The owner of the UK’s leading coffee chain has reported a decline in like for like sales for the first quarter of its financial year – blaming the fall on Britain’s ailing high street.
Citing a decline in shoppers as the reason behind the 2pc drop in like-for-like UK sales, Costa Coffee owner, Whitbread, also reported that overall sales growth is up by 5.2% mainly down to hundreds of new store openings in convenient travel locations.
Along with more than 2,400 Costa outlets and 8,237 Costa Express vending machines worldwide, Whitbread owns a number of British leisure brands including hotel chain Premier Inn and popular restaurants Beefeater and Brewers Fayre.
In April it announced plans to demerge Costa, which it purchased in 1995, from the rest of the group, meaning that the coffee chain will be spun off and floated as a separate firm by 2020. The firm has also set its sights on overseas expansion.
Speaking about its recent sales figures, Whitbread boss Alison Brittain, told the BBC that the shrinking sales figures are not an indicator of the brand’s overall health, she said:
“Our stores remain highly profitable and deliver an excellent return on capital.
“The UK like-for-like sales decline resulted principally from footfall weakness in traditional shopping locations, whereas travel locations continued to show good growth,” she added.
Tough market conditions
Costa is just one of many large UK brands to suffer at the hands of tough market conditions, with electronics store, Maplin, budget store Poundworld, and Toys R Us, all going into administration in recent months.
Market analysts have noted the challenging conditions for businesses on the high street as shoppers face squeezed incomes and higher prices, speaking to the Scotsman, Lou Montgomery at Fidelity Personal Investing said:
“Another day, another warning about a lack of consumer spending. Now it seems that Brits have woken up and smelt the coffee. All those tips on how to stop frittering money away have hit home – and hit Whitbread’s bottom line.”
Other commentators have pointed more firmly at Costa for the dip in sales, claiming that the firm has neglected to innovate, John Moore, senior investment manager at Brewin Dolphin, said:
“The main issue with Whitbread is that it has stopped innovating.
“From a business that 25 years ago was pubs and Pizza Hut, it bought and built Premier Inn and Costa, two iconic brands on the British high street.
“De-merging Costa is fine – it is a cash generative market-leading business – but it’s hard to see where growth will come from given its market penetration and rising costs.
“ Costa could flourish on its own – it’s a nice, simply-framed brand with greater international expansion potential, which can be financed from the cash generation from the existing estate.”
Whatever the future for Costa, Brittain is convinced that focusing on the out of town market and global expansion will ensure a bright future for the coffee brand, telling shareholders:
“Whilst we are cautious of shorter-term trading conditions in the UK, due to well-publicized consumer trends, we are confident that we have the right strategies in place to enhance our UK and international market positions and ensure each business is well-positioned to thrive as a separate entity,” she said.