Smaller coffee chains winning as big players prioritise convenience

coffee #1
  • Costa Coffee, Blue Bottle, and Starbucks have all launched RTD and instant coffee products in recent months
  • Smaller coffee chains, such as Coffee #1 in the UK, have seen strong growth
  • Delivery apps have helped bolster sales and will become increasingly important

UK-BASED coffee shop chain, Coffee #1, looks set to take on the market’s leading players after reporting strong post-pandemic growth and sales.

Between June and October 2022, the chain saw sales hit 111% of pre-pandemic levels. In September and October, it achieved its first £1m gross sales week, with more than a quarter of a million customers served.

Coffee#1 opened its first store in 2001 and performed modestly in its first years. However, it has experienced impressive growth since selling a majority stake to The Nero Group in 2019.

It currently has more than 105 stores across the UK and recently partnered with Just Eat to offer home delivery – which has helped bolster sales.

“We’ve been thrilled by the performance of Coffee#1 over the last six months, which is a testament to the brilliant work of our store and support centre teams who have coped with the past three years so well,” said Coffee#1’s managing director, Bruce Newman.

“Coffee#1 has seen an increase in demand for take away drinks, with more than 15% of all volume now consumed off site. This is an increase of 5% compared to before the pandemic.  We’ve also seen an acceleration in the use of delivery platforms.”

The coffee chain’s strong performance comes at a time when competitors have focused efforts on revenue streams beyond the coffee shop format.

Since being acquired by The Coca-Cola Company, Costa Coffee has directed much of its attention on serving coffee via vending machines and its ready to drink (RTD) format.

Similarly, Starbucks recently struck a deal with Nestlé which saw the Swiss food giant acquire a global licence to produce Starbucks-branded retail products. These also include RTD cans and soluble instant coffee.

In the US, Blue Bottle Coffee, a specialty coffee shop chain, launched its first “craft” instant coffee last month.

“Buying habits are changing,” Destination Coffee Club founder, Brad Kellmayer, told Coffee Intelligence in October. “The convenience curve of the youth demographic is looking at changing work-life balance and the trend towards instant gratification.”

coffee #1

An opportunity for smaller chains

Covid-19 brought profound changes to coffee shop landscapes around the world.

For many, remote working has become a long-term reality, meaning footfall from commuters is still at much lower levels than it was pre-2020.

As people have looked for ways of continuing consumption at home, convenience has become front and centre. The global coffee capsule’s growth from $9.9 billion in 2021 to $12.3 billion in 2022 provides evidence for this trend.

The response from the coffee industry’s biggest players has been clear. While out-of-home sales continue to make up an important part of their businesses, the real battleground has been the retail market, from ecommerce to grocery stores.

This has only been bolstered in recent months by soaring inflationary pressure, which is expected to drive consumers to cut back on small luxuries, such as having a coffee out.

However, as the likes of Costa and Starbucks target the home market, it has opened up opportunities for smaller coffee chains to expand and steal market share.

“Post pandemic, we have seen a shift in consumer behaviour, in which customers enjoy convenience, and want to have their favourite brands and products where it suits them,” Bruce told Coffee Intelligence.

“While the business faces obvious cost pressures, our locations at the heart of the community mean we are well placed to deal with the challenges ahead, respond to the changing working patterns we see around us, and continue to grow and expand.”

Some predict that the rising cost of living could affect out-of-home coffee sales, which might make Coffee #1’s “coffee shop first” strategy seem like a risky bet.

However, Bruce believes that it’s more likely to hit the dining out sector, which could, in turn, have the reverse effect for coffee shops.

“Coffee shops afford customers an accessible and great value social occasion,” he says. “ With the cost of dining out increasing significantly, we expect coffee shops to be a lower cost alternative for many.”