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COMMENT: UK coffee market nears saturation

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Coffee Republic has revealed a loss of £7.5 million in the year to March 31. Poor results have forced the chain to consider a merger with a competitor. After years of rapid growth, it seems that the UK coffee bar market has finally reached saturation.

After several years of rapid expansion through repeated opening of new outlets, coffee bar chain Coffee Republic has had to put further growth plans on hold. Executive Chairman Bobby Hashemi, who had left the post of CEO last year, announced that he had called for a strategic review to find out how to maximize the potential of the company's 90 outlets.

Last year, Coffee Republic reported a loss of £2.4m, but this rose to £7.5m in the financial year ending on March 31. As a result, it plans to close 18 of its least profitable bars.

Amongst other measures, Coffee Republic is said to be considering a merger with a competitor, possibly Madison Coffee. This would end its existence as an independent company. However, any such change would require the approval of the hi-fi tycoon Julian Richer, who in the past few months has accumulated 11.6% of the company's stock. Mr Hashemi also indicated that he hoped that Coffee Republic would have secured new long-term banking facilities by the end of this calendar year.

At the close of trading on Tuesday, Coffee Republic's shares were priced at 2.75 pence, reducing the value of the company to just GBP6 million. This is the lowest value since the shares were first traded in 1997.

After several years of very fast growth, the UK market for coffee bars such as Coffee Republic, Starbuck's, Costa Coffee or Caffe Nero has finally reached saturation.

Related research: Datamonitor, "Drinks on the go (DMCM0047)" You can download a FREE food report at www.dmfreereports.com


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