes such as focaccias and piadinas (Italian sandwiches). The brand launched a breakfast

menu in April 2014 and extended opening hours to serve breakfast from 8am. The coffee range

was highlighted with a free giveaway of a Musetti Coffee on buying breakfast as part of the

launch.

For Christmas 2014 ASK Italian extended its ‘Little Treats’ menu range with new festive drink

options such as Orange & Cinnamon Later and Hot Chocolate Orange.

These operators are likely to represent growing competition for specialist coffee shops chasing the

leisure pound going forward, given that some 19% of pizza/pasta restaurant/takeaway users say that

they have visited or would be interested in visiting these restaurants for meal occasions other than

lunch or dinner (eg breakfast, snacks, coffee) according to Mintel’s Pizza and Pasta Restaurants –

UK, November 2014.

Pubs

Coffee and specialist hot drinks ranges have also been a key part of an ongoing trend in the pub

market towards creating more flexible and responsive leisure venues. For example:

In 2013 Greene King launched its own coffee brand, Big Bean, across its Hungry Horse estate

which it claims helped to grow sales of hot drinks by 6.2%.

Managed pub and bar group TCG announced a range of initiatives in November 2013 designed to

increase sales of hot drinks across the group. For example, it introduced the Black Forest Mocha

and Hazelnut Latte flavoured coffees and Henry’s Hot Chocolate Orange to 40 TCG sites. The

launch was in collaboration with ethical beverage company, Cafeology which it has partnered with

since June 2013. To help facilitate the increased focus on hot drinks sales, the partnership included

the rollout of a barista training programme for a number of the pub group’s employees.

JD Wetherspoon continued to court all-day dining opportunities by stretching its foodservice hours

in October 2013 to 11pm. At the same time it extended free coffee refills until 2pm and revamped

its breakfast menu with new choices such as toasted bagel and cream cheese.

In 2013 the Cardiff-based brewer and pub operator SA Brains launched a separate coffee offer,

Great Little Coffee Company, into 100 of its pubs. The company said average

theoretical coffee margin had increased by 4% and there had been an average like-for-like growth

in coffee sales of 1.7% compared to the previous Costa Coffee offer according to statements in

March 2014.





For more information on this market please see Mintel’s Pub Catering – UK, May 2014.

Who’s Innovating? Coffee Shops UK, December 2014


Who’s Innovating?

Key points

Food menu expansion has been a key trend in terms of innovation in the coffee shop market

as key players attempt to win share of the lunchtime market from players such as Pret A

Manger and EAT.

Recent packaging trends in the market reflect the need to create better standout in a highly

competitive market as the lines between categories such as lunch venue and coffee shop

become increasingly blurred.

Similarly, packaging is also being used to create more emotive and playful engagement with

consumers, also providing opportunities for more crowdsourced marketing content via social

media sites.

There are a handful of ‘green’ initiatives in the coffee shop market of late including

strategies to more ethically dispose of waste whilst others look to reduce wastage and

overheads altogether.

The big players in the coffee shop market have been fighting against the negative

associations of being large multinational corporations for a number of years now. Some

recent marketing campaigns have therefore focused on the more positive connotations and

benefits of being a global brand.

Food expansion: blurring boundaries between categories

With such large outlet portfolios, Costa Coffee and Starbucks have both been well placed to tap into

the fact that convenience is the key driver when it comes to everyday lunch purchases out of home, as

found in Mintel’s Consumer Attitudes Towards Lunch Out-of-Home – UK, October 2014. As such

these players have been focused on widening their food offering in a bid to grab market share of the

lunch segment. For example:

Starbucks launched a trial with healthy food provider POD in September 2014. The coffee shop

chain will be testing sales of POD food in three Central London stores (Harewood Place, Moorgate

and Pentonville Road). This includes breakfast dishes such as Super Scrambled Eggs, yogurts and

multigrain toast as well as lunch dishes such as Thai Red Chicken Hot Pod, Pulled Pork

& Pod Slaw Salad, Bahn Mi panini and side dishes such as a Crunchy Pea Pot (edamame beans,

peas, wasabi seed mix and pumpkin seeds).

Starbucks also launched a number of new meal products in summer 2014, such as a number of

flatbread options like as Mediterranean Tuna Flat Bread and Falafel Flatbread, as well as a

Smoked Salmon Sushi Wrap (using a nori-coated tortilla wrap).

In September 2014, the chain also reported that it had seen double-digit growth in food sales since

it introduced a revitalised food offer in the spring which included 16 new breakfast items, and a

“back to basics” approach to emphasising the ingredients.

Costa Coffee has also been expanding its food range in 2014 including a number of new hot

sandwich additions such as a chicken fajita wrap and pulled pork wrap, as well as a chorizo and

roasted pepper panini, a goat’s cheese and beetroot panini and a BBQ chicken panini.



Further encroachment on the traditional menu USPs of lunch operators such as Pret A Manger and

EAT by specialist coffee shops would be welcomed by consumers. For instance, some 17% of out-of-

home hot drink purchasers say they’d be very interested in a wider range of savoury snacks (eg

sausage rolls, pasties, tapas dishes, cheese and crackers) at coffee shops. Meanwhile 16% say they’d

be very interested in seeing a wider variety of savoury meal options (eg pies, soups, pizza slices) at

coffee shops. For further discussion please see The Consumer – Specialist Coffee Shops’ Menu

Enticements section.

Packaging trends

Creating standout

In 2014, Starbucks changed its food packaging from a basic approach, to a new focus on a greater use

of colour, translucent packaging and a more “fun” approach to names such as Holy Guacamole Salad.

This attempt to elevate the perception and standout of its food products is in line with developments by

its competitors. For example, in late 2012 lunchtime chain, EAT, revamped its stores with a new

brighter colour scheme compared to its previous brown styling. The brand also introduced

a new colour coding system to its product packaging, for example differentiating hot food with

red packaging, soup with yellow and coffee with grey. As part of the revamp the brand also looked to

emphasise the handcrafted aspects of its food offering, with hand-painted food illustrations. It also

highlighted ‘key thoughts and messages’ throughout its interior in a new typographic style.

This more artistic, handcrafted approach to design has also been apparent in the coffee shop market.

For example, Caffè Nero’s branding also now focuses more strongly on the use of typography and

coffee illustrations. Such strategies arguably tap into attempts by operators to distance their brands

from being seen as overly corporate.

This taps into findings from the Mintel Trend Human which describes how, whilst automation is here

to stay, consumers have also reacted to its evolution by elevating human service and artisan goods.

The trend describes how consumers are craving artisan products for their reassurance of value, as well

as a means of expressing taste and individuality.

Playing on Play Ethic

Meanwhile, various foodservice operators have looked to their packaging apparently to distract

consumers from price considerations and instead increase their ‘want to buy’ mentality. For example, a

number of foodservice brands have launched time-limited and playful packaging for Christmas 2014,

also aimed at driving wider engagement. For example:

Costa Coffee updated its takeaway cups for Christmas 2014 with Christmas themes such as Santa,

a snowman, Rudolph and an elf design. The brand also launched a new range of festive ceramic

cups in late 2014. Hashtags such as #CostaElf and #CostaChristmas aimed to encourage

consumers to share images of its products with their peers.

Similarly, Greggs, the bakery chain, relaunched its festive bake pasty, along with a new red

#PastySanta bag, featuring a drawing of Father Christmas's beard. Fans were encouraged to use

the phone app Blippar to take a photo of themselves in the Santa beard and share it online. A social

media campaign accompanied the packaging launch.



As consumers’ lives have gotten busier and downtime less relaxing, there has been greater recognition

that letting loose from time to time is just as important, suggesting room for brands to gain interest by

taking a more playful approach, a theme which is explored in detail in the Mintel Trend Play Ethic

(see Brand Communication and Promotion section for more details).

‘Green’ trends

Various specialist coffee shop operators have undertaken ‘green’ initiatives in recent years.

For example, in late 2014, it was reported that the 15-strong The Boston Tea Party café chain is

supplying its used coffee grounds to a project that sees mushrooms grown by prisoners in disused cells

at Dartmoor Prison. The project is run in conjunction with the Green Shoots Associates organisation,

with the oyster mushrooms which are grown later sold to restaurants including The Boston Tea Party’s

Gloucester Road café.

This reciprocal and more personal approach to green strategies arguably taps into the Mintel Trend

Greenfluencers which describes how businesses are becoming role models in green issues to get ahead

of their competitors. It also discusses how ‘greenfluence’ is also about fostering community and

creating a chance to make green lifestyles and services fun and enjoyable rather than a duty or a task.

Meanwhile, other initiatives have been designed to reduce waste altogether. For example, Costa

Coffee had signed up to the ‘Simply Cups’ paper cup recovery and recycling initiative to help recycle

paper cups within its concession outlets located at corporate offices, universities and transport hubs,

according to reports in August 2014. At the time Costa stated that it had also launched a new cup

designed to reduce the apparent temperature of the exterior of the cup in an attempt to eliminate the

need for an additional sleeve or double cupping.

Globalisation issues

The big players in the coffee shop market have been fighting against the negative associations of being

large multinational corporations for a number of years now. Some recent marketing campaigns have

therefore focused on the more positive connotations and benefits of being a global brand.

For example, in October 2014 Starbucks launched a global campaign which utilised a wide range of

online marketing channels such as YouTube, Instagram, Tumblr and Twitter. The ‘Meet Me at

Starbucks’ campaign was designed to emphasise the positive sides of its global brand status.

A 60-second clip on YouTube showed coffee lovers throughout the world connected with friends. It

was supported with display ads and the Instagram hashtag #HowWeMet encouraging fans to snap their

own ‘special coffee moments’. The campaign included an eight-minute documentary shot in 59 stores

across 28 countries simultaneously during a 24-hour period. This was said to aim to show how

important the stores are to communities worldwide. The YouTube video was interactive to allow

viewers to choose which stories they want to see more of.

In April 2014 Caffè Nero signed the marketing agency Feref to create a digitally led campaign focused

on the brand’s heritage. Titled “Meet the Maestros”, the campaign featured Caffè Nero’s own team of

“maestros”, while it has further emphasised this more people-focused approach through its

International Barista of the Year Competition which showcased team members from around the world.

Market Size and Forecast Coffee Shops UK, December 2014


Market Size and Forecast

Key points

The coffee shop market is estimated to have grown by 3.5% to reach £1.45 billion in 2014,

supported by consumers’ commitment to convenience-driven and treat purchases.

However, market saturation concerns continue to linger over the market, pushing operators

to look to additional sales channels.

A number of specialist operators are struggling to assert their value-for-money and USP

positions in a continually evolving marketplace.

Growing competition from non-specialists in the market is also leading operators to expand

both their menu range and outlet formats in an attempt to better target consumers and

locations more specifically and increase their relevancy to consumers’ wider lifestyles.

Coffee shops expected to retain growth FIGURE 13: UK COFFEE SHOPS MARKET SIZE AND FORECAST, AT CURRENT AND 2014 PRICES, 2009-19 Current

prices Index Annual %

change At 2014 prices

Index Annual % change

£m £m 2009 1,195 82 na 1,374 95 na 2010 1,218 84 +1.9 1,358 94 -1.2 2011 1,286 89 +5.6 1,378 95 +1.5 2012 1,340 92 +4.2 1,393 96 +1.1 2013 1,401 97 +4.6 1,417 98 +1.7 2014 (est) 1,450 100 +3.5 1,450 100 +2.3

2015 (fore) 1,498 103 +3.3 1,469 101 +1.3 2016 (fore) 1,547 107 +3.3 1,494 103 +1.7 2017 (fore) 1,596 110 +3.2 1,515 104 +1.4 2018 (fore) 1,648 114 +3.3 1,539 106 +1.6 2019 (fore) 1,701 117 +3.2 1,562 108 +1.5 SOURCE: MINTEL

The coffee shop market recorded an estimated 3.5% increase in sales between 2013 and 2014 to an

estimated £1.45 billion. This was largely driven by inflation, although also supported by consumers’

commitment to convenience-driven and treat purchases. Research for this report shows that

consumers’ overall frequency of purchasing hot drinks out of home has remained relatively unchanged

between 2013 and 2014 despite improvements in consumer confidence. An exception to the rule, the

largest player in the market, Costa Coffee, reported like-for-like sales growth of 6.1% in its UK stores

driven by a 5% increase in customer transactions, for the six months to 28 August 2014.

Meanwhile the market continues to face intense pressure from non-specialist operators. McDonald’s

for example reported in Q1 2014 that sales across its McCafé drinks range had “grown strongly”,

having unified its premium coffee shop-style drinks and sweet snacks under the McCafé sub-brand in

October 2013. More than a quarter (27%) of people had bought hot drinks from fast food chains in the

three months to September 2014, with 73% of consumers having bought such drinks out of home

overall.



Concerns over market saturation continue to linger across this market; whilst Costa Coffee continues

with confident expansion, the estates of other players in the market have remained relatively stagnant

(eg Starbucks).

Outlet diversification continues

As such, the market continues to veer towards brands looking to develop a stable of different outlet

formats in order to cater to the contrasting demands of various locations and help bolster usage. For

example, express/self-service units look to cater for grab-and-go occasions while at the other end of

the spectrum, café/restaurant-style venues target more leisure-focused locations.

Of the leading operators, Costa Coffee continues to put particular emphasis on its Express units to

reach new distribution channels such as workplaces, universities and hospitals whilst it has also been

trialling partnerships with its standard stores at in-store catering sites such as Primark and Debenhams.

Branding concerns come to the fore

Branding development is another key consideration for big players in the market: whilst many

operators over the years have benefited from the trust engendered in being large national brands, there

is now a risk of these brands being seen as overly corporate. Brand research for this report shows this

to be a poorly trusted category with brands struggling to establish effective differentiation. As

discussed elsewhere, brand loyalty is low, with many consumers driven by convenience and price.

Smaller players are growing in the market, which typically adopt a less corporate approach to the

venues’ design to reflect more personable, independent and/or emotive branding as well as to provide

more pleasant, ‘experiential’ drinking/dining environments. For example, growing brands such as

Harris + Hoole trade off a more artisanal brand positioning, BB’s Coffee & Muffins now has a more

fun, retro feel, whilst SA Brains’ Coffee#1 has more of a gourmet café feel.

The large multinational chains are also now experimenting with more independent-feel outlets: for

example, Costa is trialling a new-generation format with a more “independent operator” feel in two

locations in the UK according to reports in late 2014.

Food growth opportunities

In the face of rising competition from non-specialist operators (eg fast food brands), specialist coffee

shops have also been looking at NPD, especially in regard to extending their food offer in order to

increase their competitiveness. Boundaries between sectors such as coffee shops, lunch operators,

bakeries and the like are likely to continue to become more blurred as operators fight to increase their

share of the leisure pound and extend into new potential revenue areas.

In the US, Starbucks is trialling alcohol sales and more comprehensive food menus as it experiments

with alternative trading hours, eg opening in the evenings, in order to grow sales and usage. This could

also help venues in high-footfall areas in the UK as specialist coffee shop operators look to continually

evolve to improve their relevancy to consumers’ wider purchasing behaviour.

Forecast

Going forward, coffee shops should benefit from rising consumer confidence and income. However,

the onus is on operators to increase frequency of visit and spend per head proactively through both

menu expansion and more tailored outlet designs to ensure that market value growth is not just

inflation-led in future.



Growth in the coffee shop market will also depend upon operators’ ability to respond to increasing

competition from non-specialists, such as efforts to revamp their brands to re-assert their USPs and

place in the wider eating out market. For example, experiential features such as roasteries would

appeal to the 13% of users who would prefer coffee shops where they could see the coffee being

roasted (eg behind the counter). These could help elevate the credentials of the coffee brands.

This will be essential to help counter the fact that more than a fifth (22%) of users think that hot drinks

from other shops (eg bakeries) are better value for money than hot drinks from specialist coffee shops.

