Judging by the number of bakery suppliers working the room at the UK Coffee Leader Summit 2009 two weeks ago, you could easily imagine 2010’s event being rebranded the UK Coffee & Bakery Bandwagon Jumpers’ Summit. And why not? With the branded coffee sector set to grow by at least another 1,000 outlets before it gets anywhere near saturation, who can blame them?

Starbucks’ UK and Ireland supremo Darcy Willson-Rymer told BB that while the coffee giant was "primarily a coffee shop ser-ving great food," food and bakery was a key development area for the coffee chains. And, with the likes of food-focused Bakers Oven, Pret A Manger, EAT and O’Brien’s classed among them, people will increasingly have to squint to distinguish what is and is not a coffee shop.

"We’re going to continue to innovate and food is an important part of our business," said Willson-Rymer, adding that the menu would continue to be reshaped to allow for healthier choices. "Health and wellness is a trend we’re seeing a lot of interest in. We recently did a big piece of work taking out trans fats, reducing salt, working in conjunction with the Food Standards Agency (FSA) and making a commitment around calories."

As such, Starbucks is now weighing up whether to include calorie counts on menu boards, following a pilot initiative from the FSA to give consumers more calorie information at the point of purchase, he revealed. "We’re looking at it and I don’t think it’s anything to be worried about," he said. "First of all, Starbucks has a lot of options with low-fat milk, 2%, full-fat, and I think that if we publish calorie counts, we’re giving customers information to decide whether to buy one product in favour of another.

"We have to be nimble and prepared to adapt," he explained. "Customers will always want ’indulgence’ as well as ’healthy’. You have to be able to offer both. The notion that Starbucks will be all of one or all of another isn’t appropriate to us."

The view that coffee and sandwich shops, bakeries and patisseries, would be battling for the same ground over food was put forward by Jeffrey Young, MD of market analyst Allegra Strategies. "Branded coffee outlets are going to look a lot more like food outlets over time," he said. "The markets are going to get blurrier. We think a strong food offer throughout coffee shops will be essential and there will be a greater influence through this on healthy eating."

He also warned the recession would have "a long-lasting impact on value expectations". That was well illustrated by the premium-positioned sandwich chain Pret A Manger, which recently battled to ’unposh’ its brand as the economy nose-dived, with a 99p filter coffee launched in regional and two London shops.

"This is not just a reaction to the credit crunch," said Rebecca Hemsley, head of coffee at Pret, acknowledging that the firm’s management wanted to extend a hand to hard-pressed customers. "This is a long-term strategy to have a 99p coffee. We were concerned that we were perhaps being too posh for some people. Particularly in the regions, the feedback was that we ’looked a little bit expensive’. Having a 99p coffee helps people understand that, at Pret, it is possible to get good quality and good value."

The key to the product’s success was not cutting corners with cheaper coffee - Pret uses the coffee it has always used, she said. "It’s quite early days for us, but in the regional shops it’s doing a positive thing, because we have to build up customer loyalty outside London. If all the 99p coffee does is get people through the door, because they know they can afford to buy at least one product, it serves us well."

Indeed, Pret’s ’all below £2.50’ sandwich campaign was held up as exemplary for a premium price promotion. "They’re saying, ’that’s the most you’re going to pay’. That’s how premium brands try not to distract from their core values and don’t get dragged down into a cycle of discounting," said Gary McCann, sales and marketing manager of Beyond the Bean. Similarly, Starbucks calls its offers ’pairings’ to improve the perception of meal deals.

Preserving the premium feel of branded coffee shops is certainly key to the sector’s growth, with turnover predicted to rise by a storming £0.5bn in the next three years alone. Not only that, but a new generation of stylised, quality-obsessed independents is springing up in the UK, having migrated from Melbourne and Wellington - the Antipodean cities widely considered to be the ’ground zero’ of modern coffee culture. One of them, Matthew Clark, co-owner of five-outlet Sacred in London, said: "When we opened, the UK was five to six years behind Wellington. I expect it to catch up within a year."


=== Riding the recession: Insomnia Coffee, Dublin ===

Are operators risking a downward spiral of discounting to entice recession-hit customers? And how easy is it to pull the plug when muffin sales on price promotion go through the roof?

Gary McCann, sales and marketing manager of Beyond the Bean, observed 50+ outlet Irish coffee chain Insomnia responding last summer to falling transaction value, business and footfall with a value offer: any sandwich plus any coffee for E5. This was a huge success due to its simplicity; no terms and conditions applied and the only restriction was ’no panini’. Those people who bought coffee in the morning began buying a sandwich, where previously they hadn’t. Wastage went down, sales went up, and Insomnia dragged in a lot of new consumers.

"So then what happens? Everybody copies it," said McCann, who saw a glut of copycat promotions springing up in Dublin. "And like every promotion, the date comes where it has to stop. But everyone who has ever run a hugely successful promotion will think ’what will happen to our sales when it stops?’"

Rather than retreat, Insomnia extended its promotions, offering ’any coffee plus any muffin for E3’, which sparked a sevenfold increase in muffin sales, and any panini plus any coffee for E6. The danger, warned McCann, was a risk of long-term margin loss, although short-term use can introduce new customers to your brand.

"Does it spiral? When all this discounting stops, where are we going to be?" he asked. "Marks & Spencer’s £2 meal deal drove a huge amount of sales, but they pulled it two weeks ago. Sooner or later, all good things come to an end."


=== UK branded coffee shops: a snapshot ===

* 3,790 branded coffee outlets (including food-focused operators such as Pret A Manger, Eat and O’Briens) in the UK

* This is predicted to break 4,000 within 12 months and 5,000 before it hits saturation

* 124 outlets were added in the past six months

* Estimated market turnover of £1.6bn in 2009 (and a £2.1bn market predicted by 2012)

* Stronger food offer and greater influence of healthy eating seen as major opportunity

Source: Allegra Strategies UK Coffee Shop Market Update, May 2009