Knowledge Bank Blog, Pricing & Promotions, Range & Portfolio, Channel Execution

Tricks of the coffee trade

As large parts of our industry (the big brands, the bigger Retailers) find themselves working very hard for any growth, it is instructive to look at the phenomenal success of coffee chains, and see if we can learn from them.

The turnover of branded coffee chains in the UK has grown by over 500% in the last fifteen years, according to Allegra Strategies.  How have they achieved this?  Well, geographic expansion has been key but then again, how have they created the consumer “pull” to justify all those new outlets?  There’s three things I see, relevant to our industry.

First, talking confidently about product quality.  Costa, Starbucks and Nero radiate a consistent, confident narrative about their coffee.  The farms, the way the beans are selected, the grind, the steam, the barista’s care and skill – these are all part of the narrative, and it helps to justify the price that the consumer has become used to paying.  Our industry has great quality stories too. Think about what we’ve achieved with Prepared Meals in the last 20 years. Think about the daily miracle of fruit and veg from fields all over the country, arriving the next day super fresh in your local store.  But do we talk about these enough?  Many of the big brand successes in the noughties – Walkers, Warburtons, Tropicana, Tesco Finest – were rooted in Quality products and a consistent quality narrative. But now we seem to leave this territory to the premium brands – Brewdog, Yeo Valley, Waitrose 1.  What about quality for the masses?

Second, securing the impulse purchase.  Most people visit coffee shops for the coffee.  But they often find themselves buying food.  Conversion from beverage to food is critical in the sector, to drive transaction size and sales growth.  For this reason, the chains work very hard at tempting presentation of product, especially of sweet treats.  Harris & Hoole and Costa are both masters of the art.  Grocery has plenty of food that can attract the impulse purchase – for example, soft and exotic fruit, “dine in” meals, cakes and other sweet treats.  Can we not sell them more temptingly, to drive up basket size?

Third, consistent pricing and rewarding loyal customers.  Costa, Starbucks and Nero rarely if ever discount. They have taught consumers roughly what a quality coffee costs, and consumers have  become used to paying that.  Yes there’s a huge value tier led by McDonalds and Greggs, but within tiers, the price is consistent.  In our industry though, we have discounted heavily and regularly.  And we have often found that we have promoted ourselves into a corner.  Why should a consumer who has bought a product for £1 three weeks in a row (on promotion) then be expected to pay £1.75 for it, the following eight weeks (off promotion)?  Do we think they won’t notice?  The industry is waking up to this basic principle, but it is hard work to get the genie back into the bottle.

And when they do promote, the coffee chains reward loyal customers, via their card schemes.  In our industry, it’s often been the disloyal who we’ve rewarded.  The £10 off when you spend £50 is sent to the shopper who rarely comes, not the weekly visitor.  The highest average price paid for a brand over the year, is paid by the person who buys it every week, not the ”cherry picker”. Have we been giving the discount to the people we owe most thanks to?  Or rewarding disloyalty?

So there’s three things to learn from coffee chains.  Talking confidently about product quality.  Securing the impulse purchase with tempting presentation. Consistent pricing and rewarding the loyal customer.  These things won’t add up to 500% growth, but they will make sales growth a little bit easier to come by.