28 Apr 2008


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srcg wake-up: Coffee outlook? Black, no sugar

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Neill Sherrell, managing director of convenience consultants srcg, on how retailers could turn the consumer spending squeeze into an opportunity rather than a threat…

I’m cash-strapped and I’m searching for value! Lifestyle reassessment is the latest buzz-phrase. As we tighten our belts, sales of sofas and white goods have fallen off a cliff and it was no surprise when Primark announced recession-beating half-year profits this week.

But it’s not just the big things; collectively we are reviewing everything we added to our lives when we had money in our pockets, and which we now do out of habit. What about that daily coffee and a muffin at Coffee Republic? How much of your “Pretty Green” are you willing to splurge on that little luxury?

Starbucks is continuing to feel the pinch as the USA economy bites hard on discretionary spending. Customers are going cold-turkey or down-grading to less plush surroundings, and even the introduction of their own value coffee line has not prevented Starbucks reporting lower like-for-like earnings, again.

For the UK High Street, awash with coffee houses, the next six months could provide a tipping point. Anecdotally, footfall is already down significantly – maybe as much as 15% – and any further decline will see worried executives staring into their de-caf skinny lattes.

Perhaps they should be consulting their tea-leaves, as no amount of free syrup shots is going to sweet talk the public into coming back, not until they address their value equation, or food, energy and European holidays become cheap again; which isn’t going to happen any time soon.

By way of contrast it was standing room only in the “restaurant” of my local Morrisons this Sunday lunchtime. The one-stop-shop is now a carefully planned exercise and eating out no longer a leisure activity.

Interspersed between High Street coffee shops are mobile phone stores and a correction in this market may be just around the corner too. Volumes have slowed; there are already more ‘active’ mobile phones than people in the UK.

However, Asda has spotted a gap in the market and this week announced a limited stock sale of £5 Pay-As-You-Go phones. Cheaper than many toy phones, it may not have Nokia quaking in its boots, but it may just make consumers question where they are getting the value they need to balance their books.

In difficult times cash is king and the well managed businesses get bigger as those offering no unique value fall by the wayside.

After several troubled months it was interesting to hear Tesco announce the opening of 10 more Fresh and Easy sites and a ‘significant’ number of new Express c-stores in Dublin. No great surprises there, but Tesco also announced the launch of a national loft insulation service, under-cutting current suppliers by 50%. More “Tesco-creep”, or great forward planning? You decide.

But there is a lesson here for us all. When everyone else is looking over their shoulders the true entrepreneur sees more opportunities than ever. Perhaps now is the time for Gregg’s and other c-stores to expand their hot beverage business; or maybe Subway has already beaten them to it?

Neill Sherrell

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