Companies That You Expect to Disappear Soon

[Iskra]

How vulnerable is the coffee business though?
Highly discretionary spend in a recession (surely at some point these folk who can’t exist without a coffee in their hand will stop and realise how much they are spending?!), and highly reliant on office workers and shoppers which is looking like a permanently repressed market. And there are soooo many coffee shops!

The business is suffering from the same cost pressures as many other food businesses (rates, rents, constantly rising wages etc). However, it comes down to a question of profit margin: the profit margin on a cup of coffee is significantly better than what a restaurant makes on a plate of food, which gives coffee shops an advantage over restaurants. It is also less labour intensive to create a cup of coffee compared to a meal and they have a higher % of revenue earning floor space as they use smaller kitchens and stock areas compared to a restaurant.

In terms of discretionary spending; coffee and cake is an affordable treat. People are more likely to justify spending a fiver than £500 to treat themselves. Coffee is also addictive.

City centre, train station and airport footfall has declined (the next couple of weeks are really important to watch to see how that goes), but footfall is actually increasing at some other types of store, Drive Throughs for example. The real pinch point at the moment is that they’re operating with reduced seating areas and with fewer staff, so even shops which could theoretically make more money physically can’t do so to further cross-subsidise the stores where footfall has declined.

 

[SteveM70]

How vulnerable is the coffee business though?
Highly discretionary spend in a recession (surely at some point these folk who can’t exist without a coffee in their hand will stop and realise how much they are spending?!), and highly reliant on office workers and shoppers which is looking like a permanently repressed market. And there are soooo many coffee shops!

It’s one of the miracles of the marketing industry that people have been persuaded that the thick end of three quid for a takeaway coffee represents good value.

 

[Iskra]

It’s one of the miracles of the marketing industry that people have been persuaded that the thick end of three quid for a takeaway coffee represents good value.

I’m not convinced. People believe (rightly or wrongly is a matter of opinion) that it’s worth paying the extra for a hand made coffee from a very expensive coffee machine, compared to what a kettle can do. There is a clear quality difference between the two, whether the price difference is worth it is down to the individual to decide, but clearly there is demand for it considering the growth in coffee shops over the last 20 years.

 

[birchesgreen]

Tea is where the real profit it to be made. My wife once worked in a cafe which sold paper cups of tea for 80p (which is quite cheap compared to some places now). We worked out that the cost of the tea bag (Twinings) and cup was about 3p. Add say another pence for the boiling water and you can see that cup of tea was quite profitable for the cafe.

 

[xotGD]

I certainly think that we'll see a significant reduction in the number of coffee outlets. Do we really need 6 or 8 on one railway station?

Whether it is branches of the big chains or the independents that close remains to be seen.

 

[Iskra]

Tea is where the real profit it to be made. My wife once worked in a cafe which sold paper cups of tea for 80p (which is quite cheap compared to some places now). We worked out that the cost of the tea bag (Twinings) and cup was about 3p. Add say another pence for the boiling water and you can see that cup of tea was quite profitable for the cafe.

Yes that’s absolutely right, but a black coffee has a similar profit margin too.

I certainly think that we'll see a significant reduction in the number of coffee outlets. Do we really need 6 or 8 on one railway station?

Whether it is branches of the big chains or the independents that close remains to be seen.

SSP have closed their Upper Crusts I believe already, certainly at Sheffield at least.

 

[RT4038]

Tea is where the real profit it to be made. My wife once worked in a cafe which sold paper cups of tea for 80p (which is quite cheap compared to some places now). We worked out that the cost of the tea bag (Twinings) and cup was about 3p. Add say another pence for the boiling water and you can see that cup of tea was quite profitable for the cafe.

And this was quite profitable because the cafe owners didn't pay your wife any wages, nor any utility bills and got the premises rent/rates free etc?

 

[C J Snarzell]

How vulnerable is the coffee business though?
Highly discretionary spend in a recession (surely at some point these folk who can’t exist without a coffee in their hand will stop and realise how much they are spending?!), and highly reliant on office workers and shoppers which is looking like a permanently repressed market. And there are soooo many coffee shops!

