Inside Track by Mark Wingett
“The new logo is undistinguished and bland. Don’t like it. It looks like a more generic grocery chain brand”. That was one of the many initial responses fired out into the blogosphere on the subject of Starbuck’s new “Siren” logo, which was officially launched this month in conjunction with the global coffee chain’s 40th anniversary celebrations.
While not complimentary, the “generic grocery chain” part of the comment is probably a fair estimation of the direction that the world’s largest coffee chain now finds itself steering towards.
Diversification is the company’s new watchword. In an interview with Reuters, chief executive Howard Schultz said that although building cafes in fast-growing markets, such as China, will certainly play a role in future growth, it will be the power of its branded products, such as via instant coffee, that will be the main driver of growth in the US going forward.
“We are going to create a consumer products business in North America that over time will rival the size and scale of our US retail business,” said Schultz. In 2010, Starbucks’ global consumer packaged goods business brought in $707.4m (£438.5m), or about 16% of total revenue.
Schultz said that the change in logo is linked to the company’s plans to sell a line of consumer products; some of which may not have coffee as an ingredient.
He said the first big international push will be in markets where Starbucks already has a strong presence with cafes and existing consumer goods. For example, it already sells bottled drinks and packaged coffee in Britain and Japan.
The unveiling of the new Starbuck’s logo and its new direction, came closely after Whitbread gave the coffee sector its own shot in the arm, with the near £60m acquisition of vending operator Coffee Nation and at the same time the launch of new brand Costa Express.
Costa will use the purchase of Coffee Nation to develop Costa Express and is targeting 3,000 bars across the UK over the next five years, as part of a £30m investment.
As Whitbread FD Chris Rogers said: “We believe there’s a huge market demand for high quality self service coffee. We think that the huge increase in demand for sophistication in coffee in the high street convinced us that the self service market will grow substantially.”
This increase in demand for high quality high street coffee offers, is also being matched by many consumers’ desire for new coffee experiences away from the usual branded sites.
It is a trend that all the major players, including Starbuck’s, Costa, Coffe Nero and Coffee Republic, are tapping into, trialling new generations sites, with toned down brand references.
Whitbread CEO Andy Harrison told M&C Report that the group was happy with the small number of Costa sites that the company had converted to its new look “metropolitan” style, which, he said were “performing well”. The company currently has eight sites operating under the new look, including some in the capital and others being trialled in major city and town centres, including Edinburgh.
He said the company would continue to explore other opportunities to trial the sites, especially in large cities and university towns.
The challenge to these new formats and also to the long established, fully-branded sites is currently coming from the growing number of Antipodean-run coffee concepts headed by Soho’s Flat White and the six-strong London-based Sacred chain.
The Melbourne-based St Ali is rumoured to be the next purveyor of coffee from down under to open in the capital, following Green Cauldron Coffee, which opened the first of a planned 50 stores in the UK last month in Liverpool.
Australia’s Green Cauldron Coffee is set to invest £12.5m in an effort to break into the UK market. Beverley Seymour, director of Green Cauldron Coffee, said: “Australia has long celebrated a rich artisan cafe culture and the country leads the world in creating the perfect cup of coffee – they are obsessed by it, and we are determined to raise the espresso bar in the UK.”
With the UK coffee market forecast to expand by as much as 25% to £976m by 2014, there is set to be a lot of jostling at that espresso bar for market share.
Wagamama, almost there?
Hopes that a reported £215m deal between Duke Street and Lion Capital for the international noodle chain would complete last Friday faded as many people were taking their lunch.
Those close to the negotiations remain confident that this week will see the conclusion of a process that started last September, when Lion appointed NM Rothschild to sell the chain.
After a couple of false starts, there is a feeling that Wagamama will change hands over the next seven days, in a deal that should secure a hefty windfall for Lion, which bought the business for around £100m in 2005.
Wagamama’s most recent annual results, published in August, showed underlying earnings up 22% to £20.9m in the 12 months to April and sales up 8.6% to £109.6m. The price tag of £215m would represent an ebitda multiple of just over 10 times based on current figures.
What Duke Street, which formerly owned the Esporta health club chain, gets in return is a high quality, established restaurant business with the capacity for a major roll out.
Well led by chief executive Steve Hill, Wagamama currently operates c.70 restaurants in the UK. It also has franchises in European countries, the Middle East and Australia, plus three sites in the US.
Speaking at M&C Report’s Restaurant Conference last year, Hill said he believed the company had the scope to open as many as 650 outlets under its management in the US.
Whilst 650 may be over optimistic, there is still plenty of room for further expansion in the UK. The soon-to-launch new site in the West Sussex town of Horsham is an interesting move, and if successful, will open up further town centre opportunities for the chain across the country.
