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Costa Coffee United States

Costa Coffee’s Managing Director of Asia tells GCR Magazine about ambitious expansion plans in the world's most sought-after market.

Patience may not be a word one would immediately associate with Costa Coffee. The company’s track record for growth has quickly propelled it to become the second largest coffee chain in the world.

However, it’s a strategy the United Kingdom-based company hopes will help it reach an ambitious set of goals for expansion in a fellow tea-drinking nation.

Costa announced plans to nearly triple its locations in China to 900 stores by 2020, after reporting impressive corporate sales growth of 17.9 per cent to US$1.45 billion as of the financial year to 26 February.

It also aims to increase stores in the UK from 1931 to 2500, and double the Costa Enterprises business in the same period, which includes self-serve coffee bars, both in the UK and internationally.

While the Whitbread-owned coffee chain has already been in China several years with mixed success, Costa Managing Director of Asia Esteban Liang tells GCR Magazine that perseverance will be key to achieving its goals.

“We are here for the long term, ” he says. “I think it’s important when you are talking about the Chinese market.”

But while the chain is optimistic about growth in a market brimming with potential, experts and analysts are divided on how quickly it will see a return on investment.

Changing the fabric of society

A lot has changed in the coffee industry since Costa was created in London in 1971 by two brothers, Sérgio and Bruno Costa, who sold their specialty blend to a handful of caterers.

From the time they opened their first shop, the company has swiftly become the largest and fastest-growing coffee chain in what is now one of the most successful sectors in the UK economy.

According to Allegra Strategies, which produces detailed research on the coffee market, Costa has 46.5 per cent of Britain’s coffee shop market. United States-owned Starbucks Coffee Company is its closest competitor in the country, claiming a relatively meagre 27 per cent. Costa’s home-grown success is evidence of a new trend changing the way a nation of tea drinkers has come to drink coffee.

But Britons aren’t actually drinking more coffee. In fact, consumption levels today are lower than they were in 2006.

At 2.8 kilograms per head, its consumption is a fraction of Germany at 7 kilograms, Sweden at 7.1 kilograms, and France at 5.5 kilograms.

According Jeffrey Young, Managing Director of Allegra Strategies, there are several reasons the coffee shop industry is thriving in the UK.

“It’s very much replacement of instant coffee and an increase of coffee instances out of home, which is driven by more outlets, ” he tells GCR Magazine. “Also the environments are much more inviting … spaces that people want to spend more time in.”

The growing popularity of cafés is quickly replacing pubs as choice venues for social gatherings, and Young believes the UK market is far from saturated. With sales growth of approximately 10 per cent per year, both in terms of coffee shops and express locations, he says Costa is well positioned for success.

“Costa is outperforming the UK market, ” he says. “It’s growing faster than everyone else.”

Other analysts, however, were more reserved in their optimism about the company’s expansion efforts. Panmure Gordon Analyst Anna Barnfather agrees that while there is plenty room for potential, the number of competitors stepping up their game in the UK may pose a future threat to success.

“We are concerned about the rate of growth because the competition is stepping up, ” she says. She explains that Starbucks is gaining momentum in the UK, and Caffè Nero also has an ambitious growth plan.

Scratching the surface of opportunity

The UK isn’t the only tea-drinking nation in the midst of a café revolution.

The International Coffee Organisation (ICO) estimates coffee consumption in China was approximately 1.9 million bags in 2013-14, and has been growing at some 15 per cent annually over the past 10 years.

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