In the latest in a series of immersive, innovation-focused long reads, MCA explores how an emerging generation of upscale coffee shop operators are looking to reshape the mainstream market 

From emerging trend to established market: The ascent of specialty coffee

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Coffee and tea went head-to-head in the battle to claim the title of the nation’s favourite drink, with coffee narrowly wrestling its way to victory – in a country of tea lovers. Statista research revealed last year that 63% of consumers regularly drank coffee, compared to 59% for tea, evidencing that the emergence and resulting prevalence of high street coffee has left its mark on the UK consumer.

Coffee is the most popular drink in the food to go sector, with the coffee shop and café channel forming £1.8bn of the total food to go market in 2023, according to Lumina Intelligence. It is forecast to reach £1.9bn in value this year, up 12.8% since 2019.

Now that decades-old coffee giants are firmly established, specialty brands are demonstrating why they’re deserving of their rising status in the market. Harry Goddin, former head of sales at Allegra and now commercial director for the London Coffee Festival, tells MCA the pandemic kicked off a shift in coffee consumption that’s been sustained four years later.

“People spent more time at home and on equipment but then this interest has transferred to out of home and consumers seeking out unique and high-quality experiences. This shift has allowed specialty coffee to transition from an emerging trend to an established market segment.”

Harry Goddin, commercial director, London Coffee Festival

Sunday brunch spend has now overtaken Friday night spend, adds Goddin: “These shifts are pointing in the right direction for the speciality coffee scene in the UK and I only think it’s getting started.”

Lumina attributes the growth to new opportunities for expansion – such as travel hubs, drive-thrus, and smaller, more digitally advanced stores – but also the enduring appeal of coffee culture. MCA spoke to operators at the forefront of the specialty boom, all of whom are inclined to agree.

 

The coffeehouse is seen as aspirational

Black Sheep Coffee centremk 2

One group that has taken advantage of the premiumisation of coffee consumption is Black Sheep. Gabriel Shohet and Eirik Holth established the brand in 2013, with a contrarian use of the the more bitter robusta bean, and now operates an estate of 80 sites across the UK, with outlets in the US, France, and a 250-site franchise agreement for the Middle East.

“The premiumisation is primarily characterised by a significant drop in instant coffee consumption in mature markets. A much greater amount of people are interested in knowing more about coffee provenance and seek out specialty-grade coffee in their daily habits, which has benefited Black Sheep.”

Gabriel Shohet, co-founder, Black Sheep

US-founded Blank Street launched in New York in 2020 and in the UK in 2022. It has since scaled rapidly to c30 sites in the UK and c50 in the US. At the time of its UK debut, Blank Street UK MD Ignacio Llado told MCA that tech and small unit size has allowed the brand to “bridge the gap between quality and cost.” At £3 or under for a small coffee at the time of launch, Blank Street defied expectations of the premium attached to specialty coffee.

“London’s coffee scene is unlike any other city…It’s a huge market with almost 2,000 coffee shops in London alone and 75% to 80% of all of them are big chains…It’s the Prets, the Costas, the Starbucks and the Neros. And our view of them is that they haven’t really changed much over the last 10 years. So we’ve really come in here to raise the bar. I think that’s very simply why we have come here. And by that, we mean bringing some life back to the stores.”

Ignacio Llado, UK MD, Blank Street

Another specialty offer making its mark is Roasting Plant. Mike Caswell, a former executive at Starbucks, founded the business in Manhattan in 2007 and brought it across the pond in 2019. CEO Jamie Robertson operates Roasting Plant’s six sites in London. He likens growing consumer tastes for specialty coffee, helping along by Covid, to the evolution of wine.

“If you look at the history of wine, it went through the same evolution. We used to have very limited choice. Now everyone knows their Cabernets and Merlots. Coffee is on a very similar journey to wine…people are willing to spend a lot more when they are educated on the product.”

Jamie Robertson, global CEO, Roasting Plant

Consumers had time to experiment during lockdown, and the growth and accessibility of specialty coffee has helped them experiment further, says Roland Horne, founder of WatchHouse. The premium coffee house group debuted in Bermondsey in 2015 and has now grown to c19, including one in New York.

“Specialty coffee doesn’t need to be stuffy, arrogant, or only for hipsters. It should be inclusive enough for people with different interests to dip in and out. The café or coffeehouse has in many ways replaced what is seen to be aspirational. People will happily go to one of our cafés on a daily basis.”