FIGURE 14: UK COFFEE SHOPS MARKET SIZE AND FORECAST, 2009-19

(£m)1,450

Best case (£m)1,811

Worst case (£m)1,590

Mintel forecast (£m)1,701

800

1,000

1,200

1,400

1,600

1,800

2,000

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Mark

et

valu

e (

£m

)

95%

Confidence intervals

90%

70%

50%

Actual Forecast

Est.

0

SOURCE: MINTEL

Forecast methodology

Mintel has produced this forecast based on an advanced statistical technique known as ‘multivariate

time series auto-regression’ using the statistical software package SPSS.

The model is based on historical market size data taken from Mintel’s own market size database

supplemented by macro- and socio-economic data sourced from leading organizations (eg Office for

National Statistics, HM Treasury, Bank of England). Since August 2013, in a joint agreement, Mintel

has been using the continually updated databank from the respected economic and political analysts,

the Economist Intelligence Unit (EIU), to allow more timely and creditable forecasts. The model

searches for relationships between actual market sizes and a selection of key economic and

demographic determinants (independent variables) in order to identify those predictors having the

most influence on the market.

For the coffee shop market the Consumer Price Index (CPI) was identified to have the most influence

on the market value.

Next to historical market sizes and a current-year estimate, the fan chart illustrates the probability of

various outcomes for the market value of the coffee shop market over the next five years.



The future uncertainty within this market is illustrated by the coloured bands around the five-year

forecast. The widening bands successively show the developments that occur within 95%, 90%, 70%

and 50% probability intervals. Statistical processes predict the central forecast to fall within the darker

shaded area which illustrates 50% probability ie a five in 10 chance.

At a 95% confidence interval, we are saying that 95 out of 100 times, the forecast will fall within these

outer limits, which we call the best- and worst-case forecast as these, based on the statistically driven

forecast, are the highest (best case) and lowest (worst case) market sizes the market is expected to

achieve.

The best- and worst-case forecasts take the value of the coffee shop market from an expected £1.45

billion in 2014 to £1.8 billion (best case) and £1.6 billion (worst case) in 2019. Based on the

expectation that operators will continue to broaden the types of formats they offer to reach a wider

audience, however, Mintel expects the market to grow to a total of £1.7 billion in 2018.

Market Share Coffee Shops UK, December 2014


Market Share

Key points

Concerns of market saturation continue to resonate throughout the market, as evidenced by

the widely varying trends in outlet development across various brands. For example, whilst

Costa Coffee continues with confident outlet expansion, Starbucks’ store numbers have

remained relatively unchanged in recent years.

Where once Starbucks was positioned as meeting the demand for more sophisticated coffee,

it appears that the ‘Big Players’ have come to be seen as increasingly corporate as they’ve

expanded, losing the artisanal feel somewhat. This has created opportunities for local,

artisan coffee brands to act as a redrawn definition of premium coffee.

Costa Coffee remains the dominant operator FIGURE 15: OUTLET NUMBERS OF SELECTED UK COFFEE SHOPS, 2011 AND 2013-14 2011 2013* 2014** % change 2011-14 % change 2013-14

Costa Coffee 1,302 1,656 1,840 +41.3 +11.1 Starbucks 739 730 731 -1.1 +0.1 Caffè Nero 509 540 548 +7.7 +1.5 Coffee Republic 110 103 104 -5.5 +1.0 Coffee#1 15 35 46 +206.7 +31.4 Caffè Ritazza 50 32 33 -34.0 +3.1 BB's Coffee & Muffins 30 31 44 +46.7 +41.9 Esquires Coffee Houses 35 31 26 -25.7 -16.1 Love Coffee 18 29 29 +61.1 - Puccino's 28 28 28 - - Harris + Hoole na 23 44 na 91.3 AMT Coffee 72 46 na na na * as of August 2013 ** as of November/December 2014 SOURCE: COMPANY WEBSITES/MINTEL

The specialist coffee shop market remains highly competitive, as well as being highly polarised. The

‘Big Three’ – Costa Coffee, Starbucks and Caffè Nero – have significantly larger store portfolios than

many of the smaller players which also operate in the market. Costa Coffee in particularly is surging

ahead in terms of outlet numbers, with nearly three times are many as Caffè Nero, for instance.

Concerns of market saturation continue to resonate throughout the market, as evidenced by the widely

varying trends in outlet expansion or contraction across various brands. For example, whilst Costa

Coffee continues with confident outlet expansion, Starbucks’ store numbers have remained relatively

unchanged in recent years, with the company said to be two years into a five-year plan to turn it into a

profitable venture.

Market Share Coffee Shops UK, December 2014


Smaller brands have been attempting to steal market share in recent years. For example, owned by the

Cardiff-based brewer and retailer SA Brains, Coffee#1 Limited reported that overall sales increased

55.7% during the 52 weeks ended 28 September 2013, with like-for-like sales on the original core

estate growing by 0.2%. The growth was generated by the opening of nine new stores during the year,

taking the estate to 35. It continues to look to expand its portfolio and has added a further five new

sites since the end of the financial year according to its annual report, as part of its intention to reach

50 sites by 2015. At the time of writing the brand had expanded to 46 sites focused in South West

regions.

Similarly, Harris + Hoole has expanded rapidly with backing from Tesco. However, in 2014 there has

been some outlet consolidation as it reportedly closed six sites during summer 2014 as it reviewed the

performance of certain sites and the value for money of particular leases.

Meanwhile, artisan coffee brand Taylor Baristas is seeking to double the size of its business in the next

two years, after launching a crowdsourced “coffee bond” in late 2014. The company, which has been

in operation for around eight years, reported that it planned to use proceeds from the bond to open

three to four shops in 2015, and a further four to six shops in 2016.

Where once Starbucks was positioned as meeting the demand for more sophisticated coffee, it appears

that the ‘Big Players’ have come to be seen as increasingly corporate as they’ve expanded, losing the

artisanal feel somewhat. This has created opportunities for local, artisan coffee brands to act as a

redrawn definition of premium coffee.

Companies and Products Coffee Shops UK, December 2014


Companies and Products

Key points

Costa Coffee reports confident outlet expansion and financial results in 2013/14. It continues

to invest in targeted service formats such as its self-service machines and is trialling a more

independent-feel dine-in outlet. It also continues to explore partnerships with retailers such

as Debenhams and Primark to benefit from their footfall.

Starbucks has been consolidating its estate. It has also been focusing on increasing food sales

with new product launches and trial partnerships such as with healthy fast food provider

POD.

Caffè Nero has been growing its outlet portfolio with expansion being part of its key strategy

for growth going forward.

Specialist coffee shop operators

This section profiles a selection of the leading specialist coffee shop chain operators. It is not intended

to provide an exhaustive list.

Costa Coffee

www.costa.co.uk

Part of the leisure group Whitbread plc, Costa Coffee is a leading UK high street coffee chain. The

brand was founded in 1971 and comprises Costa (coffee shops), Costa Metro (coffee shops in cities),

Costa Express (self-serve coffee brand), Proud to Serve Costa (supplier to pubs, bars, restaurants and

caterers) and Costa Drive Thru outlets (coffee on the go).

Costa has a variety of outlet designs to accompany each of its formats, such as ‘Metro’ which is aimed

at younger/urban consumers and ‘Evolution’ which is designed for more mature customers in

provincial locations. It states its consumer segments are those who ‘Recharge, Relax, Refuel’.

Costa Coffee operates in the UK through directly owned coffee shops and franchises. The total Costa

UK Stores (Retail & Enterprises) amounted to 1,840 outlets according to a trading update released on

28 August 2014, up 10% on the 1,664 stores reported in H1 2013/14. The company has around 3,400

Costa Express Machines in the UK.

Costa offers a range of coffee drinks (from espresso to Americano to mocha and macchiato) and food

items such as paninis, sandwiches, wraps, toasts, cakes, snacks, pastries and fresh fruit and yoghurt.

The brand uses a sustainably farmed coffee blend, Mocha Italia, sourced from Rainforest

Alliance Certified farms.

Financial performance

Costa saw like-for-like sales growth of 6.1% in its UK stores driven by a 5% increase in customer

transactions, according to Whitbread’s interim report for the six months to 28 August 2014. Costa’s

UK sales grew to £389.3 million, up 17.6% during H1 2014/15.






Underlying profits at Costa rose by 20.5% to £52.4 million during H1, the company reported. Total

sales for Costa increased by 16.9%, driven by good UK Retail & Enterprise sales growth, together

with the opening of 86 net new stores worldwide. The company extended its brand presence in the UK

with an additional 85 net new stores opened in the first half, taking its total number of stores to 1,840,

on track to achieve over 2,200 stores by 2018.

The company stated that product innovation underpinned its like-for-like growth. For example, it

recently launched a new range of coffee blends, Old Paradise Street Limited Roasts.

Over two thirds (69%) of Costa Coffee’s UK estate was new or refurbished over the past three years,

according to Whitbread’s 2013/14 Annual Report. In 2013/14 it invested £10 million in refurbishing

139 stores. The company stated that it had opened 177 net new stores in the UK taking the total to

1,755. At the time it reported that it had 2.3 million active loyalty card members, and its average

transaction value was £3.82. It also stated that the percentage of transactions which include a food item

was 41%.

Recent developments – Stores

A next-generation high street format with a more “independent operator” feel was trialled by Costa in

two locations in the UK according to reports in October 2014. For example, the design of the site in

Horsham eschews the brand’s traditional dark brown colouring for a lighter, more mixed colour palette

and use of the logo in-store is smaller and more discreet. It also uses a mixture of different styles of

seating (eg armchairs). One area is set out to look like a living room complete with a floor lamp and

one area has a dining room table set-up. Meanwhile, in the US Starbucks continues to experiment with

its La Boulange Bakery brand which it acquired in 2012.

The first Costa Coffee store located within a Debenhams store opened in Guildford in June 2014,

marking the start of a trial partnership at six locations with the retailer. The department store brand

said that it would continue to invest in its in-house restaurant and café business as well.

In July 2014 it was reported that value clothing retailer Primark was extending its trial with Costa

Coffee in-store after the success of coffee outlets at Primark branches in Manchester and Bristol.

In April 2014, Costa stated that it planned to further roll out the new-generation ‘Marlow’ Costa

vending machines across the UK within the following three to five years, amongst target locations

such as workplaces, universities and hospitals. The new machines were in place at around 30 Costa

stores in the UK at the time, with plans for around 250 in the UK by the end of 2014. The system

reportedly includes features such as emitting smells and sounds associated with coffee shops. They

also accept credit cards and debit cards, ‘wave and pay’ as well as including non-coffee products in the

range which holds over 250 drinks. Orders are placed via a 27-inch HD touchscreen. The focus would

not be on converting the existing 3,300-strong Costa Express but on targeting non-traditional locations

for vending machines according to the managing director of Costa Express, Scott Martin.

In March 2014 it was reported that Coffee Snobs, a Costa Coffee franchisee which has 12 Costa sites,

was to trial a Costa Coffee site in a public park in Marlow, Buckinghamshire.

Recent developments – Food and drink

For Christmas 2014, Costa Coffee’s festive drink range had a dessert/drink theme with new additions

including Black Forest Hot Chocolate, Brownie Hot Chocolate, White Hot Chocolate, Orange Hot

Chocolate, Gingerbread & Cream Latte, Sticky Toffee Latte and Praline Cappuccino. It also offered a

Hot Spiced Apple drink during this period which was described as a spiced apple juice drink made

with star anise and a cinnamon stick.



New food additions such as Brie, Bacon & Cranberry Panini, Turkey & The Trimmings Toastie,

Cheeseboard Panini and a gluten-free Turkey Wrap were added to the brand’s Festive food menu in

late 2014. Other new additions at the time included Festive Tea Cake, Mini Chocolate Cake, Salted

Caramel Yule Log, Sweet Mini Tartlets (chocolate cherry, orange & cranberry, and caramel hazelnut

variants), Coffee & Walnut Cake, Honeycomb Crunch and a Cherry & Almond Muffin. Other festive

snacks available in-store included Christmas Cornflake Crunch, Gingerbread Muffin, Mince Tart and

Gluten Free Christmas Cake.

Costa Coffee has been expanding its food range in 2014 including new hot sandwich additions such as

a chicken fajita wrap and pulled pork wrap. In summer 2014 the chain also added a chorizo and

roasted pepper panini, a goat’s cheese and beetroot panini and a BBQ chicken panini.

Costa Coffee launched its first savoury gluten-free option in May 2014. The chicken and salad basil

wrap used wraps by the Newburn Bakehouse brand, owned by Warburtons.

Recent developments – Other

Costa Coffee updated its takeaway cups for Christmas 2014 with Christmas themes such as Santa, a

snowman, Rudolph and an elf design. The brand also launched a new range of festive ceramic cups in

late 2014. During this period it also launched a separate Costa Christmas website where fans could

participate in weekly challenges/competitions. It also launched hashtags such as #CostaElf and

#CostaChristmas to further encourage consumers to share images of the products with their peers. As

part of the campaign, Costa also partnered with the charity Save the Children to create children’s

books, the profit from sales of which from Costa stores were to go to help disadvantaged children.

In August 2014 it was reported that Costa Coffee had signed up to the ‘Simply Cups’ paper cup

recovery and recycling initiative to help recycle paper cups within its concession outlets located at

corporate offices, universities and transport hubs. At the time Costa stated that it had also launched a

new cup designed to reduce the apparent temperature of the exterior of the cup in an attempt to

eliminate the need for an additional sleeve or double cupping.

In summer 2014 Costa also relaunched its loyalty app with the aim of replacing its previous card-based

loyalty scheme. The Coffee Club app enables customers to add points to their loyalty account by

getting their phone scanned at store counters, with their points totals instantly updating. The app also

enables users to search for local Costa Coffee branches, filtering them by factors such as Wi-Fi and

baby changing facilities, and provides users with directions once they have selected a branch. Loyalty

club members can also customise their profile image, scroll backwards through their account history

and receive updates on new offers from Costa.

At the end of 2013 it was announced that Costa was to begin to trial a big data initiative across its

network of stores in the UK. The company signed an agreement with the analyst firm Applied

Predictive Technologies (APT) to test its cloud-based Test & Learn management system throughout its

UK stores. Other APT customers include McDonald’s and Subway.

Starbucks

http://starbucks.co.uk

Starbucks is a Seattle-based coffee shop chain with over 17,000 outlets across 50 countries in the

world. It has 731 stores in the UK, as of 29 September 2013.



Starbucks offers over 30 blends and single-origin premium arabica coffees, as well as a range of coffee

and coffee-based beverages (fresh-brewed coffee, hot and iced espresso, coffee and non-coffee

blended beverages, Vivanno smoothies and Tazo teas), as well as fresh food (pastries, sandwiches,

salads, oatmeal, yogurt parfaits and fruit cups).

The company also sells merchandise including coffee- and tea-brewing equipment (coffee beans and

tea from Starbucks VIA, Ready Brew, Tazo, Torrefazione Italia Coffee and Seattle’s Best Coffee

brands), mugs and accessories, packaged goods, music, books and gift items.

Financial performance FIGURE 16: FINANCIAL PERFORMANCE OF STARBUCKS COFFEE LIMITED UK, 2009-13 Year ended September/October

2009 2010 2011 2012 2013 % change % change

£000 £000 £000 £000 £000 2009-13 2012-13

Turnover 388.3 396.3 397.7 413.4 399.4 +2.9 -3.4 Gross profit 69.7 76.8 78.4 70.6 79.8 +14.5 +13.0 Operating loss -41.4 -25.7 -28.8 -27.6 -20.7 -50.0 -25.0 Loss before tax -52.5 -34.2 -32.9 -30.4 -20.5 -61.0 -32.6 Net loss -52.1 -34.2 -32.9 -30.4 -22.7 -56.4 -25.3 Company-owned outlets 666 601 607 593 549 -17.6 -7.4 Licensed outlets 46 102 128 145 125 +171.7 -13.8 SOURCE: COMPANY INFORMATION/MINTEL

As at 29 September 2013, 549 Starbucks stores in the UK were company-operated, a net decrease of

44 since the start of the period. At the period end, 125 licensed stores and 57 franchised stores were in

operation.

