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TH60028E: RESEARCH AND STUDY SKILLS

ASSIGNMENT - I

MARKET INTELLIGENCE REPORT ON COFFEE SHOP

INDUSTRY

SUBMITTED TO: SUBMITTED BY:

ZABIN VISRAM GAURAV PAUL

(TUTOR) 21159762



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TABLE OF CONTENTS

SR.NO. PARTICULARS PG. NO.

1 Terms of reference 32 Methodology 3

3 Global Market 4

3.1 Industry Size 4

3.2 Coffee Consumption 4

4 UK Market 5

4.1 Major Brands in the UK 54.2 Market Size and Forecast 5

4.3 Facts in Coffee shop industry 6

4.4 Future market 65 Costa Coffee 65.1 At a glance 6

5.2 Competitors 7

5.3 Facts 76 Bibliography 8

7 APPENDIX 9

Figure 1.1 9

Figure 1.2 10

Figure 1.3 11

Figure 1.4 12Figure 1.5 13



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1) TERMS OF REFERENCE

This report briefs aims to evaluate the Coffee Shop market in threeaspects, globally, in the UK and a company in the UK. It also forecasts

and identifies the market in the future regarding the trends and

prospects.

2) METHODOLOGY

The report consists of only secondary sources of research which

includes websites, market reports and company key statistics.



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3) GLOBAL MARKET

3.1 Industry Size

The global coffee shop industry accounts to 20000 stores with a revenueof $1.1 bn. The workforce involved in the industry is approximately 20mn. The leading brands in this industry hold 70% of the sales. Starbucksand Costa are the top competitors which has a total of 16680 storesaround the world jointly.

3.2 Coffee Consumption

National Coffee Association (2009) determines that despite of the

changing economic climate the coffee shop industry has been resilient ina market research survey conducted. Many of the other business haveseen a major downturn but the coffee business had a stableperformance (Figure 1.1).

Coffee research organisation identified that coffee is the most popular beverage in the world and thus estimated that 400 bn cups of coffee isconsumed every year. In the US only 400 mn cups of coffee isconsumed which makes it the leading consumer of coffee in the world.

The table shows the consumption of coffee by people of different agegroups between the years 2006-08:

Age µ06 µ07 µ08

18 ± 24 31% 37% 26%

25 ± 39 47% 44% 47%

40 ± 59 59% 61% 61%

60 + 73% 74% 71%



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4) INDUSTRY IN THE UK

The main brands in the UK are Starbucks, Costa, Cafe Nero which are

saturating in the market and are still opening their operations in London

which is an important factor for the market growth.

4.1 Major Brands in the UK

The leading brands in the coffee shop industry namely Costa, Starbucks

and Cafe Nero have their network all over the UK market. The regions of

Greater London and South East London hold the maximum number of

outlets for the brands. Costa and Cafe Nero contribute to 42 percent and

54 percent of their network of outlets respectively (Figure 1.2).

The coffee shop market have shown consolidated nature and still

focussing on it but the expansion of the major brands and their rejuvenation are still taking place not only in domestic market but also

internationally. Costa still leads the market followed by other competitors

such as Starbucks and Cafe Nero (Keynote 2009a) (Figure 1.3).

4.2 Market Size and Forecast

The people still believe the coffee shops as an affordable luxury whilethe market is seen under pressure due to the involvement of various outof league competitors which are unconventional and non-specialist in thecoffee shop industry. The market consolidated in recent years due tohigh debts and recession; however, it has shown signs to againexpanding to meet the changes in the market conditions andmodernisation (figure 1.4).

Mintel (2009) have shown from their research that only a few

percentages of the customers have cut back on the visits in the coffee

shops to save money. Only 6% of the customers were found to be

supporting this view. While only 9% of the out of house coffee drinkers

have cut back from the coffee shops to save money during the recession

(Mintel, 2010)

The forecast of the coffee shops has a mixed reaction with Costa

posting a huge turnover and operating profits compared to Starbuck,



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which is experiencing a decline in the gross profit and incline in

operating loss despite huge turnover.

4.3 Facts in Coffee shop industry

y

The young population is seen to have been interested in havingout of home coffee due to a wide distribution. It will have an

increased effect if the distribution and the physical availability of

the coffee shops are also increased significantly.

y The companies are facing a problem with the increased cost of the

ingredient and competition from the unconventional brands.

y The difference in their performance in their recent years seems to

continue in the fiscal years 2011 and 2012 as the brands try to

regain their hold in the market and uplift their modernisation plans

for the future.

4.4 Future market

The industry has a scope for the growth in the market as trends in the

markets have become busy and the frequency of their visits have

increased significantly. The performance of women holding meeting and

having coffee out of house have given a recognised performance as

compared to recent years rather than pubs and restaurants. This is

benefiting big chains to expand and invest in small capital business

which may increase the profit and revenue with an increase in the

number of outlets in the UK (Keynote, 2009b).