Roland Horne, founder, WatchHouse

More knowledgeable consumers come with higher expectations, but Robertson says this has only helped Roasting Plant become the “Willy Wonka of coffee.”

“People now expect a lot from their £4 flat white. They want to know it’s from a sustainable source, fairly traded, and offers a great customer experience.”

Jamie Robertson, global CEO, Roasting Plant

Specialty coffee is better for everybody

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Where does specialty coffee sit, then, alongside coffee giants that have been around for decades? Costa, Starbucks, and Caffe Nero remain by far the top brands by outlets, with Costa at nearly 3,000 across the UK, according to Lumina. Starbucks is a distant second at c1,200, followed by Caffe Nero at c600. Nero’s tally rises another 150 in the UK when adding in its sister brands, community-oriented Coffee#1 and specialty-leaning Harris + Hoole, while there are c1,000 Caffe Nero site worldwide. 

The top 20 largest European operators – including McCafé, Starbucks, Costa, Greggs, and Caffe Nero – account for nearly half of the total branded coffee shop market, according to the World Coffee Portal.

“Mass-market coffee chains still dominate and pick and choose locations which we all know are key for footfall. However, with the rise of Google reviews and maps, I believe people are going to continue to be more selective and go that extra mile for a more unique experience.”

Harry Goddin, commercial director, London Coffee Festival

It’s not only the behemoths standing their ground. World Coffee Portal forecasts the total UK independent coffee shop market will exceed 12,400 outlets in the next 12 months, with total sales forecast to surpass £4.8bn next year. As a challenger to mass market, WatchHouse doesn’t aspire to be “the dominant fish in the ocean,” Horne explains – the idea is to be among the businesses modernising and evolving the coffee market.

“We’re not a mass market proposition by definition. You see some of the mass market operators premiumising and taking some of the lexicon and vocabulary we have around origin and provenance. We’re always going to be the little brother in the room, but we do see a huge amount of opportunity out there.”

Roland Horne, founder, WatchHouse

Shohet is of a similar view but argues the behemoths should avoid taking their status for granted.

“Mass market coffee chains play a critical role in the ecosystem and will continue to do so. But only those that focus on quality and value will survive in the long term.”

Gabriel Shohet, co-founder, Black Sheep Coffee

Robertson points out that brands like Nespresso sit in between mass market and specialty propositions, offering convenience and higher quality at the same time. The Nestle subsidiary opened an on-the-go coffee shop near London’s Liverpool Street station last month.“The coffee loses some of its flavour and freshness when it’s processed into a pod,” he explains. “Still, we’re grateful to Nestle for elevating the experience. Mass market may retain an edge when it comes to accessibility and functionality, but specialty can grow in tandem.

“Most chains are highly functional, quick and affordable and that’s all some people want. One of the pillars Costa strive for is a customer is waiting no more than 120 seconds until they are served, something most speciality shops couldn’t do, and don’t want to do. You’re not going to see a drive-thru WatchHouse or an Ozone vending machine, but the market is big enough for both mass-market and speciality to thrive.”

Harry Goddin, commercial director, London Coffee Festival

Robertson acknowledges specialty coffee “is not for everybody” – but emphasises it’s nevertheless better for everybody, primarily farmers and the environment.

We feel we can play with prices, and justifiably

Roasting Plant

Coffee shops may have stayed remarkably resilient, but post-pandemic trading patterns and cost pressures have taken their toll. Lumina Intelligence found average spend in coffee shops fell 4% year-on-year in 2023 as consumers became less likely to buy more than a beverage. Still, coffee remains the most popular drink in the food to go sector – despite price rises of 10.5% on average over the year.

 

Starbucks led the way, with the price of a cappuccino rising 26.2% to £3.85 between Q1 2023 and 2024. The coffee giant remains one of the top brands by outlet growth.

“The Black Sheep model works because profitability is a function of value, and value is defined by the level of service and quality delivered at a given price point.”

Gabriel Shohet, co-founder, Black Sheep Coffee

In today’s cost environment, is growing popularity enough to sustain specialty coffee brands, then? Only if they’re nimble, says Robertson. Through a combination of technology, lower inputs, and consistently delivering on customer experience, Roasting Plant has been able to stay above ground. “We don’t have a big roastery or massive labour costs…being tech-enabled has allowed us to really shine. You can get your coffee within 45 seconds of tapping your card.