Gross profit for the period rose by 13% to £79.8 million (2012: £70.6 million) according to the annual

report for Starbucks Coffee Company (UK) Limited’s for the year to 29 September 2013. Gross

margin rose from 17.1% to 20% and the operating margin improved from -6.7% to -5.2%. The

company stated that the rise in gross profit largely explained the fall in the loss before tax for the

period of 32.7% to £20.5 million (2012: loss of £30.4 million).

The company reported that during the year it had increased the number of licensed stores and

franchised stores, with 13 and 25 opened respectively in the period. These formats continue to be

successful according to Starbucks and the company expected to implement further growth in those

areas in FY2014.

Starbucks made a public commitment in December 2012 to pay corporation tax despite a lack of

taxable income, by not deducting certain related party expenditure for tax purposes in its 2013 tax

computation. It stated that its actual tax liability for FY2013 was £3.4 million whilst it made £15

million of tax payments in 2013 and 2014. It further stated its intention to make a payment later in the

year for the remainder of its £20 million commitment for 2013 and 2014, in its annual report.

Starbucks announced in December 2014 that it had made its final payment of £5 million towards this.

Recent developments – Food and drink

For Christmas 2014 Starbucks brought back some of its festive favourites such as Gingerbread Latte,

Toffee Nut Latte and Egg Nog Latte as well as launching Honey & Almond Hot Chocolate as a new

addition.




Starbucks launched a trial with healthy food provider POD in September 2014. The coffee shop will be

testing sales of POD food in three Central London stores (Harewood Place, Moorgate and Pentonville

Road). This includes breakfast dishes such as Super Scrambled Eggs, yogurts and multigrain toast as

well as lunch dishes such as Thai Red Chicken Hot Pod, Pulled Pork & Pod Slaw Salad, Bahn Mi

panini and side dishes such as a Crunchy Pea Pot (edamame beans, peas, wasabi seed mix and

pumpkin seeds).

In September 2014 the chain reported seeing double-digit growth in food sales since it introduced a

revitalised food offer in the spring which included 16 new breakfast items and a “back to basics”

approach to emphasising the ingredients. The packaging was also changed from a basic approach, to a

new focus on a greater use of colour, translucent packaging and a more “fun” approach to names such

as Holy Guacamole Salad.

Starbucks launched a new Yoghurt Frappuccino variant as an addition to its Frappuccino range in July

2014. The product combined chilled yoghurt and a “fruity swirl” blended with ice, in banana and red

berry variants.

Starbucks’ summer seasonal food menu included a number of flatbread options such as Mediterranean

Tuna Flat Bread and Falafel Flatbread, as well as a Smoked Salmon Sushi Wrap (using a nori-coated

tortilla wrap).

Recent developments – Other

Starbucks launched a competition in December 2014 offering customers the chance to win a lifetime’s

supply of drinks (one per day) as part of the ‘It’s a Wonderful Card’ campaign. Scratchcards are given

out when customers pay with Starbucks Card or Mobile App; by entering the code from these online

customers are in with a chance of winning Starbucks for Life or other prizes such as Christmas mugs

and tumblers, and discounts on drinks. The winning customer will be announced in January 2015.

In October 2014 Starbucks launched a global campaign which utilised a wide range of online channels

such as YouTube, Instagram, Tumblr and Twitter. The ‘Meet Me at Starbucks’ campaign aimed to

emphasise the positive aspects of its global brand status: a 60-second clip on YouTube showed coffee

lovers throughout the world connected with friends. It was supported with display ads and the

Instagram hashtag #HowWeMet encouraging fans to snap their own ‘special coffee moments’.

The ad formed part of a wider ‘Meet Me at Starbucks’ campaign which included an eight-minute

documentary shot in 59 stores across 28 countries. These videos were captured simultaneously during

a 24-hour period to reportedly show how important the stores are to communities worldwide. The

YouTube video was interactive to allow viewers to choose which stories they want to see more of.

Starbucks had integrated the taxi-ordering program Uber into its app according to reports in September

2014. The app’s latest redesign also included a new interface, a mobile tipping service and a

personalised dashboard as well as a specific button to order a taxi through Uber. Uber is available

worldwide although only presently in London and Manchester in the UK.

Recent price promotions continue to be geared towards driving footfall during off-peak hours, such as

50% off cakes and cookies with drinks purchases after 2pm, valid 6-10 October 2014. During 7-9

September Facebook fans were encouraged to say ‘soft spices’ to baristas in-store from 11-12pm in

order to receive a free tall latte made with Guatemala Antigua Origin Expresso.

In November 2014 Starbucks advertised the fact that customers could now use their Starbucks Card

and mobile app at Welcome Break stores.



The company also signed up to neighbourly.com in 2014, a web-based start-up which aims to connect

UK charitable projects with corporate donors. The companies looked for consumer input via social

media sites using the hashtag #neighbourlynoise during December 2014.

Caffè Nero

www.caffenero.com

Caffè Nero is a premium-positioned, Italian-style coffee chain which serves core espresso-based

coffees as well as a range of food items such as pastries, baked goods, paninis, sandwiches, soups,

salads, pastas, cakes and biscotti. It also sells products such as coffee and mug gift packs, ground

beans, T-shirts and barista kits.

Founded in 1997, the brand has around 548 UK stores. Caffè Nero stated in its annual report for the

year ended 31 May 2014 that it had extended its target of store openings to 750 UK stores. A typical

Caffè Nero outlet is a European-style coffeehouse of classic Italian décor with features such as free

Wi-Fi and additional power sockets.

Financial performance FIGURE 17: FINANCIAL PERFORMANCE OF CAFFÈ NERO GROUP LIMITED, 2010-14 Year ended 31 May 2010 2011 2012 2013 2014 % change % change

£m £m £m £m £m 2010-14 2013-14

Revenue 153.6 165.6 184.6 204.3 222.4 +44.8 +8.9 Gross profit 38.7 41.5 44.4 49.2 54.3 +40.3 +10.4 Operating profit 16.6 17.3 19.1 21.1 23.5 +41.6 +11.4 SOURCE: COMPANY REPORT/MINTEL

The opening of new stores and like-for-like sales growth of 2.7% facilitated revenue growth of 8.8% to

£222.4 million (2013: £204.3 million) at Caffè Nero, as reported in its annual report for the year ended

31 May 2014. The company also stated that gross profit increased by 10.4% to £54.4 million (2013:

£49.2 million), store margin improved slightly at 24.4% (2013: 24.1%) and EBITDA (cash profit) rose

by 9.2% to £38.1 million (2013: £34.9 million). Caffè Nero reported that this increased due to the

continued expansion of stores, maturity of younger existing stores and careful cost management in the

business.

Caffè Nero reported that over the period operating profit rose by 11.4% to £23.5 million (2013: £21.1

million) with operating profit margin increasing slightly to 10.66% (2013: 10.3%).

Caffè Nero opened 36 stores and closed five during the financial year to 2014, resulting in a net

increase of 31 stores or 5.7% of the overall estate. It stated that at year-end, it had 548 stores operating

in 247 UK towns and cities with directors reporting that there was potential in the UK market for at

least 750 Caffè Nero stores. Increasing its scale is a key part of the group’s strategy and it stated its

intention to open around 40 stores in the next financial year.

Recent developments

In spring 2013 Caffè Nero launched bread rolls by the gluten-free bread and baked goods specialist

Genius across its outlets.

In 2014 the brand added a new Coffee & Caramel Frappe Latte to its menus.



In May 2014 it was reported that free coffee at Caffè Nero was the most redeemed offer in the O2

Priority Moments reward scheme. The offer was said to have been redeemed by around 80,000 O2

customers.

In April 2014 Caffè Nero signed the marketing agency Feref to create a digitally led campaign focused

on the brand’s heritage. Titled “Meet the Maestros”, the campaign featured Caffè Nero’s own team of

“maestros” and it has further emphasised this more people-focused approach through its International

Barista of the Year Competition which showcased team members from around the world.

The brand also now relies heavily on real-life photography – both professional and amateur – in its

marketing; for example, in summer 2014 it ran fortnightly “Summer with Caffè Nero” photography

competitions which asked fans to submit their own photos of Caffè Nero products. Its branding also

now focuses more strongly on the use of typography and coffee illustrations.

In October 2014 department store retailer House of Fraser launched a click-and-collect service as part

of a joint trial with the Caffè Nero store on Fitzroy Street in Cambridge. The ground floor has the look

and feel of the Caffè Nero brand, with the addition of tablets and touchscreens that customers can use

to shop for products online. Meanwhile, on the first floor, House of Fraser has a branded ‘front of

house’ which includes till points for customer collections, a product showcase, order-in-store terminals

and a fitting room. Caffè Nero already operates 20 units in House of Fraser stores across the UK.

Coffee Republic

www.coffeerepublic.co.uk

Established in 1995, Coffee Republic is a coffee chain that operates in the UK and across the globe

through company-owned stores, franchises and concessions within cinemas, retail parks and hotels

(within brands such as Cineworld, Odeon and Enterprise Inns). It operates around 104 bars and

concessions in the UK and Ireland.

Coffee Republic offers grab-and-go food items including a deli menu, a breakfast menu and a range of

drinks (from espresso to latte, freezers, smoothies, teas and chocolates). The drinks are available with

soya milk, full-fat milk, semi and skimmed milk. All the products of Coffee Republic are espresso-

based, fair trade products, made with beans roasted in Milan. The brand has a separate takeaway menu.

In June 2013 the company relaunched its franchise structure seeking new partners to drive its business

forward.

Recent developments

In December 2013 it was reported that Coffee Republic had opened its first franchised site in an Odeon

cinema, at Braehead in Glasgow. The company has also opened four new franchised sites in London,

at Marble Arch, Bromley, Wood Green and Putney, in the previous quarter.

In July 2014 Coffee Republic opened its first 100% halal outlet, in Hounslow, West London.

In mid-November 2014 a new Coffee Republic franchise opened at LeSoCo (formerly of Lewisham &

Southwark College) at the Waterloo Campus in London.

In 2014 it added a Hot BBQ pulled pork & melted cheese toastie to its menus following wider market

trends for American cuisine.



Brand Communication and Promotion Coffee Shops UK, December 2014


Brand Communication and Promotion

Key points

Starbucks and Costa are the only two operators in the market with significant adspend,

reflecting the size of the operations and of their parent organisations. Starbucks stepped up

its adspend in 2013, while Costa cut back slightly on its expenditure.

Apart from above-the-line marketing, many coffee shop brands have looked to social media

to drive visibility and engage with customers. For example, Costa Coffee and Starbucks have

a strong presence via channels like Facebook and Twitter.

A number of foodservice brands have launched playful packaging for their products for

Christmas 2014, tapping into the Mintel trend Play Ethic as they look to drive online

conversation around the brands and move away from a focus on price.

Above-the-line adspend has fallen amongst most brands bar Starbucks FIGURE 18: ADVERTISING EXPENDITURE ON SELECTED COFFEE SHOP BRANDS, 2010-14 Advertiser 2010 2011 2012 2013 2014* % change

2012-13 £ £ £ £ £

Starbucks Coffee Co 2,630,469 3,973,480 2,551,973 4,482,578 4,243,661 +75.7 Costa Coffee 2,553,278 2,076,977 2,873,355 2,417,405 1,787,434 -15.9 Caffè Nero 27,537 - 9,444 9,064 15,736 -4.0 Love Coffee 2,908 2,753 2,737 29 - -98.9 Puccino’s 1,007 - 66 - 148 -100.0 Esquires Coffee - 585 - - 106 - AMT Coffee 2,419 - - - - - Coffee Republic 853 - - - - - Total of above 5,218,471 6,053,795 5,437,575 6,909,076 6,047,085 +27.1

* January-November 2014 SOURCE: NIELSEN MEDIA RESEARCH/MINTEL

Brand communication and promotion are increasingly important to coffee shops in a market with low

brand loyalty and where operators face rising competition from non-specialist brands as well.

Starbucks and Costa are the only two operators in the market with significant adspend, reflecting the

size of the operations and of their parent organisations.

Starbucks stepped up its expenditure on advertising in 2013 as it looked to keep the brand at the

forefront of consumers’ minds, while Costa cut back slightly on its expenditure in this area. The higher

spend from Starbucks in 2013 followed negative publicity around the brand regarding it not paying

corporation tax in the UK. It included a campaign looking to drive usage on Mondays, supported by a

price cut. In 2014, whilst Starbucks more or less maintained its expenditure on advertising, Costa

Coffee significantly reduced its investment in this area, ending its expenditure on TV advertising.

While the other coffee shop brands made no investment in paid online advertising, Starbucks spent

around £245,000 in 2013, though its spending focused mainly on outdoor and press.





FIGURE 19: ADVERTISING EXPENDITURE ON SELECTED COFFEE SHOP BRANDS, BY MEDIA TYPE, 2014* Cinema Internet Outdoor Press Radio Door

drops Direct mail

TV Total

£ £ £ £ £ £ £ £ £ Costa Coffee - - 842,022 886,860 58,552 - - - 1,787,434 Starbucks Coffee Co - 4,776 2,702,140 1,365,695 163,022 8,028 - - 4,243,661 Caffè Nero - - - 15,736 - - - - 15,736 Puccinos - - - 148 - - - - 148 Esquires Coffee - - - 106 - - - - 106 Total of above - 4,776 3,54,162 2,268,545 222,574 8,028 - - 6,047,085

* January-November 2014 SOURCE: NIELSEN MEDIA RESEARCH/MINTEL

Online and social media channels

Apart from above-the-line marketing, many coffee shop brands have looked to social media to drive

visibility and engage with customers. For example, Costa Coffee and Starbucks have a strong presence

via social media channels:

Costa Coffee had 1,289,294 likes on Facebook and 123,000 followers on Twitter at the time of

writing.

Starbucks UK had 1,388,871 likes on Facebook and 525,000 followers on Twitter.

This compares favourably to other areas of the eating out market, for example Pizza Hut UK has

188,993 followers on Facebook and 11,000 Twitter followers, whilst Subway has 446,884 likes on

Facebook and 13,500 followers on Twitter.

Costa Coffee also runs a YouTube channel which has new content uploaded on a roughly monthly

basis, as well as operating an Instagram site which has 25,400 followers.

Meanwhile, in the US, Starbucks has been exploring the use of Vine, a short-form video sharing

service online, with its Starbucks Partners channel. In November 2014, The Drum, a marketing

magazine, reported that Starbucks was ranked number one on its Brand Vine Chart: a loop count

metric which enables marketers and users to see how often people are watching the six-second videos.

Driving recommendation through free gifts

Other ways in which coffee shop brands have used social media sites to increase brand engagement

and prompt footfall include Starbucks’ “tweet-a-coffee” scheme which ran in October 2013 and

allowed fans to send $5 worth of coffee to others via Twitter. This approach to “rewarding acts of

kindness” has also been seen in other areas of the UK’s eating out market.

For example, PizzaExpress ran a ‘Quality Time’ campaign in September 2014 which offered fans a

chance to win free pizza for two by nominating someone via social media to spend quality time with

who they feel deserves a treat. The ‘Random Acts of Pizza’ social media campaign reportedly

stemmed from the generosity shown by Reddit subscribers (an entertainment, social networking

service and news website), who started to ‘pay it forward’ by giving free pizza to strangers.



Starbucks looks to integrated media to show ‘special coffee moments’

In October 2014 Starbucks also launched a global campaign which utilised a wide range of online

marketing channels such as YouTube, Instagram, Tumblr and Twitter. The ‘Meet Me at Starbucks’

campaign was also designed to emphasise the good points of its global brand status: a 60-second clip,

which was shown via YouTube, showed coffee lovers throughout the world connected with friends.

It was supported with display ads and the Instagram hashtag #HowWeMet encouraging fans to snap

their own ‘special coffee moments’. The ad formed part of a wider ‘Meet Me at Starbucks’ campaign

which included an eight-minute documentary shot in 59 stores across 28 countries. These videos were

captured simultaneously during a 24-hour period to reportedly show how important the stores are to

communities worldwide. The YouTube video was interactive to allow viewers to choose which stories

they want to see more of.

