Press Release Project Caf10 UK Embargoed until 00:01 Friday 17 December 2010

UK coffee shop market reaches all time high of 5.0 billion turnover as boom in coffee continues.
Consumers have never had so much venue choice, with the 5.0 billion UK coffee shop market, including branded chains, independents and non-specialist operators comprising 14,022 outlets in 2010. The market, particularly the branded coffee shop segment, has demonstrated remarkable buoyancy during the recent economic downturn, comfortably out-performing the wider retail sector. Research from Project Caf10 UK, Allegras definitive annual study of the UK coffee shop market, revealed impressive sales growth of 12.9% during the last 12 months by the branded coffee shop segment (e.g. Costa, Starbucks, Caff Nero and Pret), exceeding 1.94 billion in revenue. Jeffrey Young, Managing Director, Allegra Strategies said: After more than a decade of analysing this market, I have never seen such exciting developments in the UK coffee shop market. This year the market grew by more than 12% compared to 2.5% for the UK retail sector, adding more than 800 outlets in 2010 in challenging economic times. With increasing quality of coffee, better environments from both chains and independents and greater consumer appreciation of coffee and coffee houses, the market is poised for significant further growth over the next 3-5 years.

Market size and growth

Within the UK coffee shop market, the branded coffee shop segment is estimated at 4,650 outlets with growth stable at 6.1% in 2010. Branded coffee chains, including coffee-focused and foodfocused operators, account for 33% of outlets and 39% of total market revenue. Further branded coffee shop segment share growth is guaranteed. However, the established coffee chain operators face increasing pressure on quality and price from high quality artisanal independents and value-driven non-specialists such as McDonalds and J D Wetherspoon. It is these non-specialist operators, together with department store cafs and motorway and forecourt operators that are the primary driver of total outlet growth, adding 468 sites in the last 12 months, accounting for 54% of overall outlet growth in 2010.

Press Release: Project Caf10 UK December 2010 Allegra Strategies Ltd

Key players
Revenue growth has been driven by strong performances by the leading 3 branded coffee chain operators Costa Coffee, Starbucks and Caff Nero. Costa Coffee reported 35 consecutive quarters of positive like-for-like sales growth Starbucks Coffee Company returned to growth after two years of declining sales Caff Nero continued its long period of consistent sales growth These three established branded chains account for 84% of coffee-focused segment sales (of 1.2 billion) with combined revenue of 1.0 billion. With 1,175 outlets and 462 million annual revenue, Costa Coffee is the new market leader and is now the UKs favourite coffee shop.
Store Numbers Turnover

Operator

London 212 286 165 19 30 26 2 10 3 0 0 11 0 0 0 108 872

Regional 963 445 275 90 53 33 40 28 30 19 15 1 9 7 2 291 2,301

Total 1,175 731 440 109 83 59 42 38 33 19 15 12 9 7 2 399 3,173

Market Shares By No. of Stores at Dec-10 37.0% 23.0% 13.9% 3.4% 2.6% 1.9% 1.3% 1.2% 1.0% 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% 12.6% 100%

% Change in Share, Dec-09 Dec-10 3.2% -1.2% 0.0% -2.8% 0.5% 0.3% -0.1% -1.8% 0.0% 0.0% 0.1% 0.1% 0.0% -0.2% -0.1% 2.2%

2010 Market Shares By Turnover 37.6% 32.4% 14.3% 2.5% 1.5% 1.5% 0.9% 0.8% 0.7% 0.4% 0.3% 0.3% 0.4% 0.2% 0.1% 6.0% 100%

% Change in Share, Dec-09 Dec-10 4.6% -2.1% -0.5% -0.9% 0.0% 0.1% -0.1% -0.6% 0.0% 0.0% 0.0% 0.0% 0.1% -0.1% -0.1% -0.2%

Costa Coffee Starbucks Caff Nero Caff Ritazza Coffee Republic AMT Coffee Caf Thorntons Puccino's Esquires Soho Coffee Company Coffee#1 Caff Fratelli Boston Tea Party Morellis Cappuccino Bars Gloria Jeans UK Others Total

Press Release: Project Caf10 UK December 2010 Allegra Strategies Ltd

Food-focused leaders, Pret A Manger and EAT, with combined annual revenue of 293 million account for 41% share of the food-focused segment sales of 708 million.

Consumer trends
Coffee shops are integral part of the British lifestyle. Allegras research with 16,458 consumers shows that visitor frequency increased in 2010, with 68% of consumers interviewed visit coffee shops at least once a week compared to 64% in 2009. Consumer confidence is returning and 39% state they visit coffee shops more often than 12 months ago.

Market Growth
The UK coffee shop sector will continue to out-perform retail sales growth. Allegra predicts like-forlike sales growth to continue with leading brands to average high single digit comparable sales growth over the next five years. The branded coffee chain market is set to exceed 5,700 branded outlets with average compound annual growth of 7.2% and 2.5 billion turnover with CAGR of 8.4% over the next three years. The total coffee shop market is expected to exceed 16,700 outlets and 5.9 billion turnover by 2013. Branded chains must continue to proactively respond to evolving consumer demands in order to retain leadership in the coffee shop market. Non-specialists such as McDonalds, M&S Caf and a growing number of pub chains will lead market growth in outlet numbers. However, branded chains will continue to drive innovation, experience and coffee beverage quality

Future Trends
Seven key mega trends will impact coffee shops in the next few years. In future branded chain coffee shops will come under increasing pressure to provide an authentic experience that cannot be replicated in the home. Third wave artisanal independents will also influence how branded chain coffee shops look and feel. Consumers are looking for a relaxed, comfortable environment. The revitalisation of in-store environments, to create a unique, local and inviting retail space will increase consumer loyalty and frequency. The desire to replicate coffee shop espresso-based beverages at home will lead to increased purchasing of more specialist equipment and coffee, and in turn, greater demand for higher quality beverages in coffee shops. Another issue for future consideration is the growing awareness of sustainability. Branded chains will need to work harder to prove ethical practices beyond simple accreditation. As technology continues to advance, Allegra predicts that many operators will launch mobile apps and develop social networking marketing tools over the next 1-2 years.

Press Release: Project Caf10 UK December 2010 Allegra Strategies Ltd