WatchHouse has similarly hit the right balance, according to Horne. It pays the London living wage, but this has paid off through higher staff retention.“The economics are a function of four to five metrics,” he explains. “You have to be able to spin those plates carefully.” Horne attributes WatchHouse’s success as evidence that consumers are willing to pay more for a better cup.

“Pre-Covid, we were obsessed with the idea that you can’t have a flat white over £3. The shackles of a price ceiling have been broken, to a degree, by Covid and inflation. We feel we can play with prices, and justifiably. The consumer will have fatigue, though, so we have to be careful.”

Roland Horne, founder, WatchHouse

Coffee’s status as both a ritual and affordable treat means WatchHouse has seen growth in both customers and like-for-like sales. “It’s legally addictive, so there’s a biological reason why people keep coming back,” adds Horne. “But customers do want our product and our experience. “Another thing they really want is human connection.”

There’s room for everybody

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The human connection factor is why Horne, Shohet, and Robertson alike see their coffeehouses as community hubs. Blank Street, meanwhile, has taken a different approach.

“Operating in small format locations is part of the Blank Street DNA and something the brand is still focused on. That said, we know that the optimal size of a store also needs to have room to grow with new offerings.We went from 50-100 sq ft carts to 400-500 sq ft retail space in order to accommodate both larger counter space and test new equipment.”

Ignacio Llado, UK MD, Blank Street

For Roasting Plant, though, higher costs are worth the buzz in its cafés. The business does operate some smaller format units in Selfridges, for example.

“We find our bigger formats perform extremely well. There’s room for everybody.”

The WatchHouse café experience – what the World Coffee Portal terms a ‘boutique-at-scale model’ – has been integral to its success, adds Horne, but with the product front and centre.

“I like the guys at Blank Street – they’re scaling, not just sitting there,” Horne says. “If they turn up with a better coffee and better food, we deserve to be thrown out of the market.”

We’re moving to something that feels more real

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As operators look across the Atlantic and farther afield, other markets are seeing growth in both mass market and specialty. World Coffee Portal research found the UK, Russia, France, and Turkey achieved single-digit outlet growth, but Horne points to more nascent markets like India and China, where tea reigns supreme but coffee is slowly gaining popularity.

In the UK, coffee has been slow to leverage its daily ritual status, but with loyalty schemes now rewarding customers who keep coming back, this is changing.

The Club Pret loyalty scheme launched in April last year as an evolution of the Pret Coffee Subscription with 17.8 million redemptions in its first three months, up 31% year-on-year, according to the brand. The digital transformation has helped the brand return to profitability post-pandemic.

In the world of specialty, Black Sheep’s upcoming Robusta Club scheme will be a game changer, says Shohet.

“Robusta Club [will be] by far the most generous loyalty incentive in the marketplace, so that our price point does not prevent anyone from visiting our shops regularly.”

Coffee is leveraging tech to fulfil orders, but there’s more to come, says Robertson. The tech to serve specialty roasts through self-serve exists, but needs to be perfected, he explains.

Next is the automation of maintenance and cleaning – “all the stuff everyone hates doing” – to resemble a tech-first experience similar to retail giants, he adds.

Tech will help specialty coffee compete with the bigger players, who continue to dominate in spaces like travel hubs and drive-thrus because they can handle higher volumes.

Shohet is confident that consumers will continue trading up but admits the current environment will result in some closures.

“As prices continue to rise, it will be a survival of the fittest.”

Horne agrees: “We will see some shaking out in the market. It’s a hard sector to be in.”

Still, the future of specialty coffee lies in a quality, differentiated offer.

Diversification into multiple revenue streams has stayed a key trend, whether through expansion into retail, wholesale, and ecommerce, or different day parts – for instance, Black Sheep’s cocktail offer to boost evening trade. Sector-wide, experiences are taking centre stage in the form of masterclasses, tastings, and workshops.

“The days of Starbucks scaling by selling a drink for £5 are over. There’s not enough reason to be in that space without the ability to flex and product differentiate. That’s what’s next – moving away from a monotonous, ops-led model to something that feels more real.”

Roland Horne, founder, WatchHouse