Costa Coffee has relied on alot of its venue from commuters and the working population - office staff on a decent salary who nip out for a toffee latte inbetween their conference calls. Or business people meeting a client in their dining area.

As we've seen - many people are working remotely and have simply changed their work habits in light of social distancing.

Costa seem to have sprung up everywhere in the last decade and it's almost as if they are on a mission to dominate the coffee shop market.

The problem is that they have opened too many - I shudder to think how many Costa's are in Manchester now.

The other thing is rising austerity across the country. Our unemployment is becoming a concerning issue and Costa hardly offers a cheap brew! If you order a standard Americano coffee with say a sandwich or a cake, you don't get much change from a tenner.

CJ

 

[Meerkat]

Costa Coffee has relied on alot of its venue from commuters and the working population - office staff on a decent salary who nip out for a toffee latte inbetween their conference calls. Or business people meeting a client in their dining area.

As we've seen - many people are working remotely and have simply changed their work habits in light of social distancing.

Costa seem to have sprung up everywhere in the last decade and it's almost as if they are on a mission to dominate the coffee shop market.

The problem is that they have opened too many - I shudder to think how many Costa's are in Manchester now.

The other thing is rising austerity across the country. Our unemployment is becoming a concerning issue and Costa hardly offers a cheap brew! If you order a standard Americano coffee with say a sandwich or a cake, you don't get much change from a tenner.

CJ

In a recession world is there a risk Costa get cut out by McDs churning out cheap coffee as a sideline?

 

[johntea]

Looks as if Pret have shown their hand with a new £20 a month 'Coffeeflix' subscription (not the actual name!), up to 5 coffees a day for 1 person as long as they're 30 minutes apart

Either they're using the scheme as a loss leader (hoping people will buy food to go along with the coffee) or they've just shown the incredible markup on coffee!

 

[DavidGrain]

When I was a teenager coffee bars were all the rage but then they were just a fad and soon died out. It seems now if I walk along any high street there seems to be a multitude of well known brands of coffee bars with Costa even having their machines in supermarkets and a coffee bar in my local branch of Waterstones bookshops.

Tim Hortons, a Canadian chain have now set up in the UK although they are avoiding London until they are more established. When they opened in Birmingham, which I think was their second shop, there were queues outside for their first few days. I used them if I had to be in Birmingham as I had to get an early train from my local station in order to get a parking space so I would stop and have breakfast there.

Those of us over a certain age just do not understand a menu board listing all different types of coffee. There is a TV ad were they laugh at someone who does not know what a 'skinny latte' is. To us the only choice we understand is the question 'Black or White?'. I met my sister one day at Victoria and we went for a coffee. I explained to the young lady behind the counter how we wanted the coffee and she told me that I needed to ask for a Black coffee with extra milk!

 

[Merle Haggard]

Tea is where the real profit it to be made. My wife once worked in a cafe which sold paper cups of tea for 80p (which is quite cheap compared to some places now). We worked out that the cost of the tea bag (Twinings) and cup was about 3p. Add say another pence for the boiling water and you can see that cup of tea was quite profitable for the cafe.

In the days of Travellers' Fare on-station buffets, tea was available in three sizes, obviously increasing in price. Each was made from boiling water and a tea bag, and the same size tea bag was used, so, for the extra 40p for an extra large, you just got more hot water.
At New St once, I was told that only large (expensive) teas were available, because only large cups were available. I did assert that I would be happy if they only filled an extra large cup half full for the price of a medium one - should have left it...

 

[LOL The Irony]

In a recession world is there a risk Costa get cut out by McDs churning out cheap coffee as a sideline?

Yes. They're well known for selling hot & cold cafe drinks now, on top of their hot drinks having a reward program slapped to the side of the cup. Not to mention they sell muffins and cookies, as well as their obvious food.

 

[DB]

I certainly think that we'll see a significant reduction in the number of coffee outlets. Do we really need 6 or 8 on one railway station?

Whether it is branches of the big chains or the independents that close remains to be seen.

On most large railway stations it's only chains anyway (not sure how many of them are actually operated by SSP). Independents mostly only seen on smaller stations, generally where they are the only catering outlet.

