Costa Coffee owner progressing with demerger plans as sales in the UK cool

● The coffee shop chain is feeling the heat from the high street slowdown

Costa Coffee owner Whitbread said it was making “good progress” in preparing for the chain to be demerged as it unveiled a dip in sales at its UK coffee business.

Releasing a trading update for its first quarter, the firm said comparable sales at Costa fell by 2 per cent in the UK in the period, dragging down group like-for-like figures at Whitbread, which were 1.3 per cent lower.

Analysts said the fall reflected the tough conditions on the high street with retailers hit by rising costs and weak consumer confidence.

Total sales at Whitbread rose 3.2 per cent, with Costa up by 4.9 per cent. The total figure factors in store openings and overseas expansion. Total sales at the group’s hotels chain, Premier Inn, were up 2.2 per cent over the quarter.

Chief executive Alison Brittain told investors: “Both the budget hotel market and the coffee market present long-term structural growth opportunities, and, whilst we are cautious of shorter-term trading conditions in the UK, due to well-publicised consumer trends, we are confident that we have the right strategies in place to enhance our UK and international market positions and ensure each business is well-positioned to thrive as a separate entity.”

The group said earlier this year that it will split the Costa chain and list it as a separate entity, following pressure from activist shareholders.

It has since emerged that Costa is being circled by a clutch of private equity firms, opening the door to a potential multi-billion-pound sale of the business.

Costa, which Whitbread acquired in 1995 from founders Sergio and Bruno Costa, has more than 2,400 outlets and is embarking on overseas expansion. Under the de-merger plan, Premier Inn would stay with the group.

It said: “Constructive early steps have been taken in preparation for the demerger and good progress continues to be made on the core infrastructure and efficiency work that was already under way.”

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “There has been some speculation that a sale might be preferred to a demerger, however weak trading conditions suggest it’s not a great time to put a price tag on Costa.” Emma-lou Montgomery at Fidelity Personal Investing said: “Another day, another warning about a lack of consumer spending. Now it seems that Brits have woken up and smelt the coffee. All those tips on how to stop frittering money away have hit home – and hit Whitbread’s bottom line.”