Costa Coffee revealed a further slowdown in sales growth amid increasing competition from artisan coffee shops, but its owner Whitbread hopes to lure customers with a new selection of cold drinks over the summer.
The group, which also owns Premier Inn hotel chain, said it was rolling out Costa’s ‘cold brew’ in over 200 stores, while its Frostino and other cooler drinks have gone on sale this month in time for the heatwave.
Sales at Costa shops open for more than a year rose by 1.1 per cent in the first quarter to the beginning of June, down from 2 per cent in the same period last year and 2.9 per cent the year before that.
Costa is trying to fend off competition by focusing on a more expensive ‘finer coffee’
Whitbread’s Premier Inn hotel business did better, with like-for-like sales up 4.7 per cent in the quarter and total sales rising 9.2 per cent as the company reaps the rewards of opening 9,000 new rooms over the last couple of years.
This helped total group sales to rise 2.9 per cent in the quarter on a like-for-like basis.
Shares in FTSE 100-listed Whitbread rose 3.6 per cent, or 138p, to 3,991p in morning trading.
Chief executive Alison Brittain said the group had a ‘good start to the year’ after warning in April of a ‘tougher consumer environment’ than last year and increased competition from artisans cafes.
Costa is trying to fend off competition by innovating its coffee products and focusing on a more expensive ‘finer coffee’. It also plans to open between 230 and 250 Costa coffee shops and install around 1,250 Costa Express machines this year.
Neil Wilson, market analyst at ETX Capital, said: ‘In a heatwave a hot coffee doesn’t quite hit the spot, so Costa-owner Whitbread will be hoping its Cold Brew and Frostino products will catch on. They will need to – like-for-like sales growth at Costa continued their slow decline as the nation switches to a wider array of pricier artisan coffees.’
He added: ‘Nevertheless, total sales continue to rise quickly – up 8.7 per cent this quarter… Slowing LFL growth is a concern but a top line growth and a focus on more expensive “finer coffee” should help.’
Meanwhile, Premier Inn continued to benefit from a ‘resilient hotel market’ and new additions, with 1,000 rooms opened since March in the UK and plans to open a further 4,200.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said the results were ‘pretty solid’ considering the economic backdrop.
‘They don’t show the spectacular growth of years past, but the UK business is a more mature animal than it was and that is inevitably going to slow growth,’ he said.
‘The group continues to set some fairly chunky growth targets for the rest of this year, which could be challenging if the UK economy remains sluggish. However, it’s the international business that seems likely to become the long term growth driver,’ he added.
Chief executive Brittain said: ‘Our continued drive to grow and innovate in our core UK businesses, focus on our strengths internationally and build capabilities to support long-term growth, combined with our ongoing cost efficiency programme, gives us confidence that we will make further good progress this year.’