Coffee Retail industry in the UK

Introduction

The global coffee market has gone through numerous transformations in the last few decades, particularly in relation to fairness in trade (Ferreira, 2018). The UK has been at the forefront in ensuring the major changes towards the fair-trade coffee industry. After all, this push by the UK was expected since it was ranked as the 9th largest importer of coffee in the world (Maye, Kirwan, & Brunori, 2019). Moreover, the last decade has seen an improvement of machines and automated systems which were set with the goal of meeting the increasing demand for coffee in the UK (Lee, & Kim, 2018). This report presents the commercial activities involved in the sourcing, processing and distribution processes in relation to coffee that is carried out in the UK, as well as conducting an assessment of the economic importance of coffee retailing in the Country. The coffee market involves numerous industries, although the specific coffee-related processes are contained within the broader categories of coffee activities (Bogomolova, Dunn, Trinh, Taylor, & Volpe, 2015). The three most common industries where coffee activities are found include the manufacturing industry, distributive trades, and the food service industry.

The coffee industry in the UK

The coffee industry in the UK is characterized by traditional trade structure whereby a wide network of importers link suppliers from the countries that produce coffee to roasters who operate in the UK (Samper, & Quiñones-Ruiz, 2017). After the final coffee products are processed, they are sold to retailers, dedicated coffees shops, as well as non-dedicated venues such as hotels, restaurants, supermarkets, fast food outlets, departmental stores, pubs, petrol stations, vending machines, motorway services among others through various channels (Ferreira, 2017).

The coffee plants grow in regions near the equator (Jones, & Comfort, 2019). Therefore, a large section of the United Kingdom’s value chain starts with the importers and sale agents at the point of entry into the UK. At the entry point, different types of coffee beans are traded by importers from different origins who then act as supply-chain managers where they establish trade links between exporters from the various countries where coffee is grown and roasters in the UK (Efthymiopoulos, Hellier, Kay, Ladommatos, & Mills-Lamptey, 2018).

In between importers and roaster, there are wholesalers who also act as intermediaries between the roasters and the end-markets including retailers and the food service sectors. There is a significant economic gain from the coffee wholesale market segment which contributes immensely to the broader sector of wholesale in the UK. A presentation of the metrics’ series on the economic benefits of wholesalers within the coffee business was made after the economic data that sat within the broader wholesale category was apportioned by the coffee products turnover share. The analysis showed that there was a rapid growth in turnover between 2012 and 2017 with yields equal to £403 million and £1.5 billion respectively (Han, Lee, Chua, Song, Nguyen, & Kim, 2018). The rapid rise in the turnover was linked to the rising trend of retailers as well as some coffee shops in the region which, to some extent, expanded into a wholesale sector where they traded coffee in bulk volumes.

Fig 1: Turnovers generated by coffee wholesalers in the United Kingdom from 2012 to 2017 in £ million current prices. Source (Han et al., 2018)

Similarly, the Gross Value Added (GVA) in the coffee sector between 2012 and 2017 was found to have a gradual increase from £72 million to £490 million respectively (Jones, & Comfort, 2019). The increase started at a low base despite the huge size of the sector suggesting significant volatility of the GVA trend.

Fig 2: Estimated GVA generated by the coffee wholesale sector in the UK between 2012 and 2017 in million pounds of current prices. Source (Han et al., 2018)

Conversely, the generated turnover by the United Kingdom’s coffee roasting sector between 2012 and 2017 totaled to £1.05 billion. While there was a fluctuating growth trend, a steady rise was recorded between 2015 and 2017 (Britishcoffeeassociation.Org, 2019). Before the 2015-2017 steady growth, the analysis recorded a sharp drop from the peak in 2013 to 2015. The peak in turnover recorded in 2013 was linked to the penetration of the specialty and ground coffee products in the UK coffee industry.

Fig 3: Turnover generated from the coffee roasting sector in the UK between 2012 and 2017 in million pounds of current prices. Source (Han et al., 2018)

Similarly, the GVA contribution of coffee roasting in the UK totaled to £423 million in 2017, recording a 10% growth from the £386 million figure in 2016. A fall of 23% was recorded in 2014 from £368 million in 2013 which followed even a sharper drop of 41% from £624 million in 2013 (Britishcoffeeassociation.Org, 2019). The trend suggested that there was an increased demand for high-quality coffee which led to huge margin gaps in 2013. Nonetheless, significant volatility was evidence in the roasting sector.

Fig 4: GVA generated by enterprises that roasted coffee in the UK between the years 2012 and 2017 in million pounds current prices. Source (Han et al., 2018)

Coffee Retail in the UK

This section discusses the in-home market for coffee sold in the retail sector in the UK.  With the British consumers being the strongest supporters of the World fair trade coffee industry, the number of coffee shops in the UK was approximated to be 20,000 in 2018, a value which promised more support for the fair trade (Swaffield, Evans, & Welch, 2018). The coffee retail sales in the UK have recorded a rapid growth from 2002 to 2010 after which a gradual low increase was recorded. The retail sales trend between 2002 and 2012 was as shown in the graph below.

Fig 5: Fair-trade coffee retail sales in the UK. Source: (Britishcoffeeassociation.Org, 2019)

The analysis total turnover generated from coffee in the UK that was sold through retailing over years where aggregation of store-based and non-store based retailing was considered revealed that there was a gradual growth. The retail market total turnover between the years 2012 and 2017 increased steadily recording values of £1.2 billion and £1.5 billion in 2012 and 2017 respectively (Swaffield, Evans, & Welch, 2018). The trend was linked to the rising value of sales ground coffee and coffee beans in the retailers, which was supported by the growing consumption by out-of-home consumers. The support has been critical in influencing the barista quality coffees’ in-home demand.

The United Kingdoms’ coffee retail market is broken down into 5 categories namely the standard fresh ground, fresh ground pods, decaffeinated instant standard, instant mixes and instant standard coffee (Filimonau, Krivcova, & Pettit, 2019). The estimated turnover that was generated by these five main coffee categories in the UK between 2012 and 2017 in £ million current prices are as described in figure 6 below.

Fig 6: The turnover generated by the five coffee categories between 2012 and 2017 in million pounds current prices. Source:  (Filimonau, Krivcova, & Pettit, 2019)

Conclusions

This study observed that coffee was among the world’s most widely traded commodities where its supply chain actors were involved in the physical trade. The UK coffee trade with other Europe countries have been practiced for many years where a steady evolution has been evidently leading to the current, complex supply chain arrangements. The success in the coffee supply chain systems have seen a rapid growth of the retail industry as witnessed by the retail turnover and gross value added.

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