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UK coffee chains achieve £1.3bn sales rebound as outlets exceed pre-Covid levels

Project Café UK 2022 reveals the UK's £4.4bn ($6bn) branded coffee shop market grew 43% over the last 12 months to regain 87% of pre-pandemic market value with outlet numbers now exceeding 2019 levels. 

However, the planned VAT rise, new Covid-19 variants and ongoing staff shortages represent significant market headwinds in the year ahead and could damage the recovery for those operators unable to adapt to tough market realities

The UK branded coffee shop market has recovered to pre-pandemic outlet levels over the last 12 months

  • £4.4bn UK branded coffee shop market recovers to 87% of pre-pandemic value, achieving a better-than-anticipated £1.3bn sales rebound in 2021
  • UK market recovers to pre-pandemic levels in terms of outlets, growing 3.5% to reach 9,540 stores
  • New Covid-19 variants, the planned reinstatement of VAT to 20%, inflation and severe staff shortages represent significant short-to-medium term challenges for the industry
  • World Coffee Portal forecasts the UK branded coffee shop market will surpass pre-pandemic sales by the end of 2023 and reach £5.8bn over the next 5 years at 5.8% CAGR
  • UK market will exceed 10,500 outlets by the end of 2026, displaying five-year outlet growth of 2.1% CAGR​

£4.4bn UK branded coffee shop market achieves £1.3bn sales rebound in 2021

Following extremely difficult trading in 2020 and sustained uncertainty in 2021, UK coffee chains achieved a remarkable £1.3bn sales rebound in 2021, representing 43% growth over the last 12 months.
The total UK branded coffee chain market is now valued at £4.4bn having recovered to around 87% of its pre-pandemic value. Meanwhile, the number of outlets has surpassed 2019 levels, growing 3.5% to reach 9,540 stores. Market leaders Costa Coffee, Greggs and Starbucks now operate  2,672, 2,176 and 1,089 outlets respectively.
Most operators have achieved year-on-year growth, with 55% experiencing a sales uplift of more than 5%​. Industry leaders are also more optimistic, with 56% indicating the current trading environment is positive, up from just 15% in the year previous. 75% surveyed expect trading conditions to improve over the next 12 months.

Covid-19, VAT, inflation, and staff shortages remain significant near-term challenges

After a summer of relative trading normality in 2021, the Omicron variant highlighted the unpredictable nature of the pandemic, with the possibility of new Covid-19 waves looming over hospitality businesses in 2022. Nevertheless, just 16% of industry leaders surveyed believe Covid-19 will have a long-term negative impact on out-of-home coffee demand, down from 33% in 2020.
The planned reinstatement of VAT from 12.5% to 20% in April 2022, the rising cost of living, higher import costs, supply chain disruption and squeezed consumer income could further erode already thin sales margins for UK coffee shops in the year ahead.
Meanwhile, a severe shortage of hospitality staff driven by the pandemic and exacerbated by the curtailment of European workers after Brexit presents another significant headwind for UK coffee shops. Just 6% of industry leaders surveyed feel more confident about Brexit and its impact on the hospitality industry than 12 months ago.
In the longer-term, these factors could compel operators to raise prices, with further store closures and redundancies a very real possibility in 2022.

Many operators have invested in delivery and digital sales technology to diversify store portfolios and bolster sales

Operators invest in drive thru, digital sales and delivery

UK branded coffee chains continue to diversify store portfolios and sales propositions in the wake of the pandemic, with drive-thru, smaller format coffee shops, neighbourhood locations and delivery all becoming more prevalent.
The UK drive-thru market now comprises 578 stores, with market leader Costa Coffee adding 75 locations since 2020 for a total of 275. Starbucks operates 270 sites and Leon opened its first drive-thru store in 2021. Highlighting the commercial potential of the format, 57% of UK consumers surveyed say they would purchase beverages from a drive-thru if the facility were more readily available.
Meanwhile, digital sales including loyalty schemes, click & collect, and beverage delivery are also on the ascendence in the UK. 70% of UK consumers surveyed have downloaded a coffee shop loyalty app, with 35% indicating they have purchased a beverage to collect from a coffee shop over the last 12 months.
While a growing number of operators are investing in beverage delivery, challenges surrounding spillage, temperature and cost remain. Nevertheless, while just 16% of consumers surveyed have ordered beverage for delivery over the last 12 months, nearly a quarter (24%) would consider trying the service if it were more readily available.

The future remains bright for UK coffee shops

Coffee shops continue to be an intrinsic part of communities and daily routines across the UK. Meanwhile, sustained consumer interest in higher quality at-home coffee and premium equipment looks set to elevate standards across the market.
World Coffee Portal anticipates this focus on quality will encourage further scaling of boutique concepts, with 5th Wave coffee shops finding new audiences among increasingly savvy and coffee-loving consumers.
Looking ahead, World Coffee Portal forecasts that UK branded coffee chain store sales will exceed £4.9bn over the next 12 months, and £5.8bn by 2026, representing 5.8% CAGR growth​.
The market will exceed 10,500 outlets by the end of 2026, displaying five-year growth of 2.1% CAGR​.
The coffee-focused segment is predicted to grow at 2% CAGR over the next five years to exceed 6,200 outlets, while the food-focused segment is anticipated to grow at 2.3% CAGR to exceed 4,300 outlets​.
Commenting on the report findings, Allegra Group Founder and CEO, Jeffrey Young said:
“I am heartened to see the UK coffee shop market proving so resilient in times of incredibly difficult trading, with store numbers exceeding pre-pandemic levels and sales estimated at just under 90% of 2019 trading.
“Throughout the pandemic we’ve seen coffee venues playing a vital role in the lives of British consumers and communities across the country, which should provide much optimism for the next decade of trading.
“However, the current climate is not without its risks or uncertainty. Record inflation is placing further pressure on consumers’ disposable income, with chronic staff shortages and the risk of VAT returning to 20% causing potentially devastating effects for the UK coffee shop market, and indeed the entire hospitality industry.”

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