Costa continues multiple channel strategy as sales rise

Costa’s total UK retail sales rose 10.1% in the first half of 2016/17 amid total revenue growth for Whitbread of 8.1% to £1.6bn in the six months to 1 September 2016.

UK equity store like-for-like sales for Costa in H1 2016/17 were up 2.3%. However, underlying operating profit fell 4% to £64.6m in the period, due to increased investments.

Whitbread group’s underlying profit before tax was up 5.4% to £307m, while the total basic EPS was 111.42, up 2.2% from 108.99 in the same period the previous year.

Whitbread chief executive Alison Brittain said: “This is another good set of results from Whitbread and we continue to deliver strong growth. Our core brands of Premier Inn and Costa continue to win market share with sales growing 8.9% and 10.7% and like-for-like sales up by 2.4% and 2.3% respectively.”

Costa opened 87 net new stores in the UK, taking the total number of stores to 2,121. It opened 124 net stores worldwide year on year and plans to open 230-250 new coffee shops worldwide during the course of the year, as well as install around 1,250 Costa Express Machines. The total number of Costa Express machine is now 5,970 of which 647 are outside the UK.

The company said it continued to see good growth opportunities in the UK across multiple channels from traditional high streets to newer and growing channels such as “drive thrus, retail parks, transport and concessions”.

The company has taken elements of its fresher food concept into a further 13 stores in the London region and plans to open a further three new Pronto stores by the end of the year. It also opened its first ‘finer coffee’ concept store in Covent Garden in June 2016, "championing artisan coffee and an enhanced beverage range", with a second store opening in Wandsworth this month. Brittain said: “In Costa, we are trialling new ‘finer’ coffee concepts, introducing a new fresher food range and making good progress, rolling out our Costa Pronto and Drive Thru formats.”

The company expects a similar level of store openings for Costa next year and anticipates capital expenditure to be between £650m-£700m this financial year.

Brittain noted that the company had expected Costa’s margin in the first half to be down year on year due to the early phasing in of its investment in refurbishments, IT infrastructure, digital capability and the early introduction of the National Living Wage rates in October 2015.

She added that the company expected margins in the second half to be similar to the second half of last year as the company passes the anniversary of its National Living Wage increase and starts to benefit from the first half weighting of its investments.

She concluded: “While it is early in the second half and there is uncertainty in the UK’s economic outlook, we expect to deliver in line with full-year expectations.”

Earlier this year Costa launched a new online forum to gain greater insight into its consumers.

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