Coffee has its first National Coffee day today – so why is this so significant?

Coffee has evolved over many centuries from the coffee houses of the past to the coffee shops of today. It has moved from being a commoditized drink to an experience and some might argue a therapy.

It was only recently at the British Council of Shopping Centres (BCSC) event in Manchester that I sat hearing the CEO of Starbucks UK and the CEO of Walgreens Boots saying that they are both in the business of making ‘beautiful people feel good’.

Now that is quite an evolution to would you like milk and sugar in your coffee!

We have also moved on from the girl next door Nescafe adverts to a coffee machine maker, Nespresso, having a shop in some of the most expensive real estate in the world namely Regent Street in London.

As the pictures below show this is much more than about coffee capsules and more about aspiration and experience.

NespressoNespresso store Regent Street London

A long way…

So coffee has come a long way from its alleged discovery in the 9th Century by a goat herder in Ethiopia.

As many of you will know the beans are actually the pits found in the coffee berry or cherry.

The story goes that goat herder noticed their stimulating effects on his goats and began experimenting. How those stimulating effects manifested themselves with the goats I have no idea but best not to try at home with other pets, especially if you have hamsters!

Coffee in the UK

The UK, along with the rest of the world, has been through or others might still argue is going through its worst economical cycle since the Great Depression.

If you are looking for evidence of this within the coffee sector in the UK then you will not find it. In fact you will see the greatest growth in coffee outlets that this country has seen. British, Italian and American to name but three all have hundreds if not thousands of shops up and down the country.

The greatest growth in coffee outlets that this country has seen.

So how great has this growth been?

Analysis that we have done at The Local Data Company, where we make it our business to visit and record all these shops, shows the significance of what I say.

Analysis of just coffee shops and cafes (excludes delicatessens with coffee machines, petrol stations, libraries and bookshops) shows that there has been 17% net increase in the number of these outlets in the last five years.

This equates to nearly two NEW coffee shops opening EVERY DAY for the last two years. This growth is exceptional compared to nearly every other sector we track. There are now over 18,000 of these places selling a multitude of coffee varieties and coffee styles.

This equates to nearly two NEW coffee shops opening EVERY DAY for the last two years.

So if you have been in the espresso machine market then you will have had a good recession. If you are a coffee farmer then the news has not been so good and that’s before taking into account the wider impact of climate change.

The graph below from Trading Economics looking at coffee bean prices from 2010-15 illustrates this;

Screen Shot 2015-09-30 at 08.07.52

Whilst the net openings are significant the devil is in the detail of the number of openings and closures that have taken place as these coffee shops and cafes don’t just open and stay open.

The LDC chart below shows that during this five year period 24,230 coffee shops/cafes either opened or closed which is an average churn rate of 67% which is massive and well ahead of any other business type – even pawnbrokers!

Screen Shot 2015-09-30 at 08.15.29

So where has the growth happened?

No doubt any of you who are reading this in London will say it has to be where you are. I’m afraid you are wrong in your assumption as the GROWTH has been out in the regions as the LDC chart below shows. The South West and West Midlands have led the way.

Screen Shot 2015-09-30 at 08.20.57

In terms of overall presence of coffee shops then as one might expect London dominates the sector with having over 28% of all outlets and the North East with the least at 3.2%.

Screen Shot 2015-09-30 at 08.28.46

Coffee is about consumption and therefore people

So analysis of the ONS 2014 regional/national population numbers makes interesting reading.

Aside of London which has the most coffee outlets per head of population the next region, which also saw the highest growth is the South West. Although the West Midlands which has also seen significant growth is some way behind with 5,307 people per coffee outlet whilst the South West has 2,969.

Screen Shot 2015-09-30 at 08.40.57

Coffee Operators

There are a large number of coffee shop operators and increasingly we have seen niche players, be they Harris & Hoole or the Monmouth Coffee Company compete against the larger operators.

At the chain end of the market Costa dominates with over 1,600 outlets (don’t forget this analysis excludes Greggs who have over 1,600 outlets selling coffee as well as the Pret a Mangers, Eats, McDonalds and Burger Kings of the world – this is about the pure play operators).

Next in line is Starbucks with nearly 750 outlets and then Caffe Nero with over 500 outlets. There are many others with fewer outlets and these include Pumpkin, Love Coffee, Coffee #1, AMT Coffee and Soho Coffee Company to name but a very few.

The map below illustrates the significance of this growth by one just operator (Costa) as the question has gone from ‘where can I get a coffee’ to ‘where can I not get a coffee’!

Screen Shot 2015-09-30 at 08.54.26

Coffee Shops and Towns

Everyone wants to know about towns and therefore which ones have seen the greatest increase in coffee shops. The answer to that question is below. These towns have seen a net increase of more than 5 new coffee shops since 2010

  1. TOTNES +11
  2. SEAFORD +9
  3. WELLS +8
  4. STOKESLEY +6
  5. TODMORDEN +6

So is it all about growth? What about saturation and cannibalisation let alone that other high street occupiers such as the bakers and sandwich makers also have a strong coffee offer?

Analysis of the top ten cities for coffee shops shows that all is not positive in every city with some growing and some seeing a decline in their coffee shops. Whilst a number have grown their offer notably London, Liverpool and Glasgow have seen a decrease – see table below.

Screen Shot 2015-09-30 at 09.03.09

Conclusion

So in conclusion, coffee consumption or certainly outlets have increased significantly over the last five years.

Raw material costs have dropped along with rents in the UK but this is starting to change plus the movement for Fairtrade and other political and health factors will further squeeze margins for this sector going forward.

How will all of the above change in the next 5 years? No one knows but I can assure you that I and the Local Data Company team will be closely monitoring it.

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