"If it sometimes feels as if there is a Costa Coffee in every town and city in the UK, that is because there almost is," said The Observer.
Britain's biggest high street coffee chain has more than 2,000 outlets and at least 14,000 self-service machines. They sell "millions of cups a week", yet despite this "market dominance". Coca-Cola, which bought Costa in 2018, is reportedly "considering offloading" it. Its global coffee sales fell 3% last year, mostly due to Costa's performance in the UK; its 2023 revenues were well below 2018 levels.
But Britain's "obsession with coffee shops certainly shows little sign of abating" – its £6.1 billion branded coffee-shop market reportedly grew by 5.2% in 2024, according to Allegra World Coffee Portal. Consumers want "higher-quality, artisan" coffee; smaller chains, independent sites and speciality houses are booming. "So have we reached peak coffee, or just peak Costa?"
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Coffee sector in hot water
Costa was founded in 1971 by two brothers as a London roastery, supplying coffee to restaurants and caterers. By the time hospitality company Whitbread bought it in 1995, it was a chain with nearly 40 shops "dedicated to actual coffee", said The Telegraph's restaurant critic.
Coca-Cola bought Costa for nearly £4 billion – but now it is a "dowdy brand", a "proliferator of unnecessary volumes of milky liquid, obesity-inducing horrors" and foods that will "welcome you to an early grave".
Now, analysts told Sky News, the chain could sell for just £2 billion: a staggering loss.
But the whole coffee market is struggling: drought, crop failures and global supply shortages have pushed the price of coffee up to record highs, while the cost-of-living crisis has squeezed consumer budgets.
The sector has suffered from Rachel Reeves' Budget, said The Telegraph. The National Insurance "tax raid" and higher National Living Wage mean payroll costs have "absolutely rocketed". Inflation has surged since the pandemic, and energy-intensive coffee shops have also suffered from higher energy costs. But Costa has "found itself between a rock and a hard place" – losing business to cheaper chains like Greggs, which now has more than 2,600 sites, and to "premium competitors" like Gail's.
"And you know there's a problem when the world's biggest coffee chain, Starbucks, is suffering," said The Grocer. Britain has more than 1,200 outlets, but last year the chain recorded a £35 million loss in the UK and a 4% decline in revenue.
It's an "undeniably tough market" for hospitality in general. But the key difference in such a "competitive and overcrowded" market? Unlike Starbucks, Caffè Nero and Pret A Manger, Costa "missed out on one of the biggest trends in recent years: the viral matcha iced latte".
The 'meteroric' rise of matcha
Around the world, coffee chains are struggling with the "meteoric" rise of matcha, said World Coffee Portal. It's easy to see the appeal. "Matcha is highly caffeinated, visually appealing, a versatile flavour canvas and boasts health benefits that would make a kale smoothie blush."
Costa's high street rivals, as well as premium chain Gail's and smaller ones like Blank Street Coffee, "jumped on the trend", said the BBC. Blank Street, which began in 2020 as a "tiny coffee cart in the garden of a Brooklyn diner", now has 35 stores in London. It reported a 27% growth in outlets last year, its popularity "driven by its TikTok appeal", with its "minty-fresh decorated cafes" and "pastel-hued drinks".
The rise of smaller chains and artisanal independent stores has "eaten into the share" of the major chains, said Clive Black, vice chair of independent investment group Shore Capital.
A "luxury drink as an affordable treat", a trend that emerged after the pandemic, has only grown, said the BBC – but a "straight-up latte isn't a treat", said Clare Bailey, independent retail analyst.
With so much choice, and the rising popularity of home coffee machines, "competition to attract customers heats up", said the BBC. "And when a coffee can cost you the best part of £5, you expect something you can't make yourself."
"The real energy in the market is coming from the independents and speciality roasters, Sahar Hashemi, who co-founded Coffee Republic (one of Britain's first modern coffee-shop chains), told The Observer. There are "people queuing on the street" for a Blank Street coffee, because the "indy-styled chains are offering a lifestyle experience."