 

[SteveM70]

I’m not convinced. People believe (rightly or wrongly is a matter of opinion) that it’s worth paying the extra for a hand made coffee from a very expensive coffee machine, compared to what a kettle can do. There is a clear quality difference between the two, whether the price difference is worth it is down to the individual to decide, but clearly there is demand for it considering the growth in coffee shops over the last 20 years.

Yes there is. Coincidentally or not, the upsurge in popularity of coffee shops in the uk happened when Friends wasone of the most popular programmes on the telly, and its set in part in a coffee shop. People were to a degree sold a lifestyle as much as a drink.

Personally, I bought a good quality espresso machine for £300 (Francis Francis X1, all metal construction so robust, looks great), a 20 quid burr grinder and I get decent coffee beans. I’d estimate I’ve made 3,000 coffees with that machine and it’s still going strong, and all inclusive it’s probably 20p a drink. Bargain!

 

[Peter Mugridge]

Independents mostly only seen on smaller stations, generally where they are the only catering outlet.

...and these are generally better quality than the chains anyway.

 

[telstarbox]

Costa have lots of outlets in suburban centres, market towns and increasingly drive-thrus, whereas Pret is overwhelmingly located in city centre office districts. (I could walk to five Pret branches within two minutes of my Zone 1 workplace.) If lots of people work from home then the 'provincial' Costas could do quite well as people nip into town before/after work, or for a lunch break to get out of the house.

 

[Jamesrob637]

Costa have lots of outlets in suburban centres, market towns and increasingly drive-thrus, whereas Pret is overwhelmingly located in city centre office districts. (I could walk to five Pret branches within two minutes of my Zone 1 workplace.) If lots of people work from home then the 'provincial' Costas could do quite well as people nip into town before/after work, or for a lunch break to get out of the house.

I have a Costa in my suburban village insofar as a machine in the local Tesco Express

 

[Iskra]

Costa have lots of outlets in suburban centres, market towns and increasingly drive-thrus, whereas Pret is overwhelmingly located in city centre office districts. (I could walk to five Pret branches within two minutes of my Zone 1 workplace.) If lots of people work from home then the 'provincial' Costas could do quite well as people nip into town before/after work, or for a lunch break to get out of the house.

Exactly, Costa's portfolio is much more diverse than Pret's and it is Costa's franchisee's that take the riskier stores, so Costa can just re-focus on the more popular areas, tread water in some locations and close others and it will ride out the storm.

Pret is in a much more challenging situation, as evidenced by it announcing double the amount of jobs being lost and a substantial number of store closures despite being a much smaller company than Costa.

 

[C J Snarzell]

My guess is that Costa Coffee will try and ditch alot of their high street outlets and focus on places like Motorway service stations and local filling stations where they are guaranteed a captive audience.

Alot of places have Costa drinks machine which are self service (someone mentioned they can be found in Waterstones too) - these are a prime example of what Costa might push for in the long term. They will probably reduce their overheads massively if they cut staff and their coffee shops and simply have a machine installed in other businesses which will just require a mobile operative to service and replenish it on a regular basis.

CJ

 

[Iskra]

My guess is that Costa Coffee will try and ditch alot of their high street outlets and focus on places like Motorway service stations and local filling stations where they are guaranteed a captive audience.

Alot of places have Costa drinks machine which are self service (someone mentioned they can be found in Waterstones too) - these are a prime example of what Costa might push for in the long term. They will probably reduce their overheads massively if they cut staff and their coffee shops and simply have a machine installed in other businesses which will just require a mobile operative to service and replenish it on a regular basis.

CJ

Motorway Services and petrol station aren't Costa run; they are franchises (hence the high prices).

That's a possibility, but they seem to put machines in locations that don't justify a full shop. Costa Express actually operates seperately to Costa so I'm not sure there's that level of joined up thinking between the two.

 

[FQTV]

My guess is that Costa Coffee will try and ditch alot of their high street outlets and focus on places like Motorway service stations and local filling stations where they are guaranteed a captive audience.

