Costa sales growth now ‘skinny to go’
● But Whitbread-owned coffee shop chain eyes Silk Route to China
The burgeoning coffee shop market in China is expected to double in size by 2020 and is an opportunity for UK chain Costa Coffee to become one of the strongest players there, parent group Whitbread said yesterday.
It stressed that the potential comes after Whitbread earlier this year splashed out £35 million to acquire full control of Costa’s joint venture in China, as part of the group’s plan to expand overseas as the UK coffee shop market shows signs of coming off the boil.
Chief executive Alison Brittain yesterday revealed a further slowdown in growth at Costa, with UK same-floorspace sales edging up just 0.6 per cent in the six months to end-august. That was down from growth of 2.3 per cent in the same period of 2016.
Pre-tax profit at the coffee chain, whose main rivals include Starbucks, Caffe Nero and Coffee Republic, fell nearly 10 per cent to £59m in the period, on revenue of £622m.
It was a stronger outturn in Whitbread’s Premier Inn budget hotel chain, advertised on television by come- dian Sir Lenny Henry, where like-for-like revenues lifted 3.6 per cent.
Premier Inn’s pre-tax profits jumped 26.5 per cent to £295m million as revenue passed the £1 billion milestone.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said there was “plenty of buzz around what Whitbread has to offer”, with new rooms and increased prices fuelling growth at Premier Inn.
However, he added that the group was “having to cope with a raft of cost headwinds”, from labour to the cost of coffee and business rates. Hyett said: “Having pushed through price increases itself, Whitbread will be well aware of the pressures facing the purses of UK consumers. Weaker like-for-like numbers this time round will add to worries that customers are feeling the pinch.”
Whitbread, a brewer for well over two centuries before it focused on budget hotels and coffee shops, saw overall group revenue rise 7 per cent to £1.67bn, while total statutory pre-tax profit rose by a fifth to £316m.
Brittain commented: “Our plan is based on growing in our core UK markets; focusing on structural growth opportunities for Premier Inn in Germany, Costa in China and Costa Express; and strengthening our capabilities and efficiency to deliver these attractive opportunities.”
The company said: “The coffee shop market in China is expected to more than double in size by 2020 and an opportunity exists to position Costa as the strongest challenger to the market leader.”
Whitbread said it also hoped Costa would be helped to bounce back through continuing “efficiencies” in its UK operation and cost structure, and the so-called “third wave” of coffee consumption outside the home.
It described this as a period in which “consumers’ preferences for coffee become more sophisticated and are willing to spend more per cup for higher quality and innovative drinks”.
The group added that an improved breakfast food range and a broader selection of cold drinks helped keep Costa in positive comparable sales territory at the halfway stage.
Whitbread’s shares closed down 4.8 per cent or 189p at 3,753p.
“Having pushed through price increases itself, Whitbread will be well aware of the pressures facing the purses of UK consumers.”
NICHOLAS HYETT