Online marketing tools remain a key area of development given that around 87% of all adults in the

UK now use the internet.

FIGURE 20: INTERNET PENETRATION, EVER USED, BY AGE AND GENDER, Q1 2011 Q1-Q1 2014 Base: persons aged 16+ Ever used Q1 2011 Q1 2012 Q1 2013 Q1 2014 % point change Q1

2011 Q1-Q1 2014

% % % %

All 82.2 83.7 85.8 87.2 +5.0 Age group (years): 16-24 98.8 98.6 99.0 99.2 +0.4 25-34 97.5 98.3 98.7 98.9 +1.4 35-44 95.4 96.0 97.1 97.8 +2.4 45-54 89.5 90.8 92.6 94.3 +4.8 55-64 79.0 81.8 84.8 87.5 +8.5 65-74 57.1 61.3 66.5 70.6 +13.5 75+ 23.8 27.4 34.3 37.1 +13.3 Sex: Male 84.7 86.1 88.1 89.3 +4.6 Female 79.9 81.3 83.6 85.3 +5.4 SOURCE: OFFICE FOR NATIONAL STATISTICS/MINTEL

Brands play on Play Ethic to bolster positive connotations

In an apparent attempt to distract consumers from price considerations and instead increase their ‘want

to buy’ mentality through time-limited and playful products, a number of foodservice brands have

launched packaging for Christmas 2014 aimed at driving wider engagement.

For example, Costa Coffee updated its takeaway cups for Christmas 2014 with Christmas themes such

as Santa, a snowman, Rudolph and an elf design. The brand also launched a new range of festive

ceramic cups in late 2014. During this period it also launched a separate Costa Christmas website

where fans could participate in weekly challenges/competitions. Hashtags such as #CostaElf and

#CostaChristmas aimed to further encourage consumers to share images of its products with their

peers. As part of the campaign, Costa also partnered with the charity Save the Children to create

children’s books, the profit from sales of which through Costa stores were to go to help disadvantaged

children.



Similarly, Greggs, the bakery chain, launched a new social media campaign in November 2014,

looking to drive online conversation through its pasty packaging via the #PastySanta selfies. The

company relaunched its festive bake pasty, along with a new red #PastySanta bag, featuring a drawing

of Father Christmas's beard. Fans were encouraged to use the phone app Blippar to take a photo of

themselves in the Santa beard and share it online. In addition, in 2014 the company also utilised the

Blippar app to bring the #PastySanta bag “to life” on consumers’ smartphones. Customers who shared

their pictures using the #PastySanta hashtag and to the #PastySanta hub were entered into a daily

competition to Greggs prizes.

Such approaches tap into the Mintel Trend Play Ethic which describes how there has been greater

recognition for the need to let loose from time to time given that consumers’ lives have got busier and

downtime generally less relaxing. This in turn is creating opportunities for brands to connect with

consumers through helping them to relax and enjoy themselves.

Brand Research Coffee Shops UK, December 2014


Brand Research

Brand map

The Mintel Brand Research Map below illustrates a three-dimensional brandscape based on:

Differentiation: an indication of vitality and profitability. Taken from consumer perceptions of a

brand’s standout from others in its competitive sphere.

Trust: an indication of brand integrity and stature. Derived from agreement with the statement ‘a

brand that I trust’.

Experience: consumers who have ever used/visited/bought the brand, an indication of presence in

the category.

This map gives a snapshot of the current strength and quality of selected brands, where they are in

their growth and how healthy they are.

FIGURE 21: ATTITUDES TOWARDS AND USAGE OF BRANDS IN THE COFFEE SHOP SECTOR, SEPTEMBER 2014 Base: internet users aged 16+ who have heard of the brand and expressed a view

Bubble size represents usage (% ever used) SOURCE: LIGHTSPEED GMI/MINTEL

The coffee shop market continues to suffer both from issues of brand differentiation and from low

consumer trust in the category.

Costa Coffee is some way ahead of its competitors as far as usage, trust and differentiation are

concerned.



In comparison, since Mintel’s Coffee Shops – UK, February 2011, Starbucks has lost a fairly

significant amount of trust, likely to be an impact of publicity surrounding the company not paying

UK corporation tax. While the company was following the letter of the law, the news sparked

widespread media coverage. Starbucks announced in April 2014 that it was electing to move its

European headquarters from the Netherlands to London, expecting to declare a profit in Britain, and

therefore to pay corporation tax here. However, the brand has yet to recover the level of trust it

enjoyed previously. Nevertheless, the prevalence of its stores and the reputation of its coffee mean it

still has a high level of usage, and is considered to stand out from the majority of coffee shop brands.

Caffè Nero’s Italian branding struggles to create the same proportion of differentiation as Starbucks

and Costa, and its smaller estate means it has a lower level of usage. However, the proportion of

consumers that have heard of it means that nearly 90% consumers are at least likely to know of its

existence, and its level of trust is not far off that of Starbucks.

Correspondence analysis

In order to display brand images (and/or consumer attitudes towards brands) related to each brand

covered in this survey in a joint space that is easy to understand, Mintel has conducted correspondence

analyses. Correspondence analysis is a statistical visualisation method for picturing the associations

between rows (image, attitudes) and columns (brands) of a two-way contingency table. The

significance of the relationship between a brand and its associated image is measured using the Chi-

square test. If two brands have similar response patterns regarding their perceived images/attitudes,

they are assigned similar scores on underlying dimensions and will then be displayed close to each

other in the perceptual map.



Brand attitudes FIGURE 22: ATTITUDES, BY COFFEE SHOP BRAND, SEPTEMBER 2014 Base: internet users aged 16+ who have heard of the brand and expressed a view

This chart shows the level of association of each brand surveyed with a set of key performance attributes core to coffee shop brands overall. The more significant an attribute is as part of a brand’s image relative to other attributes, the nearer it will be to that attribute. If a brand is between a number of attributes, it is reasonably closely associated with each of these. SOURCE: LIGHTSPEED GMI/MINTEL

Costa Coffee is associated with traits that denote an overall positive experience. The association with

customer service suggests that Costa Coffee’s baristas and assistants are helping to strengthen its

brand. The perception of the brand as being worth paying more for suggests that its products are seen

to offer quality and considered different from the norm. Women and 16-34s are most likely to think of

Costa in these terms.

Starbucks is positioned more closely to innovation, which is likely to reflect its wide-ranging new

product launches such as the new Honey & Almond Hot Chocolate released in November 2014.

Starbucks could leverage this perception of being innovative further in order to strengthen brand

differentiation. This could include further extending the options to customise drinks, such as with

flavoured whipped cream, sprinkles and ‘drizzles’, or making more of the options it already offers.



Brand personality FIGURE 23: COFFEE SHOP BRAND PERSONALITY – MACRO IMAGE, SEPTEMBER 2014 Base: internet users aged 16+ who have heard of the brand and expressed a view

This chart shows all coffee shop brands in relation to a set of broad image attributes applicable to all categories SOURCE: LIGHTSPEED GMI/MINTEL

Starbucks’ lingering image of being unethical compared to other brands is likely to be influenced by

the tax issue that made national news headlines in 2012/13. This perception is particularly strong

among 35-54s, suggesting that these consumers have perhaps been the most influenced by these

stories. At the start of December 2014 it was announced that Starbucks had completed its payment of

£20 million in tax after making its final payment of £5 million. Such developments may help to

address consumer concerns of the company’s ethics going forward.

Costa Coffee enjoys associations with accessibility, with 16-34s especially likely to see it in this light.

This is helped by campaigns such as the brand updating its takeaway cups for Christmas 2014 with

playful seasonal themes such as Santa, a snowman, Rudolph and an elf design. The brand also

launched a new range of festive ceramic cups in late 2014. During this period it also launched a

separate Costa Christmas website where fans could participate in weekly challenges/competitions.

Coffee Republic appears to suffer from a lack of definitive branding or brand resonance with

consumers. This is likely to affect its overall perceived lack of standout.



FIGURE 24: COFFEE SHOP BRAND PERSONALITY – MICRO IMAGE, SEPTEMBER 2014 Base: internet users aged 16+ who have heard of the brand and expressed a view

This chart complements the wider brand image display, using a set of image traits specific to the coffee shop sector SOURCE: LIGHTSPEED GMI/MINTEL

Caffè Nero’s Italian branding helps to drive an image of being authentic and traditional. The brand

signed the marketing agency Feref to create a digitally led campaign focused on its heritage, as

reported in April 2014. Titled “Meet the Maestros”, the campaign featured Caffè Nero’s own team of

“maestros”, while it has further emphasised this more people-focused approach through its

International Barista of the Year Competition which showcased team members from around the world.

Despite Starbucks being seen as cool by some consumers, others drive more unfavourable perceptions

of the brand, including being tacky and impersonal. This might be influenced by its uniform operating

format across its global locations that perhaps leads the outlets to lack a local connection, as well as

the controversy over tax non-payments. The unfavourable perceptions appear to be mostly driven by

ABs and over-45s. Taking cues from Caffè Nero’s approach of marketing its staff more could help

Starbucks to address its image as impersonal.

Coffee Republic’s position on the brand map is driven by a lack of strong perceptions of any kind. It is

no more likely to be thought of as samey than the other brands analysed, but has a comparatively

weaker association with other traits which would create a more positive brand image. Consumers

appear to lack knowledge of what Coffee Republic can offer them, which is likely to hamper the brand

in its attempts to attract new customers.



Brand experience FIGURE 25: COFFEE SHOP BRAND USAGE, SEPTEMBER 2014 Base: 2,000 internet users aged 16+

* usage = % ever visited SOURCE: LIGHTSPEED GMI/MINTEL

It appears that the upbeat brand image of Costa Coffee combined with its accessibility due to its wide

number of outlets encourages consumers to visit Costa Coffee outlets over other brands.

While all brands are more likely to have been visited in London, Costa has the weakest London bias,

in line with its wider geographical coverage. All brands also have an ABC1 and higher income bias,

unsurprisingly showing that consumers with a higher disposable income visit these coffee shops more

often, reflecting the role of such spending as a treat.



FIGURE 26: SATISFACTION WITH VARIOUS COFFEE SHOP BRANDS, SEPTEMBER 2014 Base: internet users aged 16+ who have ever used the brand


Younger groups tend to be more positive about their experience of these coffee shop brands, also being

the most likely to have used them in the last year. This would suggest that current usage patterns are

likely to continue in the near future.

Costa Coffee performs more strongly than other coffee shop brands, which helps to explain why it

earns higher usage. Not only does its association with customer service encourage a higher proportion

of overall positive reviews, but it also appears to contribute towards a more consistent level of

satisfaction across age groups.

Coffee Republic’s weaker brand image is replicated in terms of brand experience, with those that have

visited the brand less likely to think of it as a positive experience than any other brand. This is likely to

limit repeat usage and word-of-mouth recommendation, and is also unlikely to generate any particular

brand associations.



FIGURE 27: CONSIDERATION OF COFFEE SHOP BRANDS, SEPTEMBER 2014 Base: internet users aged 16+ who have heard of the brand and expressed a view


Costa Coffee’s positive brand image and higher satisfaction levels give it two different advantages

over others. Not only does it have a greater number of consumers that consider it a favourite, but it

also has fewer people that are inclined to avoid it. As such, Costa Coffee is likely to pick up a greater

proportion of casual users too. The brand’s accessibility and wide availability means that it is well

placed to pick up on these particular consumers.

Consumers’ consideration of Starbucks, however, is somewhat divisive: it has the second-highest level

of brand preference, but the second-highest amount of brand avoidance too. Indeed, consumers appear

as likely to avoid Starbucks as Coffee Republic, which has significantly fewer overall customers.

Over-35s again appear to be the most unfavourable towards Starbucks. Moving away from heavy

corporate branding may help to address the preconceptions that older consumers have about the brand,

with over-55s amongst those most likely to use independent venues instead.



Brand recommendation FIGURE 28: RECOMMENDATION OF SELECTED COFFEE SHOP BRANDS, SEPTEMBER 2014 Base: internet users aged 16+ who have ever used the brand


Costa Coffee customers are more likely to recommend it to their peers than users of other brands

surveyed here. Costa could look to employ strategies such as Starbucks’ ‘tweet-a-coffee’ scheme in the

US, which allowed customers to send $5 worth of coffee to others via a tweet, as the brand should be

well placed to leverage the high recommendation it enjoys.

While Starbucks follows Costa in terms of usage, it appears to face competition from Caffè Nero

which currently enjoys a higher proportion of customers likely to recommend it. Caffè Nero’s

authentic and traditional brand image may encourage this, while it also lacks some of the more

negative associations that Starbucks has. Starbucks faces a challenge in turning around those

perceptions that currently look to be impacting on actual usage.

As with brand perceptions and satisfaction, Coffee Republic lags behind others in the market. In

general, consumers appear to lack a strong idea of what Coffee Republic can offer them, while those

that have used it tend to be less likely to think of their experience as a positive one.



One of the characteristics of the consumer economy in recent years has been the squeeze on middle-

market brands, as discussed in Mintel’s Consumers and the Economic Outlook: Quarterly Update –

UK, October 2014. At the value end of the retail market, discounters have done well, catering to the

savvy shopper. Meanwhile the market has also polarised, as at the other end of the scale, high earners

are becoming increasingly optimistic and are prepared to spend on luxury items. This makes the

position of brands such as Coffee Republic particularly vulnerable to cutbacks if other specialist

brands are seen as more premium whilst at the other end of the spectrum is the rise in cheaper non-

specialist operators such as Greggs.

The Consumer – Who Buys Coffee Out of Home and Where do They Go? Coffee Shops UK, December 2014


The Consumer – Who Buys Coffee Out of Home and

Where do They Go?

Key points

Nearly three quarters (73%) of consumers have purchased hot drinks out of home in the

three months to September 2014, with Costa Coffee enjoying the highest usage reflecting its

widespread store portfolio.

Affluence is a central factor that affects consumers’ likelihood of purchasing hot drinks out

of home, as expected, given the high price premium compared to in-home alternatives.

Whilst only 7% of adults say that they don’t drink tea/coffee etc, around a fifth say they

don’t drink them out of home, representing a significant opportunity to grow the market. A

quarter (26%) of over-55s say that they do not drink hot drinks out of home.

In comparison, those aged 16-24 are the most likely to agree that they do not drink hot

drinks out of home at all, suggesting that coffee shops should widen their non-caffeinated

drinks ranges in order to bolster their appeal amongst these consumers.

More than a quarter (28%) of specialist coffee shop users visit a coffee shop to sit in once a

week or more, with 24% having bought a takeaway drink from these venues as often. Usage

has remained consistent between 2013 and 2014, despite the UK’s improving economy and

rising consumer confidence.

Venues visited

Mintel commissioned consumer research for this report to assess consumer usage of and attitudes

towards coffee shops. Research was carried out by Lightspeed GMI among 2,001 internet users aged

16+ in September 2014. Detailed demographics are given in the Databook.

The first question asked was:

“Thinking specifically about drinking tea, coffee or other hot drinks (non-alcoholic) out of the home, from which of the following have you bought a hot drink in the last three months?

Please do not include purchases made as part of a meal.”



FIGURE 29: OUTLETS USED TO BUY HOT DRINKS OUT OF HOME, JULY 2013 AND SEPTEMBER 2014 Base: 2,001 internet users aged 16+

7

20

3

7

7

12

14

15

19

24

26

27

40

5

19

5

10

9

15

17

15

20

28

27

30

41

0 5 10 15 20 25 30 35 40 45

I do not drink tea/coffee/other hot drinks

I do not drink tea/coffee/other hot drinks out of home

Other specialist/branded coffee shop (eg Coffee Republic)

Sandwich shop (eg Pret A Manger)

Coffee shops in-store (eg inside department stores)**

Restaurant/pub/hotel (not as part of a meal)

Caffè Nero

Bakery (eg Greggs)

Coffee shops in supermarkets (eg Tesco)*

Starbucks

Fast food chain (eg McDonald's)

Independent coffee shop/café

Costa Coffee

%

2013 2014

* full statement reads: Coffee shops in supermarkets (eg Tesco, Asda, Sainsbury’s, Waitrose) ** full statement reads: Coffee shops in-store (eg inside a department store/bookstore) SOURCE: LIGHTSPEED GMI/MINTEL

Nearly three quarters (73%) of consumers have purchased hot drinks out of home in the three months

to September 2014, with Costa Coffee dominating usage.

