MP55204

MAPS : Coffee and Sandwich Shops : April 2004

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This report covers: coffee, and, sandwich, shops, grocery multiples, variety, department, stores, Cafés, restaurants, quick-service meal outlets, pubs, hotels, leisure venues, corner shops, petrol station forecourt shops, eating out, sandwich shops, Europe, France, Germany, Italy,

Companies covered include: BB's Coffee and Muffins, Café Nescafé, Caffe Nero Group, Caffè Ritazza, Coffee Republic, Costa, Madisons Coffee, Puccino's, Starbucks Coffee Company, UK, Benjys Group, Delifrance, Eat, Greggs, O'Briens Irish Sandwich Bars, Ponti's, Group, Pret a Manger, Subway Restaurants,

EXECUTIVE SUMMARY

Up until the mid-1990s, coffee and sandwich shops were essentially similar entities. However, the arrival of both US- and Italian-style branded coffee shops in the middle of the decade caused a part of the sector to differentiate itself from the traditional coffee and sandwich shops that existed in many towns and cities.

These branded coffee shop chains represent virtually the entire growth in the coffee shops market. Starbucks, the US-based international chain, and the Whitbread-owned Costa Coffee are now the largest in the UK, with Caffe Nero and Coffee Republic as two further important branded chains. The rapid growth in popularity of coffee shops in the economic bull years between 1995 and 2000 — with high-quality and high-priced coffees and patisserie items — resulted in large numbers of shop openings, mainly in Central London. By 2003, the branded coffee chain segment claimed a 28.2% share of total coffee shop outlets nationally, and a 30% share of sales value. Forecast growth is anticipated to increase this to a 39% share of outlets and a 43.6% share of sales value by 2008.

Total numbers for sandwich shops are difficult to obtain, with the sector proving more fragmented than coffee shops. The 'top ten' sandwich shop operators have only around 850 outlets, the major chains being Bakers Oven owned by Greggs bakery, the US franchise operation Subway, Pret A Manger and O'Briens Irish Sandwich Bars. In recent years, these and others have had to combat the new coffee shops with improved offerings. The pioneer of the high-quality, high-priced sandwich and takeaway food sector was Pret

A Manger, with Bakers Oven now a significant competitor.

The economic downturn since 2000, coupled with other factors such as the saturation of prime Central London locations, high rents, the high cost of shop openings and increasing competition from other retailers, have had a continuing negative effect on profits for all coffee and sandwich shop operators. Plans to improve sales per customer now include increased expansion into provincial towns and cities, which offer cheaper rental rates and less direct competition, and widened and improved offerings in terms of food and ambience. Coffee and sandwich shops are thus moving closer together again, with Coffee Republic expanding its food element and renaming itself Republic Deli and Pret A Manger opening Pret Cafés with soft furnishings and more eat-in facilities.

Coffee shops have been successfully increasing their turnovers — particularly those of the major branded chains — albeit against a backdrop of growing competition from the likes of supermarkets and variety stores, such as Marks & Spencer. However, slower future growth is forecast for the total market for sandwiches — of only 3% by volume and 3.8% by value — between 2004 and 2008, in comparison with an estimated 10.3% growth by value over this period for coffee shops.

This, however, makes a comparison between total retail sales of sandwiches through all outlets and total product sales by the coffee shop sector, since no trend figures for total product sales through sandwich shops are available separately. Supermarkets, bakers' shops, sandwich shops and cafés, variety stores, corner and convenience stores and petrol forecourt shops are all significant outlets for sandwich purchases, with sandwich shops accounting for an estimated 15.3% of sales by volume. Judging from the turnover growth at Greggs and Benjys, it is likely that sandwich sales growth through dedicated outlets is much higher than through all outlets. Key Note estimates a 7% growth in product sales through sandwich shops in 2003, down from 10% in 2002. This feature is in line with product sales growth through the branded coffee shop chains being much higher than sales growth through total coffee shops.

Economic and social trends still favour growth in the coffee and sandwich shop markets. Short lunch breaks, resulting from extra workloads among office workers, have led to a continued demand for sandwiches and other bread products, such as rolls, baguettes and submarines, whereas socialising at lunch and after work will continue to bring in business for coffee bars. Women are particular visitors to coffee bars, and women are gradually representing a larger share of the workforce. Sandwich shop customers represent a broad age group, while the younger generation tend to be the all-important customers of coffee shops.

TABLE OF CONTENTS

Text © 2004 Key Note

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Last updated by Amanda Porteous 2004