Coffee market splits Europe and America

The UK coffee market appears to be splitting in two, with coffee drinkers either going for the European, through Caffe Nero, or the US, through Starbucks, said Caffe Nero, as it posted a full-year pre-tax profit today.

The chain, which now has 131 stores in 42 UK towns and cities, said like-for-like sales had risen by 4%, and pre-tax profits for the year to the end of May had come in at £1m, compared with a £2.3m loss at the same point last year. Turnover rose by 48% to £39.4m.

Chairman and chief executive Gerry Ford said the results were the chain's sixth year of consecutive growth and, by moving into profit, marked a watershed for the group.

The portfolio of stores should increase to 160 by May next year, he added.

"Three brands now stand out among the rest as the dominant players: Caffe Nero, Starbucks and Costa Coffee. These three represent 58% of the UK branded market," he explained.

"The two players growing market share the fastest are Caffe Nero and Starbucks, which may reflect that the UK retail coffee market seems to have divided into two segments: a European offering and a North American offering - with Caffe Nero rated the highest by consumers on the European side and Starbucks the highest on the North American side," he added.

During the year, the chain opened 18 sites and sold five ex-Aroma outlets. "This was a slower roll-out schedule than originally anticipated, held in check by the prospect of acquiring Coffee Republic," said Ford.

However, a decision in late 2002 not to buy Coffee Republic, at least in the short term, put the opening schedule back on track.

The strategy for openings was now to build up clusters of sites in larger urban areas while targeting smaller, regional towns.

During the first quarter of the new financial year, sales were up by about 20% and "single-digit positive" on a like-for-like basis.

Ten new stores had been opened in the first 15 weeks of the year, including those in Canary Wharf and Highgate in London, in Selfridges in Birmingham, and in Winchester, Maidstone, Glasgow Airport and Watford.

In addition, three Coffee Republic sites, two in London and one in Leeds, had also been bought and would be rebranded to Caffe Nero.

A seventh airport site at Gatwick is due to start trading in November, and three sites in Preston, Bournemouth and at Tower Bridge in London, are under construction.

On the management side, managing director Chris Reeve announced his resignation yesterday "to pursue other interests" after three years with the company.

by Nic Paton