Affluence is a central factor that affects consumers’ likelihood of purchasing hot drinks out of home,

as expected, given the high price premium compared to in-home alternatives. The ABC1 socio-

economic group as well as high earners show the highest usage of specialist coffee shops such as

Starbucks.

Usage of various brands shows some demographic differences. For example, whilst usage of Starbucks

tends to peak amongst those aged 16-24 or in full-time education, Costa Coffee’s consumer base is

drawn from a wider pool of those aged 16-44. Meanwhile usage of independent venues peaks amongst

women and over-55s.

Competition from non-specialists

Specialist coffee shop operators have to contend with competition from a wide range of non-specialists

in the market. For example, fast food chains are the third most popular type of venue to purchase hot

drinks out of home from. The lower cost of the products from these operators provides considerable

competition for specialists, especially as 35% of those who have bought hot drinks out of home state

that low price influenced where they bought these from, according to Mintel’s Coffee Shops – UK,

October 2013.



Meanwhile, other operators in the market are using coffee sales to help drive trade into other day parts.

For example, coffee sales at the pub and brewery brand Fuller’s had hit 1.25 million cups a year and

the company intends to launch a standalone coffee shop in Ealing, to help further expand sales,

according to Simon Emeny, the chief executive, as reported in November 2014.

Similarly, in November 2014, Anglian Country Inns reported that it was almost doubling its sales

forecasts at its new grab-and-go coffee and bagel bar on the ground floor of its Hermitage Road Bar &

Restaurant in Hitchin, Hertfordshire, after a successful first few weeks of trading.

Meanwhile, fast casual Mexican food operator, Poncho 8, ran a time-limited promotion at the start of

2014 offering consumers a free coffee to highlight its Mexican coffee range as well as the launch of a

breakfast menu.

The threat from free coffee

There is also competition from permanent free coffee options too. For example, in 2014 grocer

Waitrose launched a free daily tea and coffee offer to all myWaitrose card holders, whether they spend

money in-store or not.

Globally, coffee offers from retailers and grocers represent considerable competition to specialist

coffee shop operators. For example in Japan, convenience store operators are attempting to gain share

in the out-of-home coffee market with low-priced, high-quality coffee being offered over the counter.

It is also common to find both hot and cold ready-to-drink tea and coffee drinks in convenience stores

and vending machines in Japan, posing further competition for specialist coffee shop concepts in this

area.

In the face of this, global operators such as Starbucks tend to focus less on coffee and more on

alternative items such as ‘dessert drinks’ in such markets in order to create more differentiated

offerings compared to the cheaper alternatives available in convenience stores etc.

Qualitative research further underscores the wide repertoire of consumers’ out-of-home hot drinks

purchasing choices:

“Oh yes I love to buy my cappuccinos when I am out. I would say I buy coffee at least five times

a week. I have tried most coffeehouses. I used to frequently use Starbucks but have stopped

using them for over two years now after their taxes issues. I think Costa and Nero are too bitter

and strong. McDonald’s actually does a lovely cappuccino and KFC a lovely Latte but my

number one favourite is Pret I just love them.”

– Woman, aged 35-44, married, child aged 0-4

For more information on non-specialist coffee offers in the foodservice arena please see Competitive

Context section.

One in five people don’t drink hot drinks out of home

Whilst only 7% of adults say that they don’t drink tea/coffee etc, around a fifth of the population say

they don’t drink them out of home, representing a significant untapped pool. This rises amongst over-

55s, 26% of whom say that they do not drink hot drinks out of home.

As older consumers tend to eat out generally less frequently, and more typically for special occasions,

coffee shops that focus on the experience and offer a slower-paced environment in which to enjoy

coffee out of home are better placed to unlock the spending from these consumers. Adding afternoon

tea-type formats to menus is also likely to appeal to these consumers.



In comparison, those aged 16-24 are the most likely to state that they do not drink hot drinks out of

home at all. Coffee shops could increase their appeal amongst this demographic by widening their

non-caffeinated drinks ranges.

Frequency of visiting coffee shops

Respondents were then asked:


FIGURE 30: FREQUENCY OF USING COFFEE SHOPS, JULY 2013 AND SEPTEMBER 2014 Sit-in Takeaway 2013 2014 % point change

2013-14 2013 2014 % point change

2013-14

Base: internet users aged 16+ who have visited a specialist coffee shop

1,084 1,013 1,084 1,013

% % % %

Once a week or more 33 28 -5 26 24 -2 About once a fortnight 19 22 +3 17 17 - About once a month 21 22 +1 14 15 +1 At least once in the last three months, but less than once a month

22 23 +1 17 18 +1

Never 4 5 +1 26 26 - SOURCE: LIGHTSPEED GMI/MINTEL

More than a quarter (28%) of specialist coffee shop users visit a coffee shop to sit in once a week or

more, with 24% buying a takeaway drink from these venues as often. Usage has remained consistent

between 2013 and 2014, despite the UK’s improving economy and rising consumer confidence (see

Market Drivers for more details).

Men are amongst the most likely to use specialist coffee shops once a week or more either to sit in or

for a takeaway.



FIGURE 31: FREQUENCY OF USING COFFEE SHOPS, SEPTEMBER 2014


Base: 1,013 internet users aged 16+ who have bought hot drinks from a specialist coffee shop in the last three months

24

28

17

22

15

22

18

23

26

5

Takeaway

Sit-in

%

Once a week or more

About once a fortnight

About once a month

At least once in the last three months, but less than once a month

Never


The Consumer – Reasons for Buying Coffee Out of Home Coffee Shops UK, December 2014


The Consumer – Reasons for Buying Coffee Out of

Home

Key points

Whilst 39% of out-of-home hot drink purchasers buy hot drinks out of home for a

break/coffee break, 38% do so as part of a day out, highlighting the need for the venues to

deliver on everyday and special-occasion experiences.

Contrasting demands on coffee shops are shown by the fact that whilst 37% buy hot drinks

out of home to relax/unwind, more than a quarter (26%) are just looking for a quick drink,

underscoring the importance of service formats to cater for both ends of the spectrum.

Consumers are also looking to buy hot drinks as part of a wider range of meal occasions with

25% buying hot drinks out of home for lunch and 16% doing so for breakfast, continuing to

provide impetus for operators to invest in their food offering.

Reasons for buying hot drinks out of home


“Thinking specifically about drinking tea, coffee or other hot drinks (non-alcoholic) out of the home, for which, if any, of the following reasons have you done so, in the last three months? Please select all that apply.”

FIGURE 32: REASONS FOR BUYING HOT DRINKS OUT OF HOME, SEPTEMBER 2014 Base: 1,459 internet users aged 16+ who have bought hot drinks out of home in the last three months

3

5

6

7

12

13

16

25

26

34

37

38

39

0 5 10 15 20 25 30 35 40 45

Other

For a business meeting

For something different to my normal coffee breaks

To take advantage of a promotional deal

For a chance to get out of the house/office

For a caffeine fix/hit

For breakfast

For lunch

For a quick drink

To catch up with friends

To relax/unwind

As part of a day out

For a break/coffee break

%




Two in five turn to hot drinks for a break, equal share to relax

Nearly four in 10 (39%) out-of-home hot drink purchasers indulge in this purchasing behaviour in

order to take a coffee break; those aged 45-54, the self-employed and those with children aged 13+ in

the household are the most likely to state this reason to purchase.

A similar proportion do so as part of a day out. Those most likely to buy hot drinks out of home as part

of a day out tend to be women, over-55s and the retired. The latter reflects the fact that older

consumers tend to eat out of home less often generally speaking, and when they do it tends to be for

more special occasions.

Some 12% of users buy hot drinks out of home as a chance to get out of the house, with this reason

most common amongst consumers who are self-employed.

The importance of having a break as a purchase driver continues to underscore the need for venues to

offer a space seen as relaxing, something that operators like Costa Coffee are exploring. It began in

October 2014 to trial a store format featuring different styles of seating (eg armchairs), with one area

set out to look like a living room complete with a floor lamp.

Related to this, a third of out-of-home hot drink purchasers state catching up with friends as a reason,

something that Starbucks’ ‘Meet Me at Starbucks’ marketing campaign in 2014 explored, also

encouraging fans to snap their own ‘special coffee moments’. McDonald’s looked to explore the same

with a campaign offering a two-for-one McCafé voucher on its app, unlocked by tapping phones with

a friend.

For customers visiting coffee shops as part of a day out, initiatives such as Patisserie Valerie’s

decision to begin serving afternoon teas should appeal. The rollout was announced in November 2014

and follows a successful trial in Selfridges and five other outlets.

Convenience drives one in four hot drink buyers

A quarter (26%) of users say they buy hot drinks out of home for a quick drink, with those in full-time

education and those aged 16-24 particularly likely to agree with this reason for purchase.

Self-service machines

The Mintel Trend FSTR HYPR describes how time is of the essence for many people, with shortcuts

winning favour amongst consumers. In the coffee shop market this translates into the 12% of out-of-

home hot drink purchasers who state that speed of service is more important than friendliness of staff,

whilst a further 12% state that they would be willing to use a self-service coffee machine in a coffee

shop if it meant that they’d get their coffee quicker.

Costa Express self-service machines are a prime example of operators looking to tap into this demand

for quick service. These are also used by brands to operate in smaller spaces than bricks-and-mortar

shops require, allowing them to reach places such as transport hubs. It is an area which the Whitbread-

owned brand is keen to further expand, which is unsurprising given that convenient location is the top

factor influencing where hot drinks are purchased out of home, as found in Mintel’s Coffee Shops –

UK, October 2013.

A fifth of out-of-home coffee shop users state they’ve used a coffee shop-branded self-service coffee

machine (eg Costa Express) whilst a further 35% say they haven’t but they’d be interested in using one

in the future (see The Consumer – Specialist Coffee Shops’ Menu Enticement section).



Ready-to-drink products

Chilled ready-to-drink coffee products in the retail market also provide consumers with another avenue

for grabbing a quick drink out of home, posing competition to the coffee shops’ offering on price as

well as speed.

New products such as Emmi Caffè Latte Extra Shot Iced Coffee and M Iced Caramel Latte are

positioned to compete directly with similar coffee shop offerings.

Meanwhile, Teapigs Matcha Grapefruit Flavoured Green Tea Drink is using both flavour variants and

the niche matcha tea product to drive interest.

Other NPD (New Product Development) in the retail market is arguably more advanced than coffee

shop offerings; eg Fuel Your 10K Hours Caffè Latte Flavour Breakfast Milk Drink is positioned as a

meal replacement drink, whilst Vita Coco Café Latte Mocha is an interesting cross-category product

which uses both coconut water and cocoa. This also raises the suggestion of other alternative dairy-

based ready-to-drink products.

. Fuel Your 10K Hours Caffè Latte Flavour Breakfast Milk Drink is low in fat and a

source of protein and fibre. It is free from artificial colours, flavours and sweeteners and is suitable for vegetarians. The shelf-

stable product retails in a 330ml pack featuring a link to the manufacturer's

Facebook page. This beverage was on display at the Food & Drink Expo 2014 in

Birmingham, UK.

Teapigs Matcha Grapefruit Flavoured Green Tea Drink is made

using 100% ground green tea leaves from Japan, essentially a super-concentrated green tea containing natural green tea

flavonoids. It contains EGCG, l-theanine and beta carotene with no added sugar and is described as a blend of matcha with grapefruit

juice and spring water for a fruity, light, refreshing drink. This product retails in an FSC-certified 330ml recyclable pack, featuring Facebook and Twitter logos and was on display at the Speciality & Fine Food

Fair 2014 in Olympia, London.



M Iced Caramel Latte is described as a

milky, sweet iced coffee suitable for a cool coffee break while on the go. This vegetarian product contains UHT semi-

skimmed milk, coffee and sugar, and retails in a 330ml pack. The chilled product was

priced at £1.

Vita Coco Café Café Latte Mocha has been relaunched and

was previously available under the Coco Café brand. It contains a strong shot of espresso with

Vita Coco coconut water, a splash of reduced fat milk and a dash of cocoa. It is gluten-free, kosher-certified and suitable for vegetarians. This product retails in a 330ml pack. The shelf-stable

drink was priced at £1.99.

Emmi Caffè Latte Extra Shot Iced Coffee is now available.

This intense coffee is made using the finest arabica freshly

roasted Rainforest Alliance certified coffee beans and fresh Swiss milk. This drink is suitable for vegetarians and retails in a partly recyclable 200ml pack featuring the Facebook logo.

The chilled product was priced at £1.

Coffee shop giant Starbucks also competes in this market with its own range of ready-to-drink retail

products (see below). At present the segment remains a very small part of the overall retail coffee

market, however, there may be room to grow this on the basis of consumer demand for convenience.



Starbucks Frappuccino Mocha Chocolate Flavour Low Fat Coffee Drink has been repackaged with a

new design. This fair trade on-the-go coffee drink is a blend of Starbucks arabica coffee and milk with

chocolaty mocha. It is ready to drink, ultra-heat treated and retails in a 4 x 250ml pack. The chilled product was

priced at £3.

Starbucks Discoveries White Chocolate Mocha is

now available for the festive season 2013. This milk drink with Fairtrade-certified coffee and white chocolate

flavour has been UHT treated, and features a high caffeine content. It retails in a 220ml pack. The chilled

product was priced at £1.48.

Vending opportunities

Embracing developments in vending technology may enable ready-to-drink coffee products to reach a

wider market and appeal to these convenience-focused younger consumers. For example, in Japan both

hot and cold ready-to-drink coffee products are readily available from both vending machines and

convenience stores.



Although this may go against other more artisanal trends in the UK coffee market, such vending

concepts may well appeal to younger consumers who are more focused on fast purchasers and whose

palates may be less demanding.

Furthermore, it may help coffee operators reach this younger audience given that those aged 16-24 are

less likely than most to drink hot drinks and coffee. Being placed besides soft drinks ranges more

popular with these younger consumers could therefore help coffee brands increase their exposure.

Branded ready-to-drink vended concepts should prove particularly effective given that younger

consumers tend to prefer names that they trust: those in full-time education are the most likely to say

they prefer to use larger coffee shop chains (eg Costa Coffee, Starbucks) as you know what to expect

in terms of quality.

However, the low usage and related low availability of vending machines remain a marked barrier.

Only 34% of consumers had used a vending machine in the year to December 2013, as found in Non

High Street Foodservice Trends – UK, March 2014. However, this rises to 49% among 16-24-year-

olds and 46% among 25-34s, suggesting that the channel can offer a meaningful way to reach the

younger cohorts. As expected, usage is noticeably higher among urban residents (42%) than those

living in rural areas (26%).



The Mintel Trend Cool Vending describes how consumer expectations about what, when and where

they can buy have changed vending machines forever with increasingly high-quality vending concepts.

It also details the wide range of products and services that are now available globally through such

formats, increasing consumers’ familiarity with buying new product categories through these

machines. For example, in late 2013, high-end department store Selfridges unveiled a Moët &

Chandon vending machine in-store, selling mini-bottles of the Champagne. Meanwhile, in the UK,

Wrapid, a healthy fast food concessions chain, launched a new self-service dispensing system for its

burrito and wrap products which it was trialling at three university sites at the start of 2014. Similar

concepts are operating in the US, including California-based Burritobox vending machines and

Farmer’s Fridge is a healthy vending concept that serves fresh food such as local salads in Chicago. In

September 2014 it was announced that Marriott Hotels had installed a Farmer’s Fridge vending

machine at its Chicago site. Consumers’ growing familiarity with vending machines stocking higher

quality or a wider variety of products is likely to increase their receptiveness to coffee vending options

as well.

