Costa profits not so frothy Brexit-effect hits coffee chain

COSTA Coffee owner Whitbread hopes customers wanting fancier blends will help it overcome a sharp slowdown partly caused by Brexit worries.

Sales at Costa outlets open a year or more rose just 0.6% in the first half of Whitbread’s financial year from 2.3% growth a year earlier. In the second quarter of the year sales were up 0.1%.

Total first-half sales at Costa rose 9% to £622million but most growth came from opening new stores – raising concerns consumers are cutting back on coffee as incomes are squeezed. Costa’s pre-tax profit fell 10% to £59m in the first half. Whitbread chief executive Alison Brittain said trading conditions were tough for Costa in the UK amid doubts about the economy as Brexit talks stall. The higher cost of beans, caused by the falling pound, and higher wages for employees also hit its profits.

But Brittain insisted: “Despite the well known short-term economic uncertainty, our performance in the first half was good.”

Whitbread’s underlying pre-tax profit for the six months to August 31 rose 6.7% to £328m as healthy business at its Premier Inn hotel chain made up for Costa’s slowdown.

Brittain said Costa would continue to grow as coffee drinkers were moving to posher blends and fancier recipes. Whitbread said: “The UK is entering the ‘third wave’ of coffee – a period in which consumers’ preferences become more sophisticated and they are willing to spend more per cup for higher quality and innovative drinks.”

But City broker Cenkos Securities said it was “concerned” about the rate of the slowdown at Costa. The chain’s growth has helped drive Whitbread’s financial performance as British consumers have lapped up coffees on the go.

Brittain said Whitbread was monitoring the effects of Brexit on the labour market. The company employs many EU nationals at Costa stores and at its hotels and restaurants. She said if Brexit caused a shortage of workers, Whitbread would do well because she claimed the firm offered good employment terms and career prospects.

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