New stores and Express sites drive Costa growth

Estate expansion and the introduction of a new range of breakfast food have helped grow sales at the Costa chain.

The Whitbread-owned business has reported an 8.3% increase in UK revenue to £542m for the six months to 31 August 2017, although profit fell 4.6% to £61m.

Sales growth has been driven by the addition of 108 net new stores, and the performance of Costa Express, which grew revenue by 17.7% to £98m. Like-for-like growth at Costa stores owned by Whitbread, as opposed to being run as a franchise, was 0.6%.

The business said the decline in underlying operating profit was the result of increases in labour costs, business rates and the impact of foreign exchange on coffee imports.

Recent activity by the business has included the development of a product innovation team that launched a new range of breakfast food in the spring. Further work is currently under way to expand the range.

Whitbread said customer feedback on the new products had been strong, with like-for-like breakfast food volume up 9% in the period since launch.

Costa rolled out new salads in the summer and introduced new hot food in September.

In addition to the new food, Costa launched cold drinks ahead of the summer, including cold-brew coffee, frostino iced drinks and a trial of nitrogen-infused coffee.

The business, which has 2,326 stores throughout the UK, said about two-thirds of new outlets would be drive-through stores, and in transport locations and retail parks.

The business has also rolled out 1,365 new Costa Express machines in the past 12 months in the UK, adding 25% capacity, as well as agreeing a new partnership with Morrisons supermarkets.

“Allegra, the leading coffee industry body in the UK, has forecast coffee outlets to grow in the UK by 5-6% per annum over the next few years,” stated the business.

“The UK is entering the 'third wave' of coffee - a period in which consumers’ preferences for coffee become more sophisticated and are willing to spend more per cup for higher quality and innovative drinks. As market leader, Costa has a prime opportunity to capitalise on these attractive structural trends.”

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