Coffee karts

Meanwhile, opportunities also exist to use mobile operating formats (such as food trucks) to bridge the

gap between bricks-and-mortar coffee shop outlets and machine vending concepts. Some 15% of out-

of-home hot drink purchasers say they’ve used a coffee kart (mobile coffee van eg in car park, outside

train station) whilst a further 35% say they haven’t yet but would be interested in such as service.

Furthermore, when talking about food trucks in the wider eating out market, nearly a fifth of UK adults

state that they’d rather buy food/drink from a mobile vendor (eg a coffee kart) than a self-service

machine, according to Mintel’s Non High Street Foodservice Trends – UK, March 2014.

Such formats could cater particularly to the needs of gourmet or artisan operators whose brand

positioning does not lend itself easily to self-service coffee machine as a format or whose ethos would

jar against vending machine services. Formats like karts can offer a platform for the gourmet operators

to target convenience-driven purchases.

Such mobile units also have the potential for wider application in the UK. For example, where space

allows for them, coffee karts outside of supermarkets should appeal to the 67% of supermarket

catering users who would be interested in coffee/hot drinks to take away from supermarkets. They

could also cater to the 50% who would like to see a coffee vendor in the car park/outside

café/restaurant area at supermarkets (see Mintel’s Non High Street Foodservice Trends – UK, March

2014 for more details).

Slow it all down

The flip side to this demand for convenience is that others crave a more leisurely service: some 17% of

out-of-home hot drink purchasers say that they’d go to coffee shops more if the atmosphere felt less

rushed (see The Consumer – Attitudes towards Buying Coffee Out of Home section).

Qualitative research can also illustrate how rushed, noisy and unclean environments can act as a

deterrent, particularly to older consumers:

“No, I wouldn't use a coffee shop unless I was dying of thirst. Apart from the price, the two in

our town seem to attract noise and litter. I don't see the appeal.”

– Man, aged 55+, married, child aged 16-18




The Mintel Trend Slow It All Down describes how the faster life’s pace, the greater the need to slow it

all down (at least once in a while) for some consumers. There is the potential for coffee shops to

appeal to these consumers by defining quality in terms of ‘time’ – be it through more attentive service,

savoured experiences or matured products. However, it’s also important not to saddle slow with a

‘pipe and slippers’ image, or to assume it entails a rejection of modernity. Nor does one have to

go slow all the time; indeed, those who generally embrace the speed of life may appreciate the

occasional ‘brake’ all the more.

The trend towards coffee shops creating a range of different targeted coffee shop formats (from self-

service machines to more leisure-focused dine-in outlets) is therefore likely to continue as operators

look to meet these contradicting demands.

Coffee in the meal context

A quarter of users buy hot drinks out of home for lunch and 15% do so for breakfast, demonstrating

the increasing potential importance of food menus in the coffee shop market, the absence thereof

potentially putting users off. This demand has also created the scope for food operators such as

McDonald’s and Pret A Manger to expand their own coffee offerings.

Some 15% of purchasers say they would visit coffee shops in the evening more if more outlets were

open later, suggesting another opportunity for growth for operators in the market (see The Consumer –

Attitudes towards Buying Coffee Out of Home section). Operators in areas of high footfall during the

evenings such as near cinemas would be well positioned to take advantage of this demand.

As discussed later, Starbucks in the US has also been trialling an ‘Evenings’ menu. As well as wine

and beer, it includes a food menu geared towards more indulgent dishes like Bacon-Wrapped Dates

with Balsamic Glaze or Truffle Macaroni and Cheese. The group announced in December 2014 plans

to roll out the format to thousands of stores across the country. The tangible interest suggests scope for

similar initiatives also in the UK.

The Consumer – Attitudes towards Buying Coffee Out of Home Coffee Shops UK, December 2014


The Consumer – Attitudes towards Buying Coffee Out

of Home

Key points

Signalling a lack of brand loyalty in this market and consumer promiscuity is the fact that

more than a quarter (27%) of users say that they like to vary where they go for coffee/other

hot drinks out of home.

A quarter (24%) state that price is more important to them than the brand of coffee chain

demonstrating the price sensitivity of the market and the rising competition from cheaper,

non-specialist options. More than a fifth (22%) of users think that hot drinks from other

shops (eg bakeries) are better value for money than those from specialist coffee shops.

Product innovation and standout is important in a market where a fifth (19%) say that they

prefer coffee shops that have unique products on sale.

Experiential features such as roasteries would appeal to the 13% of users who would prefer

coffee shops where they could see the coffee being roasted (eg behind the counter). These

could help elevate the credentials of the more artisan coffee brands/venues.

More than a quarter like to vary where they go for coffee


“Thinking about drinking coffee, tea and other hot drinks out of home, which of the following statements, if any, do you agree with? Please choose all that apply.”



FIGURE 33: ATTITUDES TOWARDS BUYING HOT DRINKS OUT OF HOME, SEPTEMBER 2014 Base: 1,459 internet users aged 16+ who have bought hot drinks out of home in the last three months

13

12

12

13

15

17

19

22

24

25

27

0 5 10 15 20 25 30

None of these

I would be willing to use a self-service coffee machine in a

coffee shop if it meant that I'd get my coffee quicker

Speed of service is more important than friendliness of

staff

I would prefer to use coffee shops where I could see the

coffee being roasted (eg behind the order counter)

I would visit coffee shops in the evening more if more

outlets were open later

I would go to coffee shops more if the atmosphere felt less

rushed

I prefer coffee shops that have unique products on sale (eg

Frappuccino)

Hot drinks from other shops (eg bakeries) are better value

for money than hot drinks from specialist coffee shops*

Price is more important to me than the brand of coffee

chain

I prefer to use larger coffee shop chains (eg Costa Coffee,

Starbucks) as you know what to expect in terms of quality

I like to vary where I go for coffee/other hot drinks out of

home

%

* full statement reads: Hot drinks from other shops (eg bakeries, fast food venues) are better value for money than hot drinks from specialist coffee shops (eg Starbucks, Costa Coffee) SOURCE: LIGHTSPEED GMI/MINTEL

More than a quarter (27%) of out-of-home hot drink purchasers say that they like to vary where they

go for coffee/other hot drinks out of home, demonstrating the lack of brand loyalty in this market and

consumer promiscuity. This is also reflected in the fact that convenient location is the top factor

influencing where hot drinks are purchased out of home, as found in Mintel’s Coffee Shops – UK,

October 2013. Regularly changing menus or daily specials could play a role here by creating a sense

of variety to curb switching by users.

Meanwhile 24% state that price is more important to them than the brand of coffee chain, an attitude

that peaks amongst low earners and those who live in the East Midlands. The rising growth of cheaper,

non-specialist options in the out-of-home hot drinks market therefore represents significant

competition for the big players, especially given the fact that more than a fifth (22%) of users think

that hot drinks from other shops (eg bakeries) are better value for money than hot drinks from

specialist coffee shops. This underlines the importance of NPD. As discussed below, standout products

remain a key platform for specialist operators to differentiate themselves and disrupt price

comparisons.

‘Push’ marketing techniques could help the big players retain or gain market share. For example, 10%

of out-of-home hot drink purchasers say they’ve used customised offers sent to their smartphone based

on factors such as their location, time of day etc whilst a further 36% say they haven’t yet but would

be interested in such services (see The Consumer – Specialist Coffee Shops’ Menu Enticement section

for more details). This could help operators to for example target users for whom their outlet may not

be the nearest, but is nonetheless nearby.



Meanwhile, independent venues could hope to grab market share from the major national brands in the

market by joining or establishing ‘disloyalty’ programmes and reward schemes. For instance,

independent coffee shop operators in Washington DC in the US introduced a ‘disloyalty card’ that

actively encourages people to seek their caffeine fix at a number of different outlets. Purchasers of a

‘DC Disloyal’ card are encouraged to visit all six participating shops as part of a “coffee adventure”.

At each outlet they receive a stamp with their coffee purchase, and when the card is complete they are

entitled to a free beverage at the venue of their choice.

Standout products

Creating more unique product ranges or standout products could also help operators increase their

competitiveness and help build brand loyalty. For example, nearly a fifth (19%) of out-of-home hot

drink purchasers state that they prefer coffee shops that have unique products on sale (eg

Frappuccino). This peaks amongst users aged 16-24 and those in full-time education.

The Consumer – Specialist Coffee Shops’ Menu Enticements section of this report explores the

interest in potential new products. For example, 16% of out-of-home hot drink purchasers say they’d

be very interested in ice cream drinks (eg affogato, milkshakes).

There are instances of operators attempting to stand out from the crowd further by creating even more

differentiated concepts. For example, in late 2014 the team behind Yorks Bakery Café in Birmingham

opened Yorks Espresso Bar boasting what it claimed to be the UK’s first cold coffee “kegerator”.

Tapping into a US craze, this involves creating a beer-style keg which serves coffee from a tap that

comes complete with its own pub-style pump-clip label. The coffee is brewed for 14 hours at room

temperature, and is said to produce a highly caffeinated cold brew product.

Highlighting the venues’ coffee credentials

Some 13% of out-of-home hot drink purchasers say that they would prefer to use coffee shops where

they could see the coffee being roasted (eg behind the counter). Such visual in-store factors could act

as distinct venue differentiators and areas of interest/reasons to visit. Such transparency in coffee

production could also help to further bolster artisan producers’ coffee credentials as well as appealing

to the 12% of users who say they’d be very interested in coffee made with rare coffee beans (eg

unusual/limited coffee ranges) (see The Consumer – Specialist Coffee Shops’ Menu Enticement

section).

In the US, Starbucks is already exploring this route, opening the ‘Reserve Roastery and Tasting Room’

at the start of December 2014 in Seattle. The company states that it is offering an opportunity to access

a rare micro-lot coffee that will be roasted in the new facility. The company also announced its

intentions in late 2014 to open Starbucks Reserve stores as part of a new branding exercise, reported to

be the same size as standard Starbucks stores, in the US, to offer a super-premium experience to users.

The Consumer – Interest in Products and Services Coffee Shops When Buying Coffee Out of Home UK, December 2014


The Consumer – Interest in Products and Services

When Buying Coffee Out of Home

Key points

Among coffee shop operators, Costa Coffee is particularly active in creating a stable of

different outlet concepts to appeal to varying consumer demands. For example, 30% of out-

of-home hot drink buyers haven’t used a drive-through service but would like to, whilst 35%

would be interested in using self-service formats.

With a growing number of non-specialist operators offering a wide range of coffee drinks,

mobile units can help specialist coffee shop operators to expand their presence: 35% of out-

of-home hot drink buyers haven’t used a coffee kart but would be interested in doing so.

Mobile technology is also increasingly big business in the coffee shop market with 36% of

out-of-home coffee purchasers interested in customised offers sent to their smartphones

whilst 31% show an interest in using smartphone payments at coffee shops.

There is considerable interest in more mobile technology services in the coffee shop market

with demand for concepts such as payment apps peaking amongst men and those aged 16-34.

Wider service formats appeal most to the 16-34s


“Now thinking about buying tea/coffee/hot drinks out of home, which of the following, if any, have you used and which would you be interested in using if available?”



FIGURE 34: INTEREST IN PRODUCTS AND SERVICES WHEN BUYING HOT DRINKS OUT OF HOME, SEPTEMBER 2014 Base: 1,459 internet users aged 16+ who have bought hot drinks out of home in the last three months

8

9

10

10

10

11

13

15

20

20

36

32

26

36

31

46

41

35

35

30

56

59

64

54

59

43

46

49

45

50

Pre-ordering before you get to the venue

An app that provides nutritional information on their food

and drink (eg calories)

The ability to participate in live/interactive online

competitions run by specialist coffee shops*

Customised offers sent to your smartphone based on

factors such as your location, time of day etc

Smartphone payments (eg pay by app on the phone)

Charging stations for electrical devices (eg phones,

laptops) at the venue

Smartphone loyalty/rewards app (eg digital loyalty card

on your mobile phone)

Coffee kart (mobile coffee van eg in car park, outside

train station)

Coffee shop-branded self-service coffee machines (eg

Costa Express)

A drive-through service

%

Have used Haven't used but would be interested in using Haven't used and not interested in using

* full statement reads: The ability to participate in live/interactive online competitions (eg via Twitter, Facebook, brand website) run by specialist coffee shops (eg Starbucks, Costa Coffee) SOURCE: LIGHTSPEED GMI/MINTEL

There is considerable demand for the expansion of technological services in the coffee shop market.

For example, 36% of out-of-home hot drink purchasers say they haven’t but would like to pre-order

when they get to the venue, whilst 31% would be interested in smartphone payments.

Interest in many of the technological developments shows a bias towards men and those aged 16-34

both in terms of current usage and those who haven’t but would be interested in using them in the

future.

Tailored service formats

Drive-throughs and self-service machines

There is significant demand for different convenience-driven service concepts in the out-of-home hot

drinks market:

Some 30% of out-of-home hot drink purchasers say they haven’t used a drive-through service but

would be interested in doing so.

More than a third (35%) say they haven’t used a coffee shop-branded self-service machine (eg

Costa Express) but would be interested in doing so.



Costa Coffee is particularly active in creating a stable of different formats and outlet concepts to

appeal to varying consumer demands. Its selection of outlet formats comprises Costa (coffee shops),

Costa Metro (faster-flow outlets aimed at younger/urban consumers and city locations), Costa

Evolution (designed for more mature customers looking for more leisurely experiences) and Costa

Express (self-service machines for high-footfall areas).

Motorway service operators have particularly embraced and supported the rise of drive-through coffee

shops. Among recent development, in October 2014 Welcome Break stated that it planned to roll out

Starbucks drive-throughs to another 10 sites potentially.

Starbucks is also exploring these differentiated concepts, particularly in the US where it is set to trial

both an experience-focused Reserve Roastery and Tasting Room concept as well as a new express

store platform due to launch in 2015. The new express format, set to debut in New York, will also

integrate Starbucks’ digital payment platform, including mobile ordering. The brand is also planning

to start delivering food and beverage smartphone orders in selected markets in 2015 via a pilot scheme.

Delivery will reportedly be made available as part of the revamped Starbucks Rewards loyalty

programme, which is being introduced through its new Mobile Order and Pay app.

Mobile units

With an increasing number of non-specialist operators offering a wide range of coffee drinks, and

given the key role of convenient location in coffee shop choice, mobile units can help

specialist coffee shop operators to compete by increasing their accessibility. The scale of potential is

evident from the fact that more than a third (35%) of out-of-home hot drink purchasers haven’t used a

coffee kart (mobile van eg in car park, outside train station) but would be interested in doing so.

While mobile coffee trucks and karts are nothing new in the UK market, thus far the segment has been

largely small scale in the UK. For example, Peter Andre’s New York Coffee Club brand launched a

new mobile unit in the UK in order to target festival-goers in August 2014.

However, there is evidence of the big brands, at least globally, getting in on the act too. For example,

in the US, Starbucks started trialling a mobile truck concept on three university campus sites in

autumn 2014.

Such formats tend to require lower set-up and running costs as well as smaller footprints than bricks-

and-mortar stores which is another appeal of the concept for operators. Coffee karts could also work in

travel hubs locations such as train stations as an alternative format to full-size coffee shops. The

flexibility of being able to move coffee karts to different locations around the country could also help

operators test the viability of any potential new areas for bricks-and-mortar outlet expansion (see The

Consumer – Reasons for Buying Coffee Out of Home section for further discussion on coffee karts).

Smartphone technology

Mobile technology is big business across a wide number of consumer markets. Three quarters of

consumers own a smartphone as of July 2014, with nine in 10 16-34-year-olds now owning one,

according to Mintel’s Mobile Device Apps – UK, October 2014.

Coffee shop chains are now also experimenting with a wide range of services and marketing

opportunities afforded to them by the growth in such mobile technology. Many of these recent

developments tap into the Mintel Trend Life Hacking which examines how modern day consumers are

time-pressed and stressed and are therefore looking for tools to help them perfect their productivity.



Digital loyalty schemes, promotions and payment apps

Some 13% of out-of-home hot drink users have used a smartphone/loyalty/rewards app (eg digital

loyalty card on your mobile phone).