Alot of places have Costa drinks machine which are self service (someone mentioned they can be found in Waterstones too) - these are a prime example of what Costa might push for in the long term. They will probably reduce their overheads massively if they cut staff and their coffee shops and simply have a machine installed in other businesses which will just require a mobile operative to service and replenish it on a regular basis.

CJ

This isn’t how Costa works at all.

From a customer profile point of view, it also appeals to a surprisingly different demographic to Starbucks and Nero, and certainly to Pret, Greggs and McDonalds, which sell huge quantities of coffee, but as an adjunct to their main business.

Every business is being affected by the current situation and how things will be in future, but it’s important to understand exactly how a business actually works to be able to predict/speculate/affect its future.

There’s a truism that successful people in business to consumer commerce never forget: retail is detail.

 

[DB]

From a customer profile point of view, it also appeals to a surprisingly different demographic to Starbucks and Nero, and certainly to Pret, Greggs and McDonalds, which sell huge quantities of coffee, but as an adjunct to their main business.

I agree that Pret, Greggs & McDonalds are targeting a different market, but how do Starbucks and Nero differ significantly from Costa?

 

[route101]

Have any of the SSP outlets reopened in stations yet?

 

[xotGD]

In better news, the Coop are recruiting and planning to open new stores.

Whether or not they will contain Costa Express machines remains to be seen.

(Our local Coop does, and it is 2 doors down from Costa!)

 

[FQTV]

I agree that Pret, Greggs & McDonalds are targeting a different market, but how do Starbucks and Nero differ significantly from Costa?

It’s subtle, but Costa’s average customer age is the highest of all of them and they occupy a generally more neighbourhood and weekday shopper strata of the market; Starbucks has a ‘suffocate a postcode’ strategy and is focussed on a much younger demographic, especially students. Nero is often considered to be the coffee aficionados’ chain, and they were the last ones to ban smoking, which was in itself a commercial decision based on their particular customer profile.

As a potentially odd effect, local independents seem to fear Starbucks and Nero most; Costa less so.

 

[Iskra]

In better news, the Coop are recruiting and planning to open new stores.

Whether or not they will contain Costa Express machines remains to be seen.

(Our local Coop does, and it is 2 doors down from Costa!)

Costa Express machines don't take business away from Costa stores. I used to run a Costa store and a seperate Express machine in a rail environment on a different platform. The store is still there, the express machine is long gone...

It’s subtle, but Costa’s average customer age is the highest of all of them and they occupy a generally more neighbourhood and weekday shopper strata of the market; Starbucks has a ‘suffocate a postcode’ strategy and is focussed on a much younger demographic, especially students. Nero is often considered to be the coffee aficionados’ chain, and they were the last ones to ban smoking, which was in itself a commercial decision based on their particular customer profile.

As a potentially odd effect, local independents seem to fear Starbucks and Nero most; Costa less so.

Costa is supposed to be preferred by female customers. Not sure why!

 

[xotGD]

Costa Express machines don't take business away from Costa stores. I used to run a Costa store and a seperate Express machine in a rail environment on a different platform. The store is still there, the express machine is long gone...



Costa is supposed to be preferred by female customers. Not sure why!

That's the way I would expect it to work. Folk would rather a barista made their coffee than using a self service machine.

Mind, I will choose a Costa Express machine ahead of a branch of Starbucks.

 

[Dai Corner]

Is the coffee from a customer-operated Costa machine significantly different to that from a barista-operated one?

 

[Iskra]

Is the coffee from a customer-operated Costa machine significantly different to that from a barista-operated one?

The beans are the same and the milk same so some drinks could taste similar. I don't mind a black americano from a machine, but it doesn't have the same crema as a good quality barista made drink. For more complex drinks a machine is not going to be able to deliver the same quality drink as a skilled barista as there is feedback on the jug through vibrations, the sounds made from the milk etc which a person could react to. Equally the pour from a machine may be consistent but can't adapt for different quality milks or temps etc. A person can see if something has gone wrong and rectify it, a machine can't, a person can apply their personality with latte art etc, which a machine can't. A well-looked after machine however could deliver a more consistent product compared to an unskilled barista. These are just my personal observations.