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Last Updated: Wednesday, 9 June, 2004, 09:33 GMT 10:33 UK
Store Wars: Cappuccino Kings
At £3 for a cappuccino, you'd be forgiven for thinking coffee shops were a great business. But they're not, according to industry insiders who say that competition is cut-throat and that many of them are struggling to make ends meet. The Money Programme investigates.

Britain hasn't always been obsessed by skinny decaf lattés - back in the 1950s it was all about tea. Our tea consumption then was 50 times that of coffee and while coffee bars did exist they were more of a refuge for artists and writers than a grab and go style accessory.

Instant sunshine?

As recently as the 1980s, if you asked a Briton what sort of coffee they drank, it was invariably an instant variety.

About the closest Britain came to excitement in the coffee stakes was the advertising for the most high-profile brands of the day, such as Gold Blend and the "will they, won't they" storylines dreamed up for the suave, sophisticated couple pictured in the adverts.

Two Americans, Scott and Ali Svenson, came to the UK in 1990 from Seattle. Well used to a day-time diet of Starbucks coffee, their first experience of a British cafe was a disaster - all weak and watery, presented in a tasteful styrofoam cup. So was born the beginning of an empire, the Seattle Coffee Company and then Starbucks' UK invasion.

Multinational dominance

Seattle multiplied but, as it grew, others followed suit, and its 49 outlets were soon swallowed up by Starbucks, which went on to open an average of more than five stores every month in the UK from 1996 to 2000.

Prices paid for the prized high street locations spiralled until Starbucks forked out an eye-watering £1.5m in a Leicester Square rental deal.

As the competition struggled to compete, Starbucks kept running its expensive sites at a loss, prompting accusations that they were using their muscle to unfairly squeeze out the opposition.

Starbucks didn't just upset its rivals. Its drive for world dominance meant it was becoming a symbol of globalisation, and therefore a target for protestors.

Meanwhile, in 2002 Coffee Republic lost £7.5m. Caffe Nero struggled on under a debt mountain of £7m while casting around for possible takeover targets to gain a bigger share of the market.

Market saturation

Nowhere is the cappuccino conflict between cafe operators more obvious than in London, where some streets will have all four of the big players based within a stone's throw of each other.

Massimo Bergamen, area manager for the Costa group, is opening a new flagship store on the Strand in the heart of London's West End. But next door is Caffe Nero and Coffee Republic is on the other side of the road. It's a cut-throat business.

And is any of the coffee any good? Louis Salvone, coffee connoisseur and spokesman for the Real Coffee Society says quality varies a great deal. He sampled a Coffee Republic offering, specially for the Money Programme: "Presentation good, still only tasting milk, still milk, now I'm getting the coffee hit ... well, the best espresso I had today was Costa's but the best cappuccino was probably Coffee Republic's, so there you go."

It's not a resounding judgement. But, whoever wins the business battle, we've all fallen for the charms of the latté and the cappuccino - and coffee bars are now part of the British way of life.

First in a three part series looking at the war between high street stores. This first programme looks at the many coffee shops now fighting for our attention.

This programme was first transmitted on Wednesday 12 February 2003.



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