Coffee shop and cafe brands are encroaching into restaurant and pub territory in a bid to steal market share. Are they the new face of all-day dining?
Step into the new Valerie’s Brasserie in Aberdeen and your experience will differ depending on whether you turn left or right at the threshold – or indeed head straight towards the champagne bar. To the left is the traditional Patisserie Valerie offer, complete with its usual array of brightly-coloured Gallic gateaux. But to the right is a new restaurant space serving everything from breakfast through to dinner, and from French cuisine to Italian and British.
Customers coming through the doors at 7am can expect everything from a ‘full Scottish’ to ranch-style eggs, while evening diners can tuck into a half-roast chicken, steak frites, lasagne or a burger. Grilled snacks, speciality sandwiches and antipasto platters also make up the daily menu, as do numerous other starters and salads. It’s Patisserie Valerie, but not as you know it.
It might seem strange that a business that has built a reputation for serving fancy French cakes and coffee should want to move into restaurant territory, especially when you consider the comparatively higher margins in selling the black stuff when compared with food.
Yet the company’s play for a greater share of the all-day dining market is not entirely out of the blue, especially given the fact that chairman Luke Johnson is a seasoned restaurateur. With operators across the sector wishing to sweat their assets by trading throughout the day and into the evening, Patisserie Valerie is just one of a number in the café-bakery sector that have identified the opportunities for a more food-focused approach.
“From a perception point of view, people are becoming used to places such as ours extending their offer,” says Patisserie Valerie CEO Paul May. “Patisserie Valerie trades all day up to 7pm but we realised we were missing an opportunity for evening trade. It’s a natural progression for us.”
Operationally, the move makes sense. “We’ve got the site costs, rents and rates and the infrastructure,” May adds. “The location has to be the right fit, of course. It isn’t going to work on every high street.”
There are currently two Valerie’s Brasserie, the other being based in Glasgow, and plans are in place to open a further two more – most likely across the border in the north of England. “Expectations of what the brand is about are still at an early stage in Scotland, which gives us the opportunity to try this out.
“Both sites will allow us to stretch the new format in different locations. If successful, it will be something we can consider for future openings and also allows us to look at incorporating aspects in selected established sites.
“We are being a bit greedy, and trying to nick customers from the casual-dining area, but there is plenty of potential for the brand.”
The evolution of the café
Given the current market, casual-dining chains have a right to be concerned about the ‘greedy’ manoeuvres of Patisserie Valerie and the like. What were once seen as mere places to grab a quick morning coffee, a lunch-break sandwich or afternoon slice of cake, are now being regarded as breakfast or lunchtime destinations in their own right. The café-bakery sector’s lead in providing free Wi-Fi and the quality of its coffee, which is often higher than that served at many restaurants, have also helped its cause. As these players’ offers become ever more sophisticated, high-street restaurant brands will inevitably find themselves competing on an additional front – not just against each other but against this evolved style of bakery operation.
Moreover, while restaurant groups that traditionally operate in the lunch and dinner-time slots struggle to build a stable breakfast and afternoon trade in a bid to become all-day specialists – Pizza Express being a notable example in recent years – café-bakery players are in a much stronger position to extend their offer. Only those chains that established their all-day credentials from the outset, such as Bill’s and Carluccio’s, can consider themselves to be in a strong position.
“When something is fundamentally associated with a restaurant experience the psychology among customers is that they can’t just come in and order a coffee or a cake,” says Jeffrey Young, managing director of Allegra Strategies’ World Coffee Portal. “Even in places that advertise breakfast or coffee, it still plays on customers’ minds that they are a lunch or dinner place. Coffee shops, by comparison, don’t have this problem with moving into food.”
The competition from the café sector is intensifying. According to Allegra’s Project Café13 UK report, the total UK coffee-shop market will exceed 20,500 outlets – up from some 16,500 at present – and a turnover of £8.7bn by 2018, with 4.5% annual outlet growth over the five-year period. The branded coffee-shop segment is forecast to exceed £4.1bn across 7,000 outlets over the same period, with Allegra estimating that the UK has the potential to host more than 9,500 branded coffee shops in the future.
“After 15 years of considerable growth, the coffee-shop sector continues to be one of the most successful in the UK economy,” says Young.
“Costa Coffee (1,670 sites), Starbucks (790) and Caffè Nero (560) remain the UK’s leading brands, with 54% branded chain market outlet share. Physical expansion by leading chains remains the core driver of market growth. In particular, Costa added 118 UK outlets and 18% sales growth in 2013.”
Brands such as Starbucks and Costa, where food sales typically account for only 25% of turnover, might not pose an immediate threat to the likes of Pizza Express or Wagamama, but some of their peers might. According to Allegra, the total number of food-focused coffee shops has risen from 221 in 1999 to 1,661 in 2013, with estimated annual turnover of these brands climbing from £328m to £945m during the same period. These include Pret A Manger, Eat, Pumpkin, Greggs, Patisserie Valerie and Benugo.
The offer of sandwich-focused brands such as Eat and Pret has certainly expanded in recent years. Pret now serves a range of hot food such as wraps, toasties and soups, as well as sushi and salads, while Eat has expanded into hot pies alongside its hotpots and soups. The size of both chains’ stores has increased as well, with some even matching the high-street casual-dining chains in terms of footprint and seating areas, and the brands increasingly compete with restaurant chains for A3 sites.
