Coffee Chains

Coffee Chains

Coffee Chains are a fascinating phenomenon. Many people visit every day to buy the same experience. The chain’s job is to be the same but quietly introduce new opportunities for customers to experience, seasonally. I am guessing this is where the new shiny fashionable item brings more people in and renews interest for the regulars. It is like the supermarket of coffee drinks, where you can take the product to work with you and consume it, whilst wishing you weren’t there. Maybe that’s harsh, this could be your 2nd place, the one after home, where you can order any drink you like, the environment is warm, cosy. Someone cleans your table, does the washing up, and you feel relaxed. What’s that called now? “Me time”. This hasn’t got a price. I won’t go on here, but I do know that coffee quality is not the most important element in a coffee shop. In the UK, Coffee shop businesses have exploded over the last 20 years. To give you an idea of the Top Chains, they are below:

• Costa Coffee (Formerly Whitbread, now Coca-Cola and who next?)
• Greggs
• Starbucks
• Caffe Nero
• Pret A Manger

I would suggest that these chains have something in common, which is that they have been around long enough to have a broad tribe. What I mean by this is that before Brexit, AI and the world of algorithms it was a simpler existence and less fragmented. If your corporate dream was to open a bunch of coffee shops in 2010-2016, it would have been easier than today. Money, labour, rent and coffee were all less expensive. How could you advertise to 70 million people in one go now?

When Whitbread sold Costa, I was quite surprised. Coca-Cola bought/acquired Costa Coffee for £3.9 billion in 2018/9. This is £1.4 million per coffee shop. This is the asking price 7 years later, as it is now up for sale again. From my perspective, they bought the business on calm seas with an interest at 0.5% interest. If you kept the same management team in place and didn’t change anything… you almost couldn’t lose!

Why am I writing this at all? This may be the opening of the door to Luckin Coffee. You may have seen in my Rwanda write-up, there was a “possible” reason why coffee prices increased so much at the end of 2024. The $1.4 billion, 5-year contract.

Now for the part that I am buzzing about. I can’t wait to hear your thoughts! If you are on the High Street and want a coffee, are we going to buy it from a Chinese-owned Costa Coffee? Of course, “we” are. Here’s a thing: they may be cheaper and possibly better than what is there now, and there are already 2700 sites in the UK and Ireland, with a further 1700 elsewhere. Although it is £3.9 billion, it is a gift in some respects. For a start, each coffee shop is now valued at £975,000, which is 33% less than before. I know the shops are not the actual value, but it is a relative perspective, even if they are franchise-based. This is a ready-made coffee business on a national scale. Costa was voted the nation’s favourite for 15 years. You could compare it to Marmite as a brand, which you would struggle to get the coverage with today. HP (Houses of Parliament), Sauce and Worcestershire sauce, and Cadbury’s are long-established British brands that were sold off to large American companies. I read that this week, the last descendant of the Cadbury family sold their shares.  What I am trying to say is that it took 20 years to build Costa, and if you had enough money, you could be all over the UK in no time. If you wanted to be the biggest coffee company in the world, you could keep on buying strategic chains across the world. If managed properly, they would all pay for themselves as you mushroomed your empire. Is it just me seeing this?

The Western world is a bit obsessed with cheap, and that’s why Temu is the fastest-growing business, apart from Amazon.

I like to think that the outlook for independent cafes will be okay if they are community-based or in the right place!

Times are changing so fast. Just as I was finishing this post, which started off being about chain coffee shops, the news changed this post. It’s almost like we are aligned with another force! Luckin Coffee have applied to relist on the NY stock exchange. Last time, there were alleged financial irregularities related to the overvaluation of stock. Starbucks is restructuring, following the sale of its Chinese business. Investors want growth and money, not an investment in sentiment. The US is going to be a new battleground in coffee retail, but if Luckin buy Costa, the UK will be too. I am already looking forward to McDonald’s next coffee advertisement. Their biggest competitor used to be too cool and overpriced hipsters, all wearing beanies, or so they pretended.If these changes go ahead, the question will be (a little bit like) where we started the post.