5) COSTA COFFEE

5.1 At a glance

Costa had a strong and fast growth in the year 2009-10 which gave it a

very outstanding result. 312 new outlets were opened and acquired withlike for like sales inclining with the rate of 5.5% (Figure 1.5). The brand

also made its mark under the name of Coffeeheaven in Poland and

other European countries, thus contributing to its international sales with

the outlet figures reaching to 1600 in total.



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It also opened 223 new shops in 2009-10 amongst which 188 were in

the UK to expand their domestic segment in the market. Sales were on

an inclination in the matured market despite the cause of recession in

the global market.

5.2 Competitors

The Costa owned by Whitebread group is the largest brand in the coffee

shops in the UK. It accounts for 31.5% share in the 12 top operators in

the UK with respect to the outlets. The biggest competitor to the Costa is

the Starbucks which holds a 25.1% share among the top leading in the

market. Whereas, another competitors are the Café Nero which has

13.4% share of outlets in the market (Whitebread 2010).

The other brands hold 30% of the outlets in the UK and contributing to

30% of the revenue in the Coffee shop sector in the UK. The growth of

the coffee shops increased by 29.1% in the year 2008, in comparison to

mid-2000s where it was 15% despite a recessionary period.

It is identified that 9400 coffee shops presently occur in the UK out of

which 4000 are the leading brand names. The growth in the industry is

projected at 8%. There is a competitive market in which Costa leads in

terms of number of outlets, superior quality of coffee and customer service.

5.3 Facts

y Costa launched various campaigns which emphasised on the

customers¶ perception in their coffee choices. It helped to grow the

sales and had an overall impact on the figures of the company.

y The Costa also launched an electronic loyalty scheme and a

database. It gives a chance to the customer to earn loyalty pointswith every purchase. It showed a great response as over a million

cards were used by the customers since its start in March 2010.



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6) BIBLIOGRAPHY

Mintel (2009, 2010). Coffee Shops - UK - February 2009 . Available at

<http://academic.mintel.com/sinatra/oxygen_academic/search_results/show&/display/id=545197/display/id=394680> . Last accessed on 4th Dec

2011

Keynote (2009a). Coffee & Sandwich Shops Market Assessment 2009

. Available at <https://www.keynote.co.uk/market-

ntelligence/view/product/2265/coffee-%26-sandwich-

shops?highlight=coffee+shop+market&utm_source=kn.reports.search

>. Last accessed on 5th Dec 2011)

Keynote (2009b). H ot Beverages Market Assessment 2009. Available

at < https://www.keynote.co.uk/market-

intelligence/view/product/2201/hot-

beverages?highlight=coffee+shop+market&utm_source=kn.reports.se

arch> . Last accessed on 5th Dec 2011

Whitebread (2010) . Annual Report 2010 . Available at

<http://annualreport.whitbread.co.uk/our-businesses/costa.aspx> . Lastaccessed on 8th Dec 2011

Other Websites:

http://www.costa-business.co.uk/company-information/

http://www.costa-business.co.uk/



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7) APPENDICES

(Figure 1.1)



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Selected Leading Coffee-Shop Operators by Number of Outlets by

Region

(Figure 1.2)



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Leading operators in the UK coffee shop market, 2010

Outlet numbers

Costa Coffee 1,069

Starbucks Over 700

Cafe Nero Over 400

Coffee Republic 112

Cafe Piazza 75

AMT Coffee 53

Café Thorntons 38

Esquires Coffee Houses 35

Muffin Break 35

Love Coffee 18

SOHO Coffee Co 14

Caffè Fratelli 9

(Figure 1.3)



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Market size and forecast of coffee shops, at current and 2010prices, 2005-15

Total Index % £m at Index %

£m annualchange

2010prices

annualchange

2005 665 55 na 778 64 na

2006 834 68 25.4 950 78 22.2

2007 1,035 85 24.1 1,142 94 20.2

2008 1,155 95 11.6 1,223 100 7.1

2009 1,195 98 3.5 1,232 101 0.7

2010

(est)

1,218 100 1.9 1,218 100 -1.1

2011(fore)

1,269 104 4.2 1,231 101 1.0

2012(fore)

1,315 108 3.6 1,238 102 0.6

2013(fore)

1,376 113 4.7 1,257 103 1.6

2014(fore)

1,437 118 4.4 1,273 105 1.3



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2015(fore)

1,505 124 4.8 1,294 106 1.7

(Figure 1.4)

Costa 2009/10

£m

2008/09

£m

%

Change

System sales 515.7 401.9 28.3

Revenues 340.9 276.3 23.4

Like for like sales

%

5.5

Operating profit,

pre-exceptional

36.2 22.7 59.5

Operating profit,

post exceptional

35.9 22.6 58.8

(Figure 1.5)

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