A slice of late-night trade
In the café-bakery arena, Patisserie Valerie is not alone in its quest for a larger share of the dinner trade. Apostrophe, the London-based pâtisserie-café chain, is this month introducing a new menu that will reflect the brand’s central London heritage. “It is quite a significant overhaul of our food offering,” says chief executive Amir Chen.
“The current plan is to roll it out in a few stores. We’re not going at it with a gun to our heads, we want to do it properly and in the right way. Apostrophe is perceived as being a very London-centric brand and we want the menu to reflect the fact we’re in the middle of this incredibly innovative, diverse food environment.”
London-based Le Pain Quotidien, meanwhile, is one of the few café-bakery operators to hold an alcohol licence at most of its sites, and serves a good range of wines – as well as beers and cider – as a result. It also has a comprehensive range of hot and cold food that extends into the night. Dishes on the evening menu, which is available from 5pm, include risotto; steak and ale stew; confit de canard; and Lyonnaise salad, while lunch features savoury tarts, tartines and pot pies.
Paul UK also holds an alcohol licence at a number of its sites and CEO Jean-Michel Orieux says the boulangerie brand is working to boost its restaurant credentials. Although the majority of its UK sites have a takeaway-centred offer, the company is making moves to follow in the footsteps of many of its international sites and provide a more extensive bistro-style operation.
“Paul worldwide has had table service in many operations for years, from breakfast all the way to dinner,” says Orieux. “Last year we refocused on the basics in the UK, which we have been doing well, but things are not perfect. We are reviewing our catering offer to make it more substantial.”
Paul operates two table-service restaurants in London – in Covent Garden and Marylebone – as well as 30 takeaway shops with limited seating. It is currently refurbishing its Covent Garden site to give it a fresher look – although it will retain the Parisian feel – and bolster its evening food service, even if Orieux is tight-lipped about the exact menu changes. The company plans to expand outside the capital for the first time later in the year, with the south-east a prime target, and this bistro approach will be used as a blueprint for the rollout.
“Until now our focus has been on developing the brand in London. The retail element evolved as a response to the market, but outside London we need to satisfy takeaway demand, as well as appeal to a more destination-led, eat-in clientele.
“Over the past 10 years customer expectations have changed. Some of the Pret A Mangers and Caffè Neros today are nothing like the small cafés of old as a response to changes in consumer habits, and we need to do the same.”
With the proposed changes to Covent Garden, Paul will become a viable alternative to nearby restaurant chains such as Brasserie Blanc, Bill’s and Café Rouge, although Orieux believes the competitive set is broader still. “It depends on the time available for the customer – and the occasion – as to where they now eat. Twenty years ago, when we were looking at competitors, we considered brands with the same market positioning as us, but now it is much wider. The same consumer will visit us as well as Itsu, Brasserie Blanc and even Hawksmoor. Success is down to developing loyalty and ensuring value for money.”
Euphorium Bakery, the artisan chain in which Tesco has an interest, is yet another café-bakery determined to serve more than just coffee and pastries. The brand has introduced a carvery offer at its flagship site in Threadneedle Street, City of London, and gives customers the choice of ordering food from its counter or the dining area. The menu includes hot breakfast sandwiches – with bacon carved straight from the joint – as well as 28-day matured Scottish roast beef rib.
The potential to take a slice of the evening trade and introduce alcohol isn’t limited to places with a strong food offer. Coffee chain Harris+Hoole, in which Tesco also has a stake, recently secured alcohol licences for its sites in Sunbury-on-Thames and Walton-on-Thames, both in Surrey; and North Finchley, London. They don’t as yet serve it, but chief executive Nick Tolley believes it will add a further “string to our bow of services”. Indeed, Tolley says the company hit upon the idea after being told by customers that the cafés would be a nice location for an after-work drink.
“We are – and always will be – a coffee-led operation, but in some sites we feel that having the option of opening later and serving a nice wine or selected craft beer is worth exploring,” he says. “We want to have lots of community events in the shops and would keep them open late to do that. Having a coffee at seven or eight in the evening is the last thing people want to do, as opposed to having a glass of wine or a nice beer.”
Alongside this approach, the company is starting to look beyond coffee and pastries and has added pizzas and burgers to the menu at its Sunbury site.
Lessons to take away
As well as competing with high-street restaurants, the battle between café brands is also intensifying. Players that have traditionally operated in the sit-down market are starting to explore takeaway as another avenue, pitching themselves against not only the fast-casual burrito bars and the likes of Leon and Feng Sushi but sandwich-led operations such as Eat and Pret A Manger.
Not only does Patisserie Valerie now do takeaway, which May describes as “another missed opportunity”, but it recently launched an online sandwich delivery service in central London after a successful trial in Leeds. The company is now set to expand the service to Reading, Manchester, Liverpool, Sheffield and Scotland.
In addition, last month it bought 23-strong premium sandwich and salad chain Philpotts. The brand provides corporate lunches, something that will begin to be offered in Patisserie Valeries in future, according to May. In a two-way relationship, Patisserie Valerie will use its cake know-how for the benefit of the sandwich chain. “Philpotts is very focused on the lunch trade and we want to use that to our advantage and look to extend its trading hours and offer morning and afternoon goods.”
With Patisserie Valerie believing it can open up to 200 sites, and parent company Patisserie Holdings already sharing best practice between the Druckers, Baker & Spice and Flour Power City pâtisserie and bakery brands that it also owns, the threat from café-bakeries to more traditional restaurant chains is more than just a storm in a coffee cup. Something bigger is brewing.
