UK Coffee Market - Salonica Group · UK Market Opportunity: Specialty Coffee This brief report...
Transcript of UK Coffee Market - Salonica Group · UK Market Opportunity: Specialty Coffee This brief report...
September2019
UK Market Oppor tun i ty :
Spec ia l t y Co f fee
This brief report presents the opportunity for LATAM
companies to invest in the UK economy, specifically
within the sustainably sourced, specialty-roaster coffee
sector
The UK economy, in macroeconomic terms, is an
attractive market opportunity given the economy’s
relatively robust, stable economic growth. The UK
has the joint-lowest corporation tax within the G20
with the government planning to reduce the rate to
17% by 2020. Additionally, the UK is ranked the 6th
most business-friendly market in the World (World
Bank). The UK consistently achieves below-target
inflation (less than 2%), allowing the BoE to keep
interest rates low.
With strong fundamentals such as; low inflation rate,
interest rates and an increasingly low unemployment
rate (4.2% in November 2018), the UK is an market
conducive environment. The UK continues to invest
domestically to sustain this robust economic growth
rate. Plans are underway to increase market in
infrastructure, exemplified by projects including HS2,
Cross Rail and the London Infrastructure Plan 2050.
These plans aim to interlink regional economies and
stimulate further UK economic growth. Interlinking
regional economies has the potential to benefit
oversea investors in the UK by easing distribution of
goods and services, as well as promoting ease of
access for potential consumers.
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Figure 1: Positive, stable economic growth projected for next 2 years (IMF)
Additionally, the UK population is projected to surpass
70 million in 2029, increasing by, on average, 7% each
year; the equivalent of adding a population the size of
the city of Manchester each year. This increase in
population results in a greater demand for goods and
services, as well as housing, making market across
multiple sectors, including food and beverage-
specifically the coffee sector. Despite this consistent
population growth, GDP per person has increased
consistently from 2010- 2019.
UK Market Opportunity: Specialty Coffee | Salonica Group
UK Macro Overview
UK Market Opportunity: Specialty Coffee | Salonica Group
Subsequently, the UK population has enjoyed an increase
in disposable personal income, reaching an all-time high
since Q1 1955 to £346,349m in Q1 2019, further
reinforcing the conditions for UK’s market conducive
environment.
Figure 3 (below) illustrates the steady, whilst perhaps
seasonal, growth in UK coffee consumption from 2013 to
2019 and is projected to continue in its positive trajectory
beyond 2020. This is reflective of a wider trend of 20
years of consecutive growth.
Coffee shops have consistently outperformed the UK
high street. This is representative of a cultural shift of
coffee consumption, as consumers’ taste preferences are
shifting away from traditional loose-leaf tea and towards
both sustainable and specialist coffee producers.
Consumers are increasingly opting for sustainably
sourced specialty coffee with 60% of consumers
willing to pay a premium for coffee that is ethically
sourced. This is further reinforced by strong,
wholesale demand from independent cafes,
specialising in single-origin coffee. The UK is one of
Europe’s fastest growing coffee markets, as it has
begins to imbibe a coffee culture which has been
prevalent on the continent for decades. Incidentally,
coffee consumption currently contributes £17.7bn to
the UK economy, helping support 210,325 jobs.
UK Macro Overview
UK Coffee ConsumptionUK Market Opportunity: Specialty Coffee | Salonica Group
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14/08/2013 27/12/2014 10/05/2016 22/09/2017 04/02/2019 18/06/2020
UK Coffee Consumption Despite global geopolitical uncertainty, the UK
coffee consumption growth rate has remained
robust and seems to be impervious to business
cycle fluctuations. Given the escalating narrative
regarding the possibility of a global economic
downturn, the consistent demand for coffee
presents a viable, sustainable opportunity for
LATAM companies to invest in the UK.
While the UK faces substantial political
uncertainty regarding Brexit, the coffee sector
remains optimistic.
For example, Illycaffe recently acquired its UK
distributor Euro Brand Foods in August 2019,
highlighting the UK as a ‘strategic market’. The
company stated directly that the acquisition
‘signals Illycaffe’s intention to keep on investing
in the United Kingdom despite Brexit
uncertainties’. This is a positive prospect for
LATAM coffee producers indicating that market
sentiment attributes long-term consumer
demand for high-quality, single origin coffee,
irrespective of political circumstance.
Figure 3: UK Coffee Consumption
UK Market Opportunity: Specialty Coffee | Salonica GroupUK Market Opportunity: Specialty Coffee | Salonica GroupUK Coffee Market
Given that Latin America is currently home to
the biggest coffee producers in the world,
with Brazil alone accounting for 40% of the
world’s coffee production, there is a clear,
established demand for Latin American coffee,
which is rising year on year in line with the
UK’s shifting preferences towards coffee,
more specifically, single-origin, sustainably
sourced specialty roast coffee.
Figure 4: Global coffee production in thousand 60 kilogram bags
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Several, notable high-profile acquisitions taking place within the last eighteen months in the UK include; Coca
Cola’s £3.9bn acquisition of UK market leader, Costa Coffee and JAB Holdings’ £1.5bn acquisition of Pret-a-
Manger, and Caffe Nero grew its market share to 10% with its acquisition of majority stake in Coffee #1,
which has over 90 stores.
Specialty coffee has been increasingly active in the M&A space this year. In particular, the specialist chains
seeking further UK growth have found crowdfunding to be a lucrative method for expansion. Notes Coffee,
for example, raised £1m to fund its expansion and now operates 10 sites in London. In July 2018, specialty
roast and coffee shop Ozone Coffee Roasters acquired its fellow specialty roaster, Hasbean, proving the
subsector to be particularly active relative to the coffee sector in aggregate.
UK Market Opportunity: Specialty Coffee | Salonica GroupUK Coffee Mergers &
Acquisitions Activity
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To conclude, whilst the global geopolitical landscape remains uncertain, LATAM
based companies may benefit from investing within the UK coffee sector, whose
robust economic growth has proven to withstand political uncertainties such as
Brexit. An area where a LATAM companies may exercise a comparative
advantage relative to their peers within the coffee sector is as specialty-roasters
and as sustainably sourced coffee producers. This is in line with consumer’s
heightened consideration of coffee provenance and shifting preferences to
sustainable produce. The UK has the resources and infrastructure in place to
support LATAM coffee companies thrive in the UK’s investment- conducive
environment.
UK Market Opportunity: Specialty Coffee | Salonica Group
Conclusion
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www.salonica-group.com
This publication has been prepared by Salonica Capital Limited, an affiliate of Salonica Group. Salonica Capital, its subsidiaries, branches and affiliates are referred to herein as Salonica. This publication is written in general terms and we recommend that you obtain professional advice before acting or refraining from action on any of the contents of this publication. The information contained includes certain statements, estimates and projections some of which are based on publicly available information. No representation is made as to theaccuracy of such statements, estimates and projections. Salonica accepts no liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication© 2019 Salonica Group is a UK private limited company.
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