As with all electronic loyalty schemes, these are expected to generate a pool of data on the customers

for the operators, helping them to better analyse usage patterns. Some of these loyalty apps also double

up as payment apps. Operators could also hope to bolster brand loyalty through such apps, as implied

by the name, as those which require customers to preload money onto the apps are effectively getting

them to ring-fence this money to spend at that particular brand rather than at other coffee outlets. For

example:

Greggs launched a new digital loyalty programme, Greggs Rewards, in February 2014. Customers

are asked to register for a Greggs Rewards account via the app or online and top up their accounts

with any amount from £5-50 via debit/credit card or PayPal. They are then able to pay for

purchases in-store via their smartphone. The scheme rewards users with exclusive treats and

rewards built into the app such as a free Greggs’ breakfast or hotdog when opening an account.

Hot drink incentives are also built into the scheme (eg buy seven coffees and get the eighth free),

as well as birthday treats and entrance into a monthly prize draw for a chance to win an iPad.

Meanwhile, Harris + Hoole has attempted to reduce the amount of clicking customers have to do

to order and pay for goods in their stores. The coffee chain upgraded its mobile app in summer

2014, allowing customers to check in via their smartphone and select ‘their usual’ which comes up

on the barista’s till along with the customer’s name and photo and any prepaid amounts. The chain

reportedly hopes that the baristas knowing the customer’s name and order in advance would help

promote a friendlier, more personable service.

Increasingly, restaurant-branded apps are multifunctional. For example, Starbucks US launched a new

Mobile Order and Pay app in late 2014. The app lets customers pre-order products for pick-up later

and is being tested in the US next month. A wider rollout is planned in the second half of 2015.

However, as many of these innovations are in new, emerging areas, operators are adding incentives to

prompt consumers to use services such as digital loyalty apps, as discussed with the Greggs example

above. Elsewhere, Starbucks in the US has said that it plans to offer special services and offers to

customers using mobile devices such as access to special events, previews of new products and

promotions and additional opportunities to earn and redeem rewards across Starbucks’ products and

services both in the retail and foodservice arenas.

Specialist coffee shop chains aren’t the only ones using smartphone technology to push loyalty

promotions and offers. For example, in April 2014 it was reported that McDonald’s was planning to

launch a smartphone coupon app across its European markets as part of its wider strategy to increase

its relevance to younger tech-savvy consumers. The app was said to provide mobile-only offers such

as a free coffee with a prompt to entice customers to order additional items.

Smartphone payments

Meanwhile, global operators are also exploring wider mobile payment methods, such as ones linked to

consumers’ bank accounts, not just those which require consumers to preload money onto a branded

account. For example, in the US, Starbucks has signed up to Apple Pay, the new smartphone payment

platform.







Only 10% of out-of-home hot drink purchasers have used smartphone payments which is likely to

reflect their limited availability at present as well as consumers’ lack of familiarity with the concept.

However, a further 31% state that they would be interested in using such services in the future

suggesting demand for further development in this area.

Location-based marketing

Some coffee shop brands are looking at more general apps as a method of further increasing the

visibility of their stores and appealing to the convenience-led as well as running their own branded

apps that direct consumers towards their nearest stores. For example, in late 2013 it was reported that

Starbucks UK was taking part in a pilot scheme with mobile check-in service Foursquare, trialling

advert formats to allow Starbucks to target users near its outlets via the app. The Starbucks ad was sent

to Foursquare users when they checked into locations within a certain distance of Starbucks outlets.

‘Push’ marketing

Many restaurant loyalty apps still require the consumer to do the work – eg log in to the app and check

for deals. As such, a number of brands have been looking to ‘push’ marketing techniques in order to

reduce their reliance on customers remembering to do this and thus increasing the visibility of their

offers in a competitive marketplace.

One in 10 out-of-home hot drink purchasers stated that they’ve already used customised offers sent to

their smartphone based on factors such as their location, time of day etc, whilst a further 36% say they

haven’t but would be interested in doing so.

While such services remain limited in the coffee shop market, they are being explored in other parts of

the foodservice arena. For example, in June 2014 it was reported that a number of brands such as

Prezzo, Loch Fyne, Strada, Papa John’s and Subway were trialling such an app developed by

Vouchercloud.

Push marketing can also be used to help prompt sales at additional day parts outside of peak times. For

example, Taco Bell US is rolling out an app in late 2014, which is said to send out custom messages

based on the time of the day and to give consumers pricing information and opening hours information

for their nearest location.

Lunchtime chain EAT became the first company outside the US to trial iBeacon technology, as

reported in February 2014. The system allows retailers to ‘push’ tailored messages to customers’

smartphones using location tracking.

As well as pushing promotions and messages linked to location and time of day, operators also have

the opportunity to use the weather as a reason to contact loyalty app members, for example, offering a

discount on hot chocolate on a cold day.

With various non-specialists investing in this area, it increases the pressure on specialised coffee shop

operators to also explore this area further.



In a market with low brand loyalty, operators could benefit from building a deeper relationship with

fans to foster real loyalty rather than just catering to consumers’ bargain-hunting and promiscuous

spending behaviour. By providing the operators with more detailed data of the customers and their

usage habits, such schemes can allow for more targeted promotions, helping operators to move away

from blanket discounts. For example, these apps may seem more engaging to consumers if they also

employ interest-based marketing techniques (eg build associations to other areas of interest such as

music or fashion) which would add another layer of attraction to these apps as well as helping to create

more of a sense of brand personality and therefore more emotive connections with consumers.

In-store wireless charging

In late 2014 Starbucks US unveiled Powermat wireless charging technology in around 200 of its stores

in the San Francisco Bay area, with plans to explore rollouts in Europe and Asia the following year.

The stores in question are now equipped with “Powermat spots”, which are described as designated

areas on tables and counters where customers can place their compatible device to charge them

wirelessly. In addition, Starbucks stores are offering Duracell Powermat “rings” for purchase ($9.99)

or loan that instantly upgrade any phone to wireless charging compatibility.

Demand for such services is also evident in the UK market with 46% of out-of-home hot drink

purchasers saying they haven’t yet used but would be interested in using charging stations for

electrical devices in coffee shops.

Video content can help promote new services

Online video content (shared via social media pages or the brands’ own websites) can be used to build

familiarity with less common concepts. For example, the new TopBrewer Café in Copenhagen has a

YouTube video to help explain how customers should use the venue which is described as the world’s

first app-controlled café (see Mintel’s Eating Out: The Decision Making Process – UK, July 2014 for

more detailed analysis on the role of video content in restaurant marketing).

Appendix – Market Size and Forecast Coffee Shops UK, December 2014


The Consumer – Specialist Coffee Shops’ Menu

Enticements

Key points

Around a fifth (22%) of out-of-home hot drink purchasers are very interested in seeing

baked goods made by a local bakery on the menu at specialist coffee shops in the future,

whilst one in 10 (11%) are very interested in other goods produced by local independent

businesses (eg cups/mugs, soft drinks).

There is significant demand for wider food ranges at coffee shops with 17% very interested

in seeing more savoury snacks (eg sausage rolls) on menus and 16% very interested in seeing

a wider range of savoury meals (eg pies, soups). This is linked to an increasing blurring

between categories such as the product offer at coffee shops and lunchtime operators.

There is limited demand for more adult products with just one in 10 users very interested in

seeing alcohol served on menus. Some venues are using new menu additions to help develop

their relevance as an evening venue.

Menu enticements


“Thinking specifically about specialist coffee shops (eg Starbucks, Costa Coffee), which of the following options, if any, are you interested in seeing on the menu in the future?”



FIGURE 35: COFFEE SHOPS’ MENU ENTICEMENTS, SEPTEMBER 2014 Base: 1,459 internet users aged 16+ who have bought hot drinks out of home in the last three months

10

10

11

12

15

16

16

17

22

21

22

33

30

36

40

35

45

51

21

24

29

25

22

23

22

21

15

21

20

13

16

13

11

13

9

5

27

24

14

17

14

11

14

8

6

Alcohol (wine, beer, liqueur coffee)^

Options to design your own tea (eg mix/blend different types

of tea leaves together)

Other goods produced by local independent businesses (eg

cups/mugs, soft drinks)

Coffee made with rare coffee beans (eg unusual/limited

coffee ranges)

Made-to-order fruit juices/smoothies

A wider range of savoury meal options (eg pies, soups, pizza

slices)

Ice cream drinks (eg affogato, milkshakes)

A wider range of savoury snacks (eg sausage rolls, pasties,

tapas dishes, cheese & crackers)

Baked goods made by a local bakery

%

Very interested Fairly interested Neither interested nor disinterested

Not very interested Not at all interested

^ asked to 1,397 internet users aged 18+ who have bought hot drinks out of home SOURCE: LIGHTSPEED GMI/MINTEL

Localism

Mintel Trend Locavore explores the idea that the local movement is about more than just food – it’s a

seismic shift in why, where and how we consume. As such, operators should look to demonstrate both

the individual and the community-level benefits of buying local.

This is a trend which specialist coffee shop concepts could tap into to help add personality to their

brands as well as to be seen as less corporate.

Around a fifth (22%) of out-of-home hot drink purchasers are very interested in seeing baked

goods made by a local bakery on the menu at specialist coffee shops in the future, with interest

peaking amongst those aged 25-44.

Around one in 10 (11%) users are very interested in other goods produced by local independent

businesses (eg cups/mugs, soft drinks), with interest peaking amongst those aged 25-34.

Coffee shops may choose to offer these local products on a time-limited basis in order to add a sense

of urgency to visit/purchase as well as allowing the venue to experiment with different menu and

merchandising ranges. While Starbucks is currently trialling selling products by London-based healthy

fast food operator POD in selected London stores (discussed below), the high interest here suggests

that the same concept could be expanded to baked goods. Starbucks, for example, highlights its

commitment to supporting local communities as part of its CSR commitments, initiatives centred

around supporting local suppliers potentially strengthening their image.



Food expansion opportunities

Operators from a wide number of foodservice categories are also now chasing their share of the lunch

pound. There has been a significant blurring of categories in recent years with coffee shops continually

encroaching on the traditional menu USPs of sandwich bars and vice versa.

Hot sandwiches

Hot sandwich concepts continue to represent an area for NPD for coffee shops which many have been

developing in recent years. For example, while expanding its food range in 2014 Costa Coffee added a

number of new hot sandwich additions such as a chicken fajita wrap and pulled pork wrap, as well as a

chorizo and roasted pepper panini, a goat’s cheese and beetroot panini and a BBQ chicken panini.

Meanwhile, in summer 2014, Starbucks launched a number of flatbread options such as Mediterranean

Tuna Flat Bread and Falafel Flatbread.

These should allow operators to appeal to the 27% of lunch purchasers who choose to eat lunch out of

home because they want something different to their usual lunch (see Mintel’s Consumer Attitudes

Towards Lunch Out-of-Home – UK, October 2014). As it’s a hot food which can be prepared with

limited kitchen facilities, the simplicity of the product format also makes them particularly well suited

for limited space and speedy service venues such as coffee shops.

Wider product categories

Starbucks meanwhile has looked to expand its food offering through a trial with healthy food

provider POD in September 2014. The coffee shop chain will be testing sales of POD food in three

Central London stores (Harewood Place, Moorgate and Pentonville Road). This includes breakfast

dishes such as Super Scrambled Eggs, yogurts and multigrain toast as well as lunch dishes such as

Thai Red Chicken Hot Pod, Pulled Pork & Pod Slaw Salad, Bahn Mi panini and side dishes such as a

Crunchy Pea Pot (edamame beans, peas, wasabi seed mix and pumpkin seeds).

There is demand for coffee shop operators to take food menu innovation further:

Some 17% of out-of-home hot drink purchasers say they’d be very interested in a wider range of

savoury snacks (eg sausage rolls, pasties, tapas dishes, cheese and crackers) at coffee shops, with

interest peaking amongst those aged 16-24.

Some 16% would like to see a wider range of savoury meal options (eg pies, soups, pizza slices) at

coffee shops, with interest peaking amongst those aged 25-34.

While the cooking facilities available will to some extent limit the scope to expand menus, some

independent venues already serve a wider range of savoury options. For example, Gentlemen Baristas,

which launched on Union Street in London in 2014, serves a wide savoury menu range including

products such as pork pies, sausage rolls, soups and other lunches.

In the US, Starbucks has been trialling more lunch items such as soups in certain locations as it looks

to build on sales during that day part, as well as exploring these as part of its Evenings Menu being

trialled in the US as discussed below.

Wider menus linked to trials of other meal occasions

Wider savoury menu ranges, such as tapas, can also help operators to drive relevance in other meal

occasions and later opening hours. For example:



In June 2014 it was reported that Starbucks in the US was opening a trial quick-service restaurant

called Boulange, a variant of its La Boulange Bakery brand, in Los Angeles. The concept was due

to open all day (until 10pm) and serve alcohol (eg beer, wine, cocktails) and heavier dishes such as

croissant burgers.

The company has also been expanding its new ‘Evenings’ menu, announcing in December 2014

plans to roll out the format to thousands of stores across the country. Reportedly Starbucks doesn’t

want the cafés to be like bars and is instead targeting areas where people come out of movies and

clubs. The Evenings menu, which includes wine and beer, is available from 4pm at these locations.

Dishes include Parmesan Crusted Chicken Skewers, Grilled Vegetable Plate, Blue Brie & Apricot

Preserves Plate, Bacon-Wrapped Dates with Balsamic Glaze, Truffle Macaroni and Cheese,

Truffle Popcorn, Double Chocolate Brownie Bites and Chocolate Truffles.

In the UK, coffee shop chain Harris + Hoole has also been trialling selling alcohol at three

locations as it looks to explore opportunities in the evening market as well.

Some 31% of out-of-home hot drink purchasers show some level of interest in seeing alcohol (wine,

beer, liqueur coffee) on coffee shop menus with 10% very interested in this concept, particularly men

and those aged 16-34.

Timberyard, a two-strong artisan coffee based in London, also launched new boozy liqueur coffees in

November 2014, available in three variants: salted caramel, Frangelico cinnamon, and Jameson Irish.

Drinks expansion opportunities

Flavour innovation in drinks has been an ongoing trend in recent years, across a number of product

categories such as lattes and iced coffee drinks. This taps into demand from four in 10 out-of-home hot

drink purchasers for something they can’t/don’t usually have at home, found in Mintel’s Coffee Shops

– UK, October 2013.

For example, seasonal variants of lattes and hot chocolate are common particularly during the festive

season, and a well-established part of the offering at for example Starbucks. Among other operators,

for Christmas 2014 Tesco’s in-store catering concept, Decks, added three new variants to its festive

range including Gingerbread & Cinnamon latte, Cookies and Cream Hot Chocolate, and Raspberry &

Blackcurrant Mulled Fruit Warmer.

Soft drinks

However, applying a similar level of innovation to different drinks categories such as soft drinks

should help operators to appeal to younger consumers who are less likely to drink caffeinated drinks.

For example, some 15% of out-of-home hot drink purchasers say they’d be very interested in seeing

made-to-order fruit juices/smoothies on coffee shop menus, with interesting peaking amongst those

aged 16-34.

This is also evident in qualitative research:

“If coffee shops offered a wider variety of cold drinks (such as milkshakes and fresh fruit

juices), I would probably be more likely to visit them. Free Wi-Fi and loyalty cards would also

be nice.”

– Woman, aged 18-24, C1, single, not parent



In 2014 it was announced that Starbucks was planning to launch its new fizzy drinks range globally

after a successful run in the US, Japan and Singapore. The Fizzio brand is described as a range of

handcrafted sodas which are caffeine-free and contain no high-fructose corn syrup, no artificial

flavours and no preservatives. There are three variants available in the US: Golden Ginger Ale, Lemon

Ale and Spiced Root Beer Fizzio.

Operators could also draw on the interest in local products and service discussed above to expand their

product range in this area. For example, local operator Square Root makes small-batch sodas which are

handmade in Hackney, with scope for such local and artisanal products to provide a USP for operators

in the hotly competitive market.

