Costa
Costa delivered a strong and accelerating performance during the year.
2009/10 was an outstanding year for Costa. Pre exceptional operating profit grew by 59.5% to £36.2 million; 312 net new stores were acquired or opened; like for like sales increased by 5.5%; and our international business became profitable.
Costa also made its first acquisition, Coffeeheaven, with stores in Poland and other Central European countries. Costa operates in 25 countries and is now the number two international coffee shop operator with 1,600 stores: 1,069 in the UK; and 531 overseas.
In addition to the 89 Coffeeheaven stores acquired at the end of the year, Costa opened 223 net new units in 2009/10. Of these, 188 were in the UK, further demonstrating that the brand's domestic market is far from saturated. Sales performance improved strongly across the year, confirming the brand's resilience, even in a recessionary environment.
Our international business became profitable in the year, despite continued investments in China and Russia. This reflected a strong contribution from our franchise businesses and continued progress in the joint ventures.
| Costa | 2009/10 £m |
2008/09 £m |
% Change |
|---|---|---|---|
| System sales | 515.7 | 401.9 | 28.3 |
| Revenues | 340.9 | 276.3 | 23.4 |
| Like for like sales % |
|
|
5.5 |
| Operating profit, pre exceptional | 36.2 | 22.7 | 59.5 |
| Operating profit, post exceptional | 35.9 | 22.6 | 58.8 |
Costa's commitment to delivering an unbeatable coffee experience gained momentum with three significant initiatives:
- Our '7 out of 10' campaign emphasised how consumers are discerning in their coffee choice. The campaign played a central role in enhancing like for like sales which grew, almost entirely, as a consequence of more customer visits;
- The addition of Costa's new Flat White coffee added another option for coffee lovers, with over a million Flat Whites sold since the launch at the end of January; and
- Costa launched the sector's first electronic loyalty scheme and customer database. The Costa Coffee Club card enables customers to earn points with every purchase at Costa. In the first month since its introduction on 4 March this year, well over one million cards have been used by Costa customers.
During 2009/10 Costa demonstrated outstanding growth momentum, forged even stronger engagement with its customers and set the platform for growth.
Three key themes
Outstanding, consistent growth trends - in both
sales and number of units;
Strong, customer-driven market position - a
compelling proposition and robust business model; and
Significant future growth potential - in the UK
and overseas.
Corporate responsibility
The key elements of the Costa corporate responsibility agenda are:
- our coffee which will be sourced entirely from Rainforest Alliance accredited farms;
- our milk which we can trace 100% to a single UK supplier based in the south-west and is delivered in lightweight plastic pouches, which significantly reduce waste; and
- our new, more environmentally friendly, takeaway cup.
We are also very proud of the Costa Foundation which was set up to fund the building of schools in coffee-growing regions. More details and case studies about our Good Together program can be found in the Corporate Responsibility section.
KPIs
The WINcard results for Costa are shown below:
| 2009/10 WINcard results | |
|---|---|
| PBIT |  |
| Cash | |
| Store openings | |
| Brand standards | |
| Guest measure | |
| Like-for-like sales growth | |
| Team turnover | |
| Health and safety | |
More information on the WINcard, together with the Group WINcard results, can be found in the KPIs section.
Markets and competition
It is estimated that there are around 9,400 coffee shops in the UK, with 4,000 of these being branded coffee shops. The growth projection for this market is around 8%. Costa is well positioned with 1,000 stores and we plan to double in size in the UK. This is a very competitive market which Costa leads in terms of numbers of stores, superior coffee and service.
Overseas, Costa is focused on large and fast growing regions such as China, India, Russia, Central Europe and the Middle East, where it sees significant potential for the brand.
Our people
The very successful year Costa has had reflects the excellent teams in its stores. Our very low employee turnover is good evidence of the strength of those teams which is backed up by the training academies which focus on the importance of coffee making skills.
Risks and uncertainties
Many of the risks and uncertainties at Group level are also applicable to Costa. Some more specific risks are: failure to achieve growth targets; failure of a franchise, joint venture partner or third party supplier; failure of a significant health and safety procedure; and interruption of production at the Costa roastery.
