In a classic moment in satirical cartoon The Simpsons some years ago, Bart walks into a typical shopping mall, walking past a couple of Starbucks coffee houses and into a shop:

Sales clerk: “Can I help you?”

Bart: “I’d like to get my ears pierced.”

Sales clerk: “Better make it quick, kiddo, in five minutes this place is becoming a Starbucks!”

As he walks out, the store front has changed to Starbucks, along with every other unit in the mall.

Starbucks set the standard for rapacious growth among the coffee shop chains. But with the branded retailers reaching saturation, food is now seen as key to their expansion plans, with bakery and related products making up the bulk of the edible offering.

Of the big three, UK-born Caffé Nero has taken the initiative and was rated number one in a consumer food quality survey last year (followed by Starbucks and Costa Coffee respectively). “A real passion for baking has helped drive quality right through our entire food range and our customers recognise that,” comments Caffé Nero commercial director Paul Ettinger. “We’re a very important outlet for baked goods. Judging by the number of phone calls I take every week, we’re now being taken seriously.”

In the UK alone the branded retail coffee sector is estimated to grow from £630m in 2004 to over £1bn in 2007, with the multiples taking market share from the independents. The total coffee bar sector is now a £2.2bn business, growing by between 10-15% a year. Somewhere between a third and a quarter of that is food sales – and that’s a lot of muffins.

Caffé Nero’s own market share is being clawed in at some 1% a year, but in a very competitive environment that growth “hasn’t been easy”, says Ettinger. But an emphasis on its bakery offering has paid off. “Although coffee is a priority for our brand, we’ve always believed that food is important,” he states. “The Caffé Nero model has worked throughout the UK. Baked products are absolutely critical to our success.”

The chain makes more from its food sales than some of its rivals, at about 33% of turnover compared with the average coffee bar at some 25%. Its bakery sales are sizeable, with around 120,000 muffins and pastries sold each week across its 265 stores, 44% of which are muffins.

Starting out with five coffee bars in London in 1997, it now pulls in 600,000 customers a week, with a weekly turnover above £2m. Early on it decided simply to sell grilled paninis, but the range soon expanded. “We swore we would never sell wedge sandwiches. We now sell quite a lot of them! Times change.” In fact, the sandwich range, is the backbone of the food offering, making up 44% of total food sales, and paninis represent over two-thirds of that.

Outside of London, products are baked off in-store – something Ettinger believes is crucial to harnessing the breakfast trade. “Absolutely fresh product baked off an hour before will be a new experience to many people and will be well appreciated.” Supplying the London outlets has proved more tricky, with the cost of retail space proving prohibitive for bake-off set-ups. It took seven years to develop an effective distribution system, from a central bakery in south west London.

“In London we’ve had massive headaches trying to get fresh Viennoiserie into all of the shops. But now I think we have a product which is recognised as being better than our competitors.”

French imports

Having formerly been supplied by Delice de France, it now imports pastries frozen from France. “Bread and baking is a subject very close to my heart,” says Ettinger. “We have gone through a number of supplier changes over time but we have always bought French Viennoiserie. Ultimately the real quality products come from France, we‘ve found, but I think that‘s changing. The supplier base is improving all the time. We’re seeing lots more interesting suppliers coming to us with interesting ideas, whereas seven years ago it was very hard to find top quality bread.”

And there north-south regional divide is no longer, with nearly all baked products launched throughout the country; the British market is becoming more sophisticated and homogenous, he comments. “People’s tastes are developing remarkably quickly. We sell a fairly standard range of Viennoiserie in terms of croissants, pains aux chocolats and pains aux raisins. But we’ve found that, whereas five, six, seven years ago it was very difficult to sell quality croissant outside of London, our Viennoiserie are now appreciated throughout the country.”

One aim has been to “move people up the value added chain” over the past seven years, and Ettinger says Caffé Nero has never sold ‘cheap’ sandwiches. “We have fabulous focaccia baked by an Italian baker with the best flour, extra virgin olive oil and fresh rosemary – it’s an absolutely wonderful product, which we sell for £3.95. All of my colleagues said I was absolutely mad when we were developing it. It now accounts for about 10% of our sandwich sales,” he explains.

Brand building

Although not one of the big sellers, the value of the brand is set by this type of product. “Our customers might walk into a Caffé Nero and see this fabulous focaccia, then they’ll probably pick a chicken sandwich, But they’ll recognise that we’ve done something different, and maybe a week later they’ll come back and treat themselves.” And consistency is also critical for brand building; a blueberry muffin must be the same in Heathrow Terminal Two as it is in Perth.

Organic ingredients are used for some products “because of taste, not because of demand for organic”, while the chain is not overburdened with products pandering to fad diets, preferring instead to focus on taste.

When it comes to developing products, interesting flavours are proving popular due to “imported tastes”; more and more people are asking for onion bread and black olive bread – but the point still exists where consumers will go to, and not beyond, he believes.

Changing the name of a product can mean the difference between success and failure.

“We have found that the English market is very conservative in terms of what people are prepared to buy. If you go too far towards the unusual then you won’t succeed.

“We’ve developed a melted Gorgonzola panini – a wonderful product to eat; but if we call it ‘Gorgonzola and whatever’, we can’t sell it. As soon as we changed the name to ‘blue cheese’ we suddenly started selling very large volumes.”

And it is the volume of products passing through Caffé Nero which will no doubt turn a few suppliers’ heads. Its rapid growth means it can open one new store every seven to 10 days, sales grew from £50m in 2004 to £70m in 2005 and the number of outlets is predicted to hit between 500-600 over the next five years. “A lot of people see us as the new McDonalds,” says Ettinger. “They’re coming to us instead of them – and long may that continue.”

CAFE NERO AT A GLANCE

Stores: 265

Food sales % of turnover: 33%

Bakery sales: 120,000 muffins and pastries per week

Number of customers: 600,000 per week

Turnover in 2005: £70m

Weekly turnover: Over £2m

Products include: Croissants, pains aux raisins, pains aux chocolats, focaccia with extra virgin olive oil and rosemary, melted Gorgonzola panini

Growth plans: To open one store every seven to 10 days, reaching

500-600 within five years

A BOOMING SANDWICH TRADE IN COFFEE SHOPS

Sales of sandwiches through foodservice outlets are showing unprecedented growth in the UK – a key reason being the rise in the number of cafés and coffee shops, a report says.

In 2005, sales of sandwiches through impulse channels, including foodservice outlets, rose by 13.7% to make up 26% of all sandwich sales in the UK. Foodservice was both the largest and the fastest growing impulse channel for sandwich sales, with a 71% share of the market and 14% value growth in 2005 (Euromonitor, May 2006).

UK workers have got out of the habit of making their own sandwiches because of the widespread availability of high-quality sandwiches with improved quality of breads and fillings, says the report, and are now more demanding over taste and quality.

A wide range of breads, such as granary, ciabatta, panini and tortilla wraps has joined the plain white bread sandwich, and luxury fillings have become the norm. Meanwhile, low-calorie sandwiches represent more than 10% of all sandwiches consumed in impulse channels in 2005.

The report said a key driver of growth will be premium and healthy sandwiches, but impulse sandwich growth will decelerate steadily over the next five years, as the market reaches saturation.