5 dynamics shaping Europe’s branded café market

Major branded coffee chains still dominate Europe, with the 20 largest operators holding a 48% share of the total market | Photo credit: via Shutterstock

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1. European coffee chains achieve broad recovery

Europe’s successful Covid-19 vaccination programmes have enabled coffee chains in most markets to trade with fewer restrictions and regain some losses sustained during the pandemic.
 
Project Café Europe 2022 shows the total European branded coffee shop market grew 3.2% over the last 12 months to reach 40,675 outlets, regaining momentum from the 0.9% outlet growth achieved in the year previous.
 
Further indicating improved trading for many operators following the pandemic, 29 out of the largest 40 European markets by outlets expanded in size over the past 12 months –a significant recovery from the year previous when nearly half of markets shrank by outlets.
 
The UK remains the largest branded coffee shop market in Europe with 9,540 outlets, ahead of Germany’s 5,464 outlets, and Russia’s 4,318 outlets.
 
Despite the positive momentum, rising costs, soaring energy prices, and economic disruption from the war in Ukraine are piling fresh pressure on European operators still fragile after two years of pandemic disruption. Nevertheless, 57% of industry leaders surveyed had a positive view of the current trading environment for coffee shops in their country, up from 33% in 2021.
 

2. Major branded café chains still dominate the market

Major branded chains still dominate Europe, with the 20 largest operators holding a 48% share of the total market and 64% of outlets belonging to multi-national operators. UK based operators account for a fifth of Europe’s total branded café outlets with 124 operators originating from Europe’s largest branded café market.
 
UK-based Costa Coffee remains Europe’s largest coffee chain with 3,263 outlets across 19 markets, having opened 87 net stores over the last year.
 
US-based McCafé, Russia’s One Price Coffee and US-based Starbucks are the fastest-growing coffee shop brands in Europe, opening 305, 240 and 108 net new stores over the last 12 months.
 

3. Inflation and war in Ukraine cast a dark shadow over the market

European coffee shops emerging from the pandemic in an already weakened state following two years of trading disruption must now grapple with a new set of challenges over the next 12 months. Rising energy and raw materials costs are already impacting businesses, with Italian roasting giant Lavazza reporting coffee costs have risen by 80% over the last 12 months.
 
The Russian invasion of Ukraine has created a humanitarian disaster and exacerbated these challenges, dampened consumer confidence, and caused further supply chain disruption for coffee businesses already weakened by the pandemic.
 
Prior to the invasion, Ukraine had been the fastest-growing branded coffee shop market in Europe, expanding by 16% over the last 12 months to reach 259 outlets. However, no future growth projection will be made by World Coffee Portal until the situation stabilises.
 
Meanwhile, many Western multi-national operators including Starbucks, Costa Coffee and McCafé have temporarily suspended operations in Russia. These outlets are still counted in the market sizing but are expected to become longterm withdrawals in the coming year, with pulling out of Russia bringing significant costs for these international coffee chains.
 
Nevertheless, despite the significant challenges facing European cafés, 60% of European industry leaders surveyed believe trading conditions will improve over the next 12 months, the same proportion as in 2020.
 

Industry leaders surveyed by World Coffee Portal highlighted a 100% recyclable materials policy as the most desirable sustainability policy in their market

 

4. Sustainability returns to focus following Covid-19

European coffee shops are slowly turning their attention back to sustainability after the pandemic led to a pause in many initiatives, particularly regarding single-use cup and utensil use for hygiene reasons.
 
Industry leaders surveyed by World Coffee Portal highlighted a 100% recyclable materials policy as the most desirable sustainability policy in their market, followed by increased use of biodegradable packaging and greater transparency on supply chain sourcing.
 
However, indicating that some progress has been lost during the pandemic, the proportion of industry leaders indicating coffee shops can be proud of their sustainability initiatives fell to from 45% to 35% over the last 12 months.
 

5. Healthy and premium products gain ground

 
Looking to the year ahead, many European operators are seeing significant potential in health-focused products and specialty coffee. Products with no added sugar, as well as gluten free and dairy free options are considered to possess the most enduring commercial potential.
 
Specialty coffee is also gaining traction in European markets according to industry leaders surveyed. The majority (65%) believe that consumer appetite for speciality coffee has significantly increased over the last 12 months, an increase of 15% since 2021.
 

For more information about Project Café Europe 2022, visit worldcoffeeportal.com/reports

This article was first published in Issue 10 of 5THWAVE magazine.
 
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