Things have come a long way since Rowan Atkinson’s Blackadder III described the beverages served in Mrs Miggins’ London coffee shop as “brown grit in hot water”. Britain now takes bronze for European coffee consumption, trailing only Italy and France in the caffeine stakes. That equates to a heart-racing 5.8m caffeine-filled cups purchased from stores, according to research consultancy Allegra Group.
“High-quality boutique chains will be a major feature of the market going forward,” says managing director Jeffrey Young. This trend, which is particularly true in London but is likely to become noticeable further afield, is being driven by generational change. “Millennials are keen to have coffee out, whereas an older generation is used to having coffee at home. For millennials having coffee on the way to work is normal,” says Emma Flather, associate director at leisure specialist Davis Coffer Lyons.
Landlords agree. Sarah Fox, head of restaurants and leisure at Hammerson, says: “The younger generation in, say, the North, will get fed up with the outlets where their parents go and will want to go somewhere else for their coffee.”
Like other retail landlords and investors, Hammerson has so far benefited from the inexorable rise of coffee shop openings, but it is keeping a watchful eye on another new trend: coffee shop concessions opening within retail stores. “It hasn’t been a big issue for us yet and we haven’t seen any drop off in coffee shop sales, but it could be a problem in the longer term,” says Fox.
Allegra’s forecast that the total number of UK coffee outlets could reach 32,000 by 2025 raises the question of where they will physically appear. “There’s no danger of our high streets resembling the Simpsons episode where every store is a Starbucks, particularly as local shops continue to thrive,” says Simon Mydlowski, leisure and hospitality partner at Leeds-based law firm Gordons.
In fact, the opposite may occur. While closures of non-profitable branded chain stores have so far been discrete, MMX Retail joint founding partner Nick Symons praises those that make the judgment: “Starbucks has not been afraid to make tough decisions when required.”
While the large chains may benefit from overall demand, they face increasing competition. “Independents will pose a threat, because landlords often want cooler brands when looking at placemaking,” says JLL director Michael Webb. Chains may have more financial muscle, but they can’t buy hipster chic. Shelley Sandzer’s Tony Levine gives the recent example of a unit in Whitechapel: “We had eight offers and it went to the operator offering the lowest rent because that was the only one that met the landlord’s requirements, despite a chain offering twice as much.”
And despite the overall increase of leisure operators in retail pitches, in managed locations at least, all types of coffee shops will be competing with retailers. Strutt & Parker partner Gavin Redrupp says: “We act on shopping centres where we have voids, but we are turning down coffee shops because we want fashion retailers.”
There is no doubt that the coffee shop market is still full of beans, but it is not immune from macro-economic headwinds. “Brexit could be substantially damaging to this industry which is already seeing increased costs,” says Allegra’s Young, who points out that both fixed assets (coffee machines) and consumables (coffee beans) are largely imported from abroad.
COFFEE SHOPS: THE STATS
Leading coffee shop operators by number of UK outlets
- Costa 2,121
- Starbucks 898
- Caffè Nero 650
Source: Project Café17 UK Report by Allegra World Coffee Portal
When coffee shop Harry met co-working space Sally
What do you get when you cross a coffee shop with a co-working space? The answer is Ziferblat. And UK franchise holder Shenton Group is taking the concept very seriously. It has ambitious plans to have 50 locations up and running across the country by 2050. This month it opened its third venue in Salford’s Media City (a fourth, in London’s Shoreditch, is retained by the company’s Russian founder).
Ziferblat may look like a coffee shop and sound like a co-working environment, but its pricing model is neither: a flat rate of 8p per minute (capped at four hours), no contracts, no strings attached, with all-you-can-consume coffee and snacks included. Is that the basis for a sustainable income stream? Ziferblat UK and Ireland chief executive Colin Shenton thinks so: “We pay office rents, not retail rents and we save money on our initial capital expenditure by not having a branded repeat fit-out.” Taking B1 accommodation avoids the retail planning use class debate (see below), but Shenton says it will still be important for Ziferblat to get the property fundamentals – deal, location and rent – right. The operation is looking for first-floor units of around 6,000 sq ft on 10-year leases in all major UK cities.
