British coffee brands attract outside investment

As Coca Cola invests in the UK’s coffee boom, why are British brands doing so well?

A customer holds a branded Costa Coffee cup in this arranged photo outside a Costa Costa coffee shop in London, U.K., on Friday, Aug. 31, 2018. Coca-Cola Co. agreed to buy the U.K. chain Costa Coffee for 3.9 billion pounds ($5.1 billion), stepping into a battle with Nestle SA and Starbucks Corp. as it gains a global brand in hot drinks. Photographer: Simon Dawson/Bloomberg
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Whether it be an americano, latte or the increasingly popular flat white, in many UK towns and cities residents and visitors are never more than a few steps away from the coffee outlet of their choice - usually a homegrown brand.
In fact, British coffee brands are battling the Starbucks invasion at home and abroad so successfully that Coca Cola today announced its purchase of the UK's biggest coffee house, Costa Coffee for £3.9 billion (Dh18.5 bn)
The booming market for coffee shops in the country is being driven by millenials and parents of children under 16, says market intelligence agency Mintel.
"Younger Millennials are drawn to new product lines, and parents care about ethical sourcing and premium quality experiences," said Trish Caddy, Foodservice Analyst at Mintel.
"As a group, they are spreading their budget across a larger number of establishments that are selling coffee, including non-specialists that have expanded into low-cost coffee alongside their food offerings."
The UK's largest coffee chain, Costa Coffee, currently owns over 2400 stores in the country, making up 38.9% of the coffee-focused market share turnover in 2017, compared to Starbucks' 24.6%.
Other homegrown chains are also thriving in the UK market, which analyst firm Allegra forecasts will exceed 31,400 outlets and £13 billion turnover by 2022.

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Read more:

Coca Cola buys Costa Coffee from UK's Whitbread in $5.1bn deal 

Chinese coffee start-up aims to scald Starbucks

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Even brands for which coffee isn't a main focus are muscling in on the opportunity.
Up-market Pret a Manger and Newcastle-founded bakery Greggs expanded their stores and coffee offerings in 2017, with the latter increasing its market share by 2.5%.
"In recent years we have moved from a nation of tea drinkers to a nation of coffee lovers and coffee aficionados," said Chris Stemman, Executive Director of the British Coffee Association.
"Coffee culture has exploded across the UK and consumers have a breadth of choices for the coffee they enjoy drinking, both at home and on the high street."
The opportunities may be abundant, but UK coffee stores are working hard to cater to their audience, says Kubi Springer, branding expert and founder of consultancy She Builds Brands.
"Coffee brands traditionally adorned the high street, but with high street shopping declining somewhat, they are going where brand activation events can be carried out, such as the London Eye, in petrol stations, in supermarkets and more."
Costa in particular has led in this space, installing coffee vending machines in areas where a full-size store isn't possible.
Ms Springer says there is still room for improvement in the sector by marrying online and offline branding.
"Consumers need to hear, see, feel and experience the brand across multiple channels all at the same time; when businesses do this, they will enhance sales, build trust and develop better brand loyalty."
As the UK becomes the embodiment of how to foster growth and development in the coffee shop business, big brands are starting to take notice.
Experts say the Coca Cola purchase of Costa could be a move towards challenging key competitor Starbucks in the international market.
"The prize of Costa lies not in the mature UK market but in Costa's international potential," said Jonny Forsyth, Global Drinks Analyst at market intelligence agency Mintel.
"Especially in China where Costa is one of brand leader Starbucks' major competitors."
Mintel forecasts that the total Chinese coffee market (both retail and coffee houses) will increase from an estimated $10.9 billion in 2017 to $14.9 billion in 2022.
Other sectors may be wishing to bottle whatever is making British coffee shops thrive in such a crowded market. However, Ms Springer cautions brands against getting too comfortable in their positions at the top.
"Larger brands should be aware of the possibility of their market share being taken by smaller independent brands," she said.
"This can easily happen if they lose the authenticity of their brand and stop innovating. This particularly needs to be focused on as franchises increase and the brand expands and grows."