Did Coffee Chains Like Costa Just Lose the Matcha Generation?

In recent years, the UK coffee market has experienced a significant shift, with consumers gravitating towards trendy, artisanal brands while established chains like Costa Coffee struggle to keep up. This article explores the changing landscape of coffee consumption, the emergence of new players like Blank Street Coffee, and the challenges faced by traditional chains.

Last updated: 19 October 2023 (BST)

Key Takeaways

• Consumer preferences are shifting towards artisanal and trendy coffee brands.
• Blank Street Coffee has gained popularity through social media and unique offerings.
• Costa Coffee is reportedly seeking to sell, with a potential valuation of £2 billion.
• Inflation and changing demographics are impacting coffee drinking habits.
• Independent coffee shops are on the rise, creating more competition in the market.

The Rise of Artisanal Coffee Chains

The coffee culture in the UK has evolved dramatically, especially among younger generations. Consumers are increasingly interested in unique, high-quality beverages that offer an experience beyond just caffeine. This shift has favoured smaller, artisanal coffee chains like Blank Street Coffee, which started as a modest coffee cart in Brooklyn in 2020 and has expanded rapidly across major cities, including London.

Blank Street's success can be attributed to its vibrant branding and innovative drinks, like iced strawberry matcha. The café's aesthetic and unique offerings have attracted a cult following, even among celebrities. For instance, influencers such as Mollie-Mae Hague and Sabrina Carpenter have publicly endorsed the brand, enhancing its appeal.

The Social Media Influence

One of the key drivers behind Blank Street's popularity is its robust presence on TikTok. The platform has become a go-to for sharing visually appealing food and drink experiences. Videos showcasing Blank Street's colourful matcha drinks have gone viral, leading many customers, including tourists, to seek out the café specifically for Instagram-worthy moments.

Costa Coffee's Struggles

In stark contrast to the success of newer brands, Costa Coffee—owned by Coca-Cola—faces significant challenges. Reports suggest that Coca-Cola is considering selling the chain, potentially for £2 billion, a stark decline from the £4.9 billion acquisition cost in 2019. This raises questions about the brand's future and its ability to adapt to the changing market landscape.

Financial Performance and Market Position

Costa Coffee's financial performance has been under scrutiny. In the latest financial year, the chain reported revenues of £1.2 billion but also faced an operating loss of £14 million due to inflationary pressures. As younger consumers shift their preferences towards artisanal options, chains like Costa must find ways to innovate to remain relevant.

Changing Consumer Preferences

Consumer preferences are evolving, particularly among younger generations. Many young adults are opting for healthier options such as matcha, which is perceived to have benefits like antioxidants and a more balanced caffeine experience compared to traditional coffee. Danni Hewson, head of financial analysis at AJ Bell, noted that many Gen Z consumers are moving away from caffeinated beverages altogether.

The Impact of the Cost of Living Crisis

The ongoing cost of living crisis has further complicated the coffee market. As consumers seek affordable luxuries, they are more likely to choose unique drinks that feel special. This trend has benefitted chains like Blank Street Coffee, which offers high-quality drinks at a competitive price point, appealing to consumers looking for guilt-free indulgence.

Independent Coffee Shops on the Rise

The number of independent coffee shops in the UK has increased from approximately 11,700 to around 12,400 in just five years. This rise in independent cafés has intensified competition for larger chains like Costa. Many consumers now prefer to support smaller businesses that offer distinctive products and a more personalised experience.

The Value of Experience Over Convenience

For many coffee drinkers, the experience of visiting a café has become as important as the coffee itself. Consumers are looking for a space that offers a unique atmosphere, quality beverages, and a sense of community. This shift has led to the decline of mid-range chains that fail to deliver an exceptional experience.

Adapting to the Market

As the coffee landscape evolves, traditional chains must adapt to survive. Clare Bailey, an independent retail analyst, argues that businesses that do not respond to changing consumer behaviour risk falling behind. Costa Coffee must innovate and perhaps reconsider its approach to attract a younger clientele that prioritises unique offerings and experiences.

Innovation as a Key to Survival

Coca-Cola's chief executive, James Quincey, acknowledged that Costa was not performing as expected and hinted at the need for new growth avenues within the coffee category. This could involve diversifying the menu, enhancing the customer experience, or focusing on health-conscious options like matcha.

Conclusion: What Lies Ahead for Costa Coffee?

The UK coffee market is at a crossroads, with established chains like Costa Coffee facing significant challenges from emerging brands and changing consumer preferences. The rise of artisanal coffee shops and the impact of social media on consumer behaviour present both threats and opportunities. As Costa navigates these complexities, its ability to innovate and adapt will be crucial in determining its future.

With so many choices available, what will the future hold for traditional coffee chains? Will they manage to reinvent themselves and reclaim market share, or will they continue to struggle in a rapidly evolving landscape? The answer lies in their willingness to engage with consumers' changing tastes and preferences. #CoffeeCulture #CostaCoffee #BlankStreetCoffee

FAQs

What is Blank Street Coffee known for?

Blank Street Coffee is renowned for its vibrant, Instagram-friendly drinks, particularly its matcha varieties. The café has gained a loyal following for its unique offerings and aesthetic appeal.

Why is Costa Coffee struggling in the current market?

Costa Coffee is facing challenges due to changing consumer preferences towards artisanal brands, rising competition from independent shops, and financial pressures that have led to operating losses.

How has social media impacted coffee consumption trends?

Social media platforms, especially TikTok, have greatly influenced coffee consumption trends by promoting visually appealing drinks, encouraging consumers to seek out specific brands and cafés for unique experiences.

What role does health consciousness play in coffee choices?

Health consciousness is increasingly affecting coffee choices, particularly among younger generations who are opting for beverages like matcha, which are perceived to be healthier alternatives to traditional coffee.

Are independent coffee shops becoming more popular?

Yes, the number of independent coffee shops in the UK has been on the rise, reflecting a growing consumer preference for unique, high-quality offerings over large chain establishments.