Is the growth of the coffee sector just a quick fix?

MaryLou Costa

Today you can get a decent cup of coffee just about anywhere, from M&S to McDonalds – brand names that five years ago you would never have put alongside vocabulary like latte, grande or macchiato.

But according to research consultancy Allegra, whose insights on the coffee sector were the focus of our trends feature last week, non-coffee brands such as M&S and even Wetherspoons are increasingly fastening their grip on this space.

This isn’t surprising, as like the “lipstick effect” concept which is used as a common barometer for economic times (ie linking rising sales of small luxury items to times of financial difficulty), the “coffee effect” can be another way of summing up the state of the British high street today.

As traditional retail stores continue to disappear from the high street, their vacant slots are being filled by fast growing coffee chains such as Costa and Caffe Nero, as well as new “mini-chains” such as Gail’s Bakery. It’s a sign of the times – consumers can’t afford to shop, and when they can, they’re shopping online. But they still want somewhere convenient to meet friends, and that’s where the coffee shop comes in to the equation.

You’d think that people would be seeking out independent coffee stores, but Allegra’s report shows this not to be the case. Price is the reason – the stats show that people are spending less when they visit coffee shops compared with three years ago, as they are buying less food items.

Cafes must then manage a precarious financial balance, as even though consumers are spending less, brands are offering more in terms of quality environments, trained staff, and extras such as wi-fi and childcare zones. How long can this go on for before the high street comes down off its caffeine fix?

Coffee’s saving grace is that it can’t be bought online. Of course it can be made at home, but your friends obviously don’t live at home with you, so its social nature is another redeeming quality. Coffee is therefore an easy addition to an existing retail environment.

But with the market being saturated by all and sundry that can get hold of good coffee beans and machines, surely the caffeine fix is due to wear off soon.

Maybe not though. I think there is an opportunity for a high end coffee retail experience aimed at a demographic I wrote about recently – wealthy consumers. Such an offering could feature gourmet coffee tasting and be linked to luxury travel destinations that have a coffee growing element to them.

Whatever the case, coffee brands will need to watch their margins, and instead of giving more for nothing, look to charge a premium on goods and services that can be justified.

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