Project Café UK 2022 – Allegra Strategies Report Positive Outlook

In such uncertain times, this year’s Project Café report by Allegra is a welcome insight into the state of the UK coffee shop market and the effects of the pandemic.  And even more welcome is the positive outlook it reports.  Allegra estimates the UK branded coffee shop market to be valued at £4.4 billion, growing at 43% over the past year, now reaching 87% of the market value achieved prior to the Covid-19 pandemic.

Here’s the highlights from the report (courtesy of Allegra):

£1.3 Billion Sales Rebound for UK Branded Coffee Shop Market

The UK branded coffee shop market has recovered faster than expected from the debilitating economic impact of the pandemic, with Allegra now estimating its value at £4.4 billion.

With hospitality in full or partial lockdown for extended periods throughout 2020, a relatively less disruptive trading environment in 2021 along with renewed consumer desire for coffee out-of-home has enabled annual store sales to grow from a low 2020 base by 43%, bringing the total market to circa 87% of its pre-pandemic value. The branded UK coffee shop market has also returned to outlet growth and now stands at 9,540 in total, an annual increase of 324 rising by 3.5%.

Coffee Shops Utilise Government Support To Facilitate Return To Growth

Government support packages at the height of the pandemic, such as furlough and staff retention schemes, temporary VAT reduction and business rates relies protected hospitality during a precarious period.

Conditions for growth were nurtured by an effective vaccination and booster rollout, enabling fewer restrictions even with infection spikes. Coffee shops have sought to recover losses by exploring new sales channels such as click and collect, delivery and at-home coffee provision.

Store expansion has been supported by some landlords showing flexibility with rent, and new commercial use legislation (Class E) has simplified development rights.

Challenges Ahead As New Economic Realities Loom

Despite an impressive period of recovery, a multitude of factors remain that could impede the industry’s short-term prospects. The threat of a new, more severe Covid-19 variant has the potential for mass disruption.

The hospitality staffing crisis is yet to be fully resolved, demand outstrips supply with some operators increasing wages as a solution. Pressure on UK consumer’s disposable incomes by the combined effects of rising inflation, soaring energy prices and the upcoming increase to national insurance. Reduced VAT rates have been crucial for coffee shop viability; the scheduled return to 20% in April 2022 poses a severe risk to the industry.

Optimistic Long-Term Outlook for UK Branded Coffee Shop Market

Allegra predicts the UK branded coffee shop market will continue to experience growth and exceed 10,500 outlets by the end of 2026, displaying 5 year outlet growth of 2.1% CAGR.

There will be significant churn as operators seek to reconfigure their retail portfolios with diversified location strategies to better accommodate changed working arrangements and consumer behaviour patterns.

Store sales will also increase as the industry adapts to Covid-19 moving from a pandemic to an endemic phase, with Allegra predicting these sales will surpass pre-Covid levels by the end of 2023 and reach £5.8 billion over the next 5 years at 5.8% CAGR.



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