All-day roast
This month, Whitbread opened a £38m Costa roastery on a five-acre site in Basildon, Essex. The 86,000 sq ft building will produce around 45,000 tonnes of coffee each year – equivalent to a ceiling-bouncing 2.1bn cups of the black stuff. Whitbread opted to take a freehold of the site, where the roastery has been built from scratch, replacing the current operation in Lambeth. The new facility has a 30-year lifespan and the site includes the potential to create further space if required. The roastery was designed to cater for an anticipated continued growth in both UK and overseas coffee sales.
From A1 to B1 via A3
London has been the cradle of the UK coffee shop revolution ever since the first outlet opened in the City in 1652. Then wealthy Londoners would dress in Middle Eastern garb for the experience. The dress code in the capital is more relaxed today, but the experiential element is more important than ever. The level has been raised from simply serving good coffee to offering restaurant-style food during the day and a bar environment at night.
“There is a real question mark over 8am-to-5pm coffee-led operations because of increasing costs. I am not convinced it is viable anymore,” says David Abrahamovitch, founder of Shoreditch-based Grind. The operator – whose espresso martinis have attracted something of cult following – has built up a portfolio of 10 outlets in the capital since 2011 and is looking for more.
The shift in operation (hot food and alcohol licensing) has planning implications, pushing the A1 coffee shop into A3 restaurant/bar territory. Grind obtained a change of use for three outlets. Abrahamovitch admits: “It was very difficult and we had to go to appeal a couple of times.”
An alternative is to take B1 office space like Ziferblat (see above), but that won’t allow restaurant and bar use, and local planners are expected to keep a beady eye on how coffee shop owners run their operations.
Driving a hard bargain
Remember Muzz Buzz? No, me neither. The Australian franchised drive-through coffee outlet chain was due to be the next big thing here a couple of years ago, but failed to get a foothold in the UK. One reason may have been the price of building the drive-through properties that are particularly popular on retail parks. “The cost of building these pods has probably doubled over the past 15 years,” says John Maddison, partner at Quadrant Estates, landlord to several drive-throughs on its retail parks.
Maddison says the £0.7m build cost is balanced by significantly improved dwell times and a 6-8% increase in footfall. Traditional UK drive-throughs also include a sit-in area. “People want somewhere to ponder before dropping £5,000 on a kitchen or £3,000 on a sofa, so they work well with bulky goods locations,” says Maddison.
The concept is now evolving towards pure drive-through. Costa recently opened its first drive-through-only pod at Rownhams Services on the M27 outside Southampton in Hampshire. “There is definite potential here, where land is at a premium,” says Costa acquisitions and estates director James Hamilton. A dedicated drive-through coffee outlet can take less than 500 sq ft – significantly smaller than the 1,800-2,200 sq ft combined drive-through building or 1,600-1,800 sq ft standard retail park unit.
This article was first published on 28 March 2017
RETAIL & LEISURE SPECIAL
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■ How to turn a profit from retail investment
An unusual deal closed in Ipswich this February – a deal that defied a trend plaguing retail landlords across the country. Read more…
■ Buying strategies of three UK shopping centre investors
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■ The new shape of retail and leisure development
Online retail, rising costs, viability issues and a discerning consumer that increasingly wants more from their shopping trip. It’s a heady mix that is piling pressure onto shopping centre developers. Against this backdrop, what are the prospects for the sector and its ability to deliver new space? Read more…
■ Crown Estate looks to its regional assets for growth prospects
This summer, the £140m Rushden Lakes retail and leisure scheme opens in Northamptonshire. For the Crown Estate – best known for its Regent Street, St James and Mayfair portfolio – the Northamptonshire project marks a new commitment to the regions. Its ambition is nothing less than to lead the regional retail market. Read more…
■ Why the UK’s thirst for coffee is good news for landlords and investors
Things have come a long way since Rowan Atkinson’s Blackadder III described the beverages served in Mrs Miggins’ London coffee shop as “brown grit in hot water”. Read more…
■ E-tail gets physical when building a brand
“We have enjoyed a lot of success online, but nothing beats the feeling you get standing outside your own store watching excited customers walk out clutching their bags,” says James Gold, co-founder of fashion accessories brand Skinnydip. Read more…
■ Can high street shoe shops step up as shopping habits shift?
Like a well-worn pair of favourite shoes that have started letting in water, part of the UK’s footwear retail sector is starting to look like it needs repairs – or even replacing. Read more…
