Overview of the Coffee Industry Uk

Contents

1 Market Overview - Value/Sales/Volume/Growth in recent years

2 Market Forecasts

3 Macro - environment analysis of the market

Social

Political

Technological

4 Geographical Spread of Market/ Pattern of Demand

5 Analysis of Main Competitors

Starbucks

Costa Coffee

Caffe Nero

6 Barriers to entry

7 Price sensitivity

8 Customer Profile

9 Supply

10 Conclusion

1 Market Overview - Value/Sales/Volume/Growth in recent years

The coffee industry has grown rapidly since the 1990s; before Starbucks emerged, people were used to drinking low quality coffee from tins. Starbucks introduced fresh coffee made from top quality beans that have excellent taste and drinks such as the caffe latte and cappuccino, which have helped to fuel the development of the coffee market into a multi million pound industry. The size of UK branded coffee chains have quadrupled from 1999 to 2004, with a current market turnover of over Ð'Ј1 billion.

2 Market Forecasts

The coffee market is forecast for continued growth and expansion, without threat of saturation in the near future. In 2004 the coffee market was estimated at having around 2,299 outlet units and it 2006 it is predicted that the number of units will have increased to an estimated 2,965, with the growth of the branded coffee sector predicted to increase by 11% between 2004 and 2006. Indeed, branded chain outlets have accounted for most of the coffee market growth according to forecasts by industry analysts Allegra Strategies. Allegra claims that although there are more independents than branded coffee chains, in 2005 and 2006 it is expected that more branded than independent chains will be opening. Indeed, some independents. such as Bewley's in London, have had to close down.

3 Macro - environment analysis of the market

Social

The coffee market must adapt to a change in consumer attitudes or else it may be threatened by health and lifestyle issues. In 2003 the hot drinks market declined by an estimated 2.3%. Consumers, especially young people, are becoming more health conscious which makes coffee a less attractive choice; the increasing number of alternatives available such as health and energy drinks are becoming competitors in the coffee industry. Research carried out by Mintel shows that there is an increased diversification of tea, with a trend towards premium and herbal teas. The coffee industry are responded to this change in attitude by provision of de-caf drinks, options such as soy milk, and alternative drinks such as freshly squeezed fruit juices, chai lattes and herbal teas.

People are now working harder than ever before but have more leisure time; they now use coffee shops to socialise. Allegra research claims that dwelling time in coffee shops has increased; 44.9% of consumers stay for longer than 30 minutes, compared with 38.5% in 2003.

Political

High standards relating particularly to coffee producing methods are becoming more important in the industry and may gain political prominence. There is increasing pressure for businesses to trade ethically, that is, socially, environmentally, and economically responsible.

This is reflected in the coffee industry by an increased demand and rising market value for sustainable coffees such as certified coffee and fair trade coffee, which guarantees a fair price to producers. The fair trade market which is now worth Ð'Ј100 million, is growing with developments such as Tesco's launch of their own Fair trade range. Fair trade is also a means by which the coffee shop industry can differentiate their products and gain a socially responsible reputation; Starbucks customers now have the option to buy fair trade coffee. Oxfam have claimed there is a Ð''niche' in the coffee shop market and have responded by launching their own brand of Fair trade coffee Ð''Progresso' which is sold on already established premises such as bookstores.

Technological

Consumers are less inclined to buy coffees and teas in supermarkets due to the wide variety of coffees that are available in coffee shops today. Hi-tech equipment and premium ingredients are now easily accessible and are used to make a variety of hot and cold beverages that are sold in coffee shops; from cappucinos to the ice blended coffees. As a result consumers are becoming more knowledgeable about the ranges of specialised fresh coffees and premium teas that are available, and their tastes are changing to accommodate this awareness. Allegra claims that latte's have now replaced cappuccinos as the most regularly consumed beverage in the coffee shop industry in the UK.

4 Geographical Spread of Market/ Pattern of Demand

The market has progressed from concentration in the major cities; particularly London, to penetration of the smaller towns. Allegra claims that this is due to branding. More coffee companies are focusing their marketing efforts on creating a brand name; McDonalds have created their own coffee brand Ð''Aroma'. Around 30% of the market is branded and this has steadily increased at a compound rate of 15.7% from 2000. Consumers in 2004 recognised an extra 5.1% of the major brands compared with 2003.

5 Analysis of Main Competitors

Starbucks success has boosted coffee' s reputation, attracting competitors seeking to meet the new consumer demands for freshly grounded coffee. Starbucks is the UK market leader with 430 outlets, followed by Costa Coffee, owned by Whitbread (with an estimated 330 outlets) and Caffe Nero (an estimated 200 outlets).

Starbucks

Strengths

Its success in establishing itself