Yahoo Finance Coffee Wars: Inside the race to become London’s number one chain
Coffee has played a vital role in reviving Brits for centuries. Despite feeling like a relatively new phenomenon, the first record of a coffee house in England dates back to 1652 and was said to be opened by a Turkish Man named Jacob in Oxfordshire.
In the same year, London also welcomed its first coffee shop, launched by a Greek man called Pasqua Rosee at St Michael’s Alley, Cornhill. Historians have argued that the coffee of this time period was not very palatable. However, its energising effect was enough to get the public hooked.
These ancient coffee houses also played a vital role in forming some of the capital’s most iconic businesses.
The London Stock Exchange had its beginnings at Jonathan’s Coffee House where the City’s forefathers would meet and set commodity prices. Insurer Lloyds also had its origins in Lloyd’s Coffee House on Lombard Street.
‘It’s part of the fabric of society now, it’s not going away’
Fast forward to the 21st century, and coffee is now a multi-million pound industry in the UK. There are currently over 10,199 branded coffee shops open across Britain, and it is expected the figure will outpace the number of pubs by 2030.
Jeffrey Young, founder and chief executive of Allegra, a business insight firm following coffee trends, told City A.M. consumer demand for high quality coffee seems to be “ever increasing”.
“[Coffee Shops] are part of the fabric of society now. It’s not going away,” he said.
It has been forecast the total branded coffee shop market will exceed 10,500 outlets by January 2025, and more than 11,600 by January 2029.
Research by Allegra found the branded coffee industry grew 9.2 per cent in the 12 months to January and is now worth a whopping £5.3bn.
Today’s market is dominated by three major players, Costa Coffee, Greggs and Starbucks. The latter pair were responsible for 73 per cent of the 353 stores added to market in that time period.
However, Costa Coffee remains the UK’s largest branded coffee chain, holding a 26 per cent share of the market with 2,677 stores, having closed a total of 17 sites over the last year.
Alex Chatterton, an analyst at Panmure Gordon said the “price point” is what makes coffee shops such an attractive business model.
“At Gregg’s you can get a breakfast for three pounds compared to say, a meal in Wagamama or something like that, where you’re paying £15 pounds,” he said.
But Chatteron said competition in the market remains fierce as more and more businesses battle it out to become the number one coffee spot.
High street hero Pret A Manger, which now has close to 500 sites across the whole of the UK, has been regarded as one of the most successful coffee chains in the last decade.
Its decision to launch a subscription service, charging £30 a month for five free hot drinks a day and 20 per cent off food, was an overnight success and is used by over 1.25 million customers every week.
However the company cracked down on subscribers sharing memberships to save costs and in recent years has faced backlash on social media for its pricey cheese and pickle baguettes and lacklustre brews.
Chatterton, said yummy-mummy favourite Gail’s is taking some of the market share away from Pret, given they both run at a similar price point.
Gail’s, which is chaired by hospitality juggernaut Luke Johnson, has grown rapidly in recent years. It has just 100 stores across the UK, with plans to open around 35 more this year.
“I would say they are taking share away from Pret, given the price points. Gails looks to be the big disrupter within the coffee shop market,” Chesterton said.
“Very few people are going to be the next Starbucks, if any at all,” Young added.
“The one thing that’s happening is we’re gonna get more [of these] branded chains. These chains are getting tighter, smarter, more automated and they’re able to survive.”
Starbucks has already outlined a pipeline of 100 new stores across the UK this year, after it launched a similar scheme the year before. It currently has 1,100 sites across the UK.
Market share of UK coffee shops as of January 2024
Pret – 463 outlets / 4.5 per cent
Cafe Nero – 616 outlets / 6 per cent
Starbucks – 1,266 outlets / 12.4 per cent
Greggs – 2,474 outlets / 24.3 per cent
A changing landscape
To remain attractive to customers brands are ramping up their food offering and also opening in locations other than the high street, such as drive- thru sites.
Costa, Starbucks and Tim Hortons all grew their drive-thru presence over the last 12 months to collectively hold a 93 per cent share of the 801-site UK drive-thru coffee market.
Roughly a third of Starbucks sales come from drive-thru transactions, as the method continues to prove popular with customers.
It is a market steak bake maker Greggs has been keen to tap into. The business currently has 17 sites across the UK, after launching in Manchester back in 2017, and plans to open a further eight to 10 locations over the next year.
Tony Rowson, property director at Greggs, told City A.M.: “Drive-thrus are a key part of our ongoing expansion strategy throughout the UK.
“These sites enable us to cater to diverse customer preferences, whether they prefer the convenience of staying in their vehicles, walking into our shops, or ordering from home through one of our delivery partners.”
He added: “Our objective is to make our great value, tasty, and high-quality products accessible to a broader audience, and drive-thrus play a crucial role in achieving this goal.”
“We’re delighted to have reached a key milestone in our drive-thru expansion strategy with the recent opening of our 30th drive-thru site, and we foresee numerous opportunities to further extend our footprint with this format across the UK”
Greggs, which has over 2,474 stores across the UK is one of the most successful cafe brands across England.
Analysts at Panmure Gordon previously estimated almost £2 of every £100 spent in UK hospitality is going to Greggs – up from previous figure of £1.60.
“We assumed that Greggs’ market share of the total-food-to-go sector was c.6 per cent in 2021. We believe Greggs can double its market share from this by 2026/2027,” a note read.
The no-frills bakery chain also has plans to open between 140 and 160 net sites this year.
Sales across its 2,000 stores were up 13.7 per cent in the full year which the business credited to partnerships with Uber Eats and late night trading.
Price increases
The coffee market has remained resilient despite a downturn in the wider hospitality sector.
Pubs and restaurants have been among the hardest businesses hit by the cost of living crisis, as the public scales back on night out on the town or a fancy meal.
However, small luxuries such as a cappuccino have appeared to remain in demand, this is despite coffee prices having doubled in the last few years. The average cost of coffee now costs £3.51, up 8.7 per cent in the last year.
Young said punters can probably expect to see further increases in the coming years due to changes in the national living wage and pressures on the coffee trade.
He said: “Coffee is not the only component in a coffee shop costs, you’ve got electricity and gas price rises.
“Prices will probably need to go up a little bit to sustain the livelihoods of the businesses and the coffee farmers.”