Dessert coffees

Some 51% of out-of-home hot drink purchasers say they’re very or fairly interested in seeing ice

cream drinks (eg milkshakes, affogato) on menus at coffee shops.

Given the wide range of flavoured hot lattes and frozen blended drinks already served in coffee shops,

this would seem a logical extension area.

UK coffee shops could take cues from operators in other, global markets. For example, in Japan

specialist coffee shops have explored dessert drinks as an NPD area, to create differentiation in a

market where they face significant competition from cheaper coffee options in convenience stores, for

instance. Recent launches in Japan include Starbucks Caramel & Pudding Frappuccino, Shaken

Caramel Custard & Espresso drink and the Dark Mocha Chip Frappuccino (dark chocolate blended

with coffee).

Dessert flavours already feature prominently in the US coffee market too (both in and out of home),

with combinations like chocolate & caramel cookie, crème brûlée, banana bread, blueberry and cream

and dulce de leche introduced in recent years. In the US there are also examples of operators adding

pudding garnishes to drinks to make them even more indulgent and dessert-like. For example, Dunkin’

Donuts offers a Frozen Dunkaccino topped with whipped cream and a Munchkin (‘doughnut hole’).

Tea innovation

Some 10% of out-of-home hot drink users say they would be very interested in coffee shops allowing

them to design their own tea (eg mix/blend different types of tea leaves together). Londoners and those

aged 16-24 are more likely than most to agree with this statement.

Offering such a customisable product may help to justify the price differentials between tea bought in

supermarkets, for example, and from out-of-home venues. The lack of perceived skill used in

preparing tea, compared to specialist coffee drinks, for instance, arguably dampens the added-value

perception of out-of-home tea.

Lakeland, the kitchenware retailer, sells an ‘Artisan’s Tea Blending Kit’ which contains black, green,

white and rooibos leaves together with a range of herbs and spices for customers to mix and add into

tea sacs. Such concepts could also be used in the out-of-home market to add interest and an

experiential factor to the leisure experience. Other ‘tea rituals’ could also be added to elevate the

position of tea in the out-of-home market; eg Harris + Hoole hands customers timers with their tea

purchases to help them steep the leaves for the appropriate length of time.



Appendix – Market Size and Forecast FIGURE 36: BEST- AND WORST-CASE FORECASTS FOR UK COFFEE SHOPS MARKET, 2014-19 Worst

case forecast

Index % Mintel forecast

Index % Best case

forecast

Index %

£m annual change

£m annual change

£m annual change

2014 (est) 1,450 100.0 +3.5 1,450 100 +3.5 1,450 100 +3.5 2015 (fore) 1,430 98.6 -1.4 1,498 103 +3.3 1,566 108 +8.0 2016 (fore) 1,470 101.4 +2.8 1,547 107 +3.3 1,624 112 +3.7 2017 (fore) 1,509 104.1 +2.7 1,596 110 +3.2 1,683 116 +3.6 2018 (fore) 1,550 106.9 +2.7 1,648 114 +3.3 1,747 120 +3.8 2019 (fore) 1,590 109.7 +2.6 1,701 117 +3.2 1,811 125 +3.7 SOURCE: MINTEL

Appendix: Research methodology

UK Research Methodology Coffee Shops UK, December 2014


UK Research Methodology

Mintel is an independent market analysis company that prides itself on supplying objective

information on a whole range of markets and marketing issues.

There are six main sources of research that are used in the compilation of Mintel reports:

• Consumer research

• Brand & social media research

• Desk research

• Trade research

• Statistical forecasting

• Mintel’s exclusive archive of over 40 years of analysis and expertise.

Mintel reports are written and managed by analysts with experience in the relevant markets.

Consumer research

Exclusive and original quantitative consumer research is commissioned for almost all Mintel reports.

In addition, qualitative research is also undertaken for a large proportion of reports in the form of

online discussion groups. Mintel invests a considerable sum each year in consumer research, and the

purchaser of a Mintel report benefits, as the price of an individual report is less than the cost of the

original research alone. The research brings an up-to-date and unique insight into topical issues of

importance.

Consumer research is conducted among a nationally representative sample of either adults or internet

users and is generally carried out by Lightspeed GMI (online), Ipsos Mori (face to face), while other

suppliers are used on an ad hoc basis as required. The results are only available in Mintel reports.

Sampling and weighting

Face to Face Surveys

Ipsos Mori

Ipsos MORI Capibus uses a two-stage random location sample design which generates a very high

quality sample representative of the Great Britain adult population. Interviews are conducted via c170

sampling points, randomly selected every week, and MOSAIC is employed to set interlocking quota

controls specific to each interviewer location. This ensures consistent accurate representation of the

locations interviewed every week. By using this proven sample design, all sub-sectors of the

population are represented – at a national and regional level.

All information collected on Capibus is then weighted to reflect the known profile of the adult

population in Great Britain. Capibus uses a rim weighting system which weights to mid-2010 census

and NRS defined profiles for age, social grade, region, ethnicity and working status - within gender.

Additional profiles used include tenure and car in household, for example.



Because the sampling process is repeated every week, the Capibus sample is matched wave on wave,

making it ideal for taking successive measurements on the same issue.

Online Surveys

Lightspeed GMI

Founded in 1999, GMI’s double opt-in online consumer panel has reach to approximately 350,000

consumers in Great Britain. Re-branded as Lightspeed GMI in September 2014 (after its acquisition

by Kantar in 2011), it delivers uniquely identified online respondents via extensive use of fraud

detection and location-verification technology at multiple points in the research cycle, from initial

registration through survey fielding and incentive redemption. Lightspeed GMI panellists are

profiled on a wide variety of attributes to deliver the specific hard-to-reach demographics.

To ensure our surveys are nationally representative of internet users, Mintel sets quotas for each age

group, split by gender. Specific quotas for a sample of 2,000 adults aged 16+ are shown below:

% N

Age groups by gender

16-19 men 3.6 72

16-19 women 3.4 68

20-24 men 4.9 98

20-24 women 4.8 95

25-34 men 9.4 189

25-34 women 9.5 190

35-44 men 9.3 186

35-44 women 9.5 190

45-54 men 9.3 186

45-54 women 9.4 189

55-64 men 7.0 140

55-64 women 7.2 144

65+ men 5.7 113

65+ women 7.0 140

Total 100 2,000

Mintel also sets quotas on region and socio-economic group. Specific quotas for a sample of 2,000

adults aged 16+ are shown below:

% N

Region



North East 4.2 84

North West 11.5 229

Yorkshire &

Humberside 8.6 172

East Midlands 7.4 148

West Midlands 9.1 182

Greater London 13.4 269

South East/East Anglia 23.6 473

South West 8.6 172

Wales 5.0 99

Scotland 8.6 172

Total 100 2,000

% N

Social economic group

AB 22.3 446

C1 30.9 618

C2 20.9 418

DE 25.9 518

Total 100 2,000

Definitions

Socio-economic group

Socio-economic groups are based on the head of household or chief income earner and are defined as

follows:

Socio-economic group Occupation of chief income earner

A Higher managerial, administrative or professional

B Intermediate managerial, administrative or professional

C1 Supervisory or clerical, and junior managerial, administrative or professional

C2 Skilled manual workers

D Semi and unskilled manual workers

E All those entirely dependent on the state long term, through sickness,

unemployment, old age or other reasons

Retired persons who have a company pension or private pension, or who have private means are

graded on their previous occupation.

Students in higher education living at home are graded on the occupation of the head of the

household. Students living away from home are graded C1 (no account is taken of casual or vacation

jobs).



Qualitative Research

Toluna/ 2020 Research

Toluna in partnership with 20/20 Research provide Mintel with qualitative bulletin board software.

This allows the creation of Internet-based, ‘virtual’ venues where participants recruited from Mintel’s

online surveys gather and engage in interactive, text-based discussions led by Mintel moderators.

Further Analysis

Mintel employs numerous quantitative data analysis techniques to enhance the value of our consumer

research. The techniques used vary form one report to another. Below describes some of the more

commonly used techniques.

Repertoire Analysis

This is used to create consumer groups based on reported behaviour or attitudes. Consumer responses

of the same value (or list of values) across a list of survey items are tallied into a single variable. The

repertoire variable summarises the number of occurrences in which the value or values appear among a

list of survey items. For example, a repertoire of brand purchasing might produce groups of those that

purchase 1-2 brands, 3-4 brands and 5 or more brands. Each subgroup should be large enough (ie

N=75+) to analyse.

Cluster Analysis

This technique assigns a set of individual people in to groups called clusters on the basis of one or

more question responses, so that respondents within the same cluster are in some sense closer or more

similar to one another than to respondents that were grouped into a different cluster.

Correspondence Analysis

This is a statistical visualisation method for picturing the associations between rows (image, attitudes)

and columns (brands, products, segments, etc.) of a two-way contingency table. It allows us to display

brand images (and/or consumer attitudes towards brands) related to each brand covered in this survey

in a joint space that is easy to understand. The significance of the relationship between a brand and its

associated image is measured using the Chi-square test. If two brands have similar response patterns

regarding their perceived images, they are assigned similar scores on underlying dimensions and will

then be displayed close to each other in the perceptual map.

CHAID analysis

CHAID (Chi-squared Automatic Interaction Detection), a type of decision tree analysis, is used to

highlight key target groups in a sample by identifying which sub-groups are more likely to show a

particular characteristic. This analysis subdivides the sample into a series of subgroups that share

similar characteristics towards a specific response variable and allows us to identify which

combinations have the highest response rates for the target variable. It is commonly used to understand

and visualise the relationship between a variable of interest such as “interest in trying a new product”

and other characteristics of the sample, such as demographic composition.

Key Driver Analysis

Key driver analysis can be a useful tool in helping to prioritise focus between different factors which

may impact key performance indicators (eg satisfaction, likelihood to switch providers, likelihood to

recommend a brand, etc). Using correlations analysis or regression analysis we can get an

understanding of which factors or attributes of a market have the strongest association or “link” with a



positive performance on key performance indicators (KPIs). Hence, we are able to identify which

factors or attributes are relatively more critical in a market category compared to others and ensures

that often limited resources can be allocated to focusing on the main market drivers.

Brand & Social Media Research

Mintel’s brand research includes more in-depth knowledge about brands covered in relevant markets.

Brands are evaluated on a number of areas including usage, commitment, dynamism, differentiation,

satisfaction, image, recommendation and attitudes. When evaluating attitudes, up to ten brand attitude

statements are selected and tested, depending on the actual consumer market.

To complement its exclusive consumer research, Mintel tracks social media data for inclusion in

selected reports. Using Infegy’s Atlas software, Mintel analyses online conversations across a range of

social platforms including Twitter, consumer forums and the wider web.

Atlas provides rich consumer insight via the analysis of commentary posted publicly on the internet.

The system performs comprehensive and broad collection of data from millions of internet sources,

working to ensure a faithful and extensive sampling of feedback from the widest range of individuals.

The dataset contains commentary posted in real time, as well as a substantial archive dating back to

2007.

Trade research

Informal

Trade research is undertaken for all reports. This involves contacting relevant players in the trade, not

only to gain information concerning their own operations, but also to obtain explanations and views of

the strategic issues pertinent to the market being researched.

Formal

Internally, Mintel’s analysts undertake extensive trade interviews with selected key experts in the field

for the majority of reports. The purpose of these interviews is to assess key issues in the market place

in order to ensure that any research undertaken takes these into account.

In addition, using experienced external researchers, trade research is undertaken for some reports. This

takes the form of full trade interview questionnaires and direct quotes are included in the report and

analysed by experts in the field. This gives a valuable insight into a range of trade views of topical

issues.

Desk research

Mintel has an internal team of market analysts who monitor: government statistics, consumer and trade

association statistics, manufacturer sponsored reports, annual company reports and accounts,

directories, press articles from around the world and online databases. The latter are extracted from

hundreds of publications and websites, both British and overseas. All information is cross-referenced

for immediate access.



Data from other published sources are the latest available at the time of writing the report.

This information is supplemented by an extensive library of Mintel’s reports produced since 1972 and

added to each year by the 500+ reports which are produced annually.

In addition to in-house sources, researchers also occasionally use outside libraries such as the British

Library or the Department of Trade and Industry. Other information is also gathered from store and

exhibition visits across Europe, as well as using other databases within the Mintel Group, such as the

Global New Product Database (GNPD), which monitors FMCG sales promotions.

All analysts have access to Mintel’s Market Size and Macroeconomic Databases – a database

containing many areas of consumer spending and retail sales as well as macroeconomic and

demographic factors which impinge on consumer spending patterns, going back some 20 years.

The database is used in conjunction with an SPSS forecasting program which uses weighted historical

correlations of market dynamics, with independent variables, to produce future spending scenarios.

Statistical Forecasting

Statistical modelling

For the majority of reports, Mintel produces five-year forecasts based on an advanced statistical

technique known as ‘multivariate time series auto-regression’ using the statistical software package

SPSS.

Historical market size data feeding into each forecast are collated in Mintel’s own market size database

and supplemented by macro- and socio-economic data sourced from organisations such as the Office

for National Statistics, HM Treasury, the Bank of England and the Economist Intelligence Unit.

Within the forecasting process, the model searches for, and analyses relationships between, actual

market sizes and a selection of key economic and demographic determinants (independent variables)

in order to identify those predictors having the most influence on the market.

Factors used in a forecast are stated in the relevant report section alongside an interpretation of their

role in explaining the development in demand for the product or market in question.

Qualitative insight

At Mintel we understand that historic data is limited in its capacity to act as the only force behind the

future state of markets. Thus, rich qualitative insights from industry experts regarding future events

that might impact upon various markets play an invaluable role in our post statistical modeling

evaluation process.

As a result, the Mintel forecast complements a rigorous statistical process with in-depth market

knowledge and expertise to allow for additional factors or market conditions outside of the capacity of

the statistical forecast.



The Mintel fan chart

Forecasts of future economic outcomes are always subject to uncertainty. In order to raise awareness

amongst our clients and to illustrate this uncertainty, Mintel has introduced a new way of displaying

market size forecasts in the form of a fan-chart.

Next to historical market sizes and a current year estimate, the fan chart illustrates the probability of

various outcomes for the market value/volume over the next five years.

At a 95% confidence interval, we are saying that 95 out of 100 times the forecast will fall within these

outer limits, which we call the best and worst case forecasts. These, based on the statistically driven

forecast, are the highest (best case) and lowest (worst case) market sizes the market is expected to

achieve.

Over the next five years, the widening bands successively show the developments that occur within

95%, 90%, 70% and 50% probability intervals. Statistical processes predict the central forecast to fall

within the darker shaded area which illustrates 50% probability, ie a 5 in 10 chance.

A general conclusion: Based on our current knowledge of given historic market size data as well as

projections for key macro- and socio-economic measures that were used to create the forecast, we can

assume that in 95% of the time the actual market size will fall within the purple shaded fan. In 5% of

all cases this model might not be correct due to random errors and the actual market size will fall out

of these boundaries.

Weather analogy

To illustrate uncertainty in forecasting in an everyday example, let us assume the following weather

forecast was produced based on the meteorologists’ current knowledge of the previous weather

condition during the last few days, atmospheric observations, incoming weather fronts etc.



Now, how accurate is this forecast and how certain can we be that the temperature on Saturday will

indeed be 15°C?

To state that the temperature in central London on Saturday will rise to exactly 15°C is possible but

one can’t be 100% certain about that fact.

To say the temperature on Saturday will be between 13°C and 17°C is a broader statement and much

more probable.

In general, we can say that based on the existing statistical model, one can be 95% certain that the

temperature on Saturday will be between 13°C and 17°C, and respectively 50% certain it will be

between about 14.5°C and 15.5°C. Again, only in 5% of all cases this model might not be correct due

to random errors and the actual temperature on Saturday will fall out of these boundaries and thus will

be below 13°C or above 17°C.

( To learn more about uncertainty in weather forecasts visit:

http://research.metoffice.gov.uk/research/nwp/ensemble/uncertainty.html )

http://research.metoffice.gov.uk/research/nwp/ensemble/uncertainty.html

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