5THWAVE delves into the German, French, Scandinavian, Italian and Irish branded coffee shop markets to reveal the consumer trends and industry developments shaping these major hubs of European café culture

Project Café Europe 2023, WorldCoffee Portal’s comprehensive analysis of the European branded coffee shop market, shows the total segment grew 3.3% over the last 12 months to exceed 42,800 outlets.

With virtually all Covid-19 trading restrictions lifted, 76% of operators surveyed reported sales growth over the last year. European industry leaders surveyed also broadly discuss the market in post-pandemic terms and are now focused on navigating high inflation, the rising cost of living and economic fallout from the war in Ukraine.

However, although 58% of industry leaders surveyed believe the current trading environment for coffee shops in their country is positive, sustained macro-economic pressures are beginning to take their toll.

Less than half of industry leaders surveyed expect trading conditions to improve over the next year, 12% fewer than in 2022. A further 17% expect trading to deteriorate.

Nevertheless, there is clearly strong demand for branded cafés across Europe, with consumers reluctant give up their daily coffee ritual despite a tougher economic outlook.

GERMANY – PLANT BASED DEMAND CONTINUES TO BLOOM

According to the government-run Federal Information Centre for Agriculture (BZL), German dairy consumption fell to a record low in 2022, when the price of cow’s milk per litre was reported to have exceeded oat and almond for the first time.

Despite Germany’s traditionally meat-rich cuisine, there is growing adoption of vegetarianism and veganism across in the country, particularly among younger consumers in large cities, such as Berlin and Hamburg.

With Germans consuming less dairy than ever, coffee shop operators have responded by introducing and promoting more plant-based dairy alternatives, particularly oat, which branded café market leader McCafé offers at no additional charge across its 660-plus outlets; Sweden-based coffee chain Espresso House extended a partnership with Oatly to serve Oatly Barista Edition across its 38 stores in Germany; domestic coffee giant Tchibo making Oatly available in its 450 German stores, albeit with a surcharge of €0.50 ($0.50), after its research indicated 53% of customers would opt for plant-based milk if it were more readily available; and US coffee giant Starbucks removed its surcharge for almond, coconut, oat or soy dairy alternatives across its 155 outlets in Germany, although it still charges up to $0.80 for dairy substitutes in many markets globally.

German industry leaders surveyed by World Coffee Portal indicate sustainability is a key operational concern for coffee chains across Germany, with plant-based beverages often deployed as part of carbon reduction strategies.

However, with the market set to exceed 7,000 outlets by 2028, German industry leaders also suggest future sustainability initiatives should widen in scope to include the broader environmental impact of the coffee supply chain, such as packaging waste and deforestation.

FRANCE – NEW OPPORTUNITIES FOR COFFEE-FOCUSED OPERATORS

Following two years of strong net outlet growth, the French branded coffee shop market saw growth slow over the last 12 months to 2.9%, from 5.3% and 7.8% during 2021 and 2022 respectively.

France’s branded coffee shop market, the fourth largest in Europe, is predominantly comprised of food-focused café operators, which hold a 72% share of the total 3,752-strong market.

Only one coffee-focused operator, McCafé, features in the top five largest chains in France, with its 392 stores far fewer than market leader Marie Blachère, which now operates some 715 outlets across the country.

World Coffee Portal forecasts total outlet growth will continue to slow over the next five years, with the market projected to grow at 2.4% CAGR to surpass 4,230 stores by 2028.

However, while boulangerie and pâtisserie-style operators remain a dominant force, industry leaders anticipate increasing consumer demand for specialty coffee to lead market development.

France’s 1,041-strong coffee-focused chain segment grew 5% by outlets over the last 12 months, with World Coffee Portal forecasting 3.9% CAGR growth over the next five years – more than double the 1.8% forecast for the food focused segment.

With industry leaders observing rising coffee quality across France, there is an opportunity for premium coffee chains to capture a greater share of the market. Despite there being no new market entries last year, domestic specialty coffee chain Coutume Café and Denmark’s Joe & The Juice each added two stores over the last 12 months to reach ten and seven outlets respectively. Meanwhile, Spanish small-format coffee shop and kiosk operator GoodNews opened seven sites across Paris.

Additionally, Mexican quick service hospitality group Alsea, which operates more than 1,650 licensed Starbucks stores globally, has identified strong growth opportunities in France, where it said favourable market conditions could see it open more than 200 new Starbucks stores by 2028.

SCANDINAVIA – CHALLENGING TRADING MAKES A RAZOR-SHARP PROPOSITION ESSENTIAL

Denmark, Norway and Sweden have some of the highest per capita coffee consumption rates in the world. However, while 89% of Scandinavian consumers surveyed by World Coffee Portal indicate they typically consume coffee at least once a week, nearly half frequent coffee shops less than once a month and only 7% visit daily.

While most industry leaders across Europe’s largest coffee shop markets have reported footfall recovering to pre-pandemic levels, only 41% believe this to be the case across Scandinavia, with one in four surveyed identifying current trading as difficult.

World Coffee Portal research shows the Swedish and Norwegian branded coffee shop markets contracted 1.7% and 0.8% respectively over the last 12 months by outlets, with reduced consumer spending amid higher inflation another headwind for coffee shop sales.

Although 65% of Scandinavian coffee shop operators reported sales growth over the last 12 months, the proportion reporting a fall in sales is among the highest in Europe at 29%.

However, World Coffee Portal forecasts the Norwegian coffee shop market will return to outlet growth across the next five years, albeit slowly at 0.7% CAGR, while the Danish market will grow by 90 net new stores to approach 500 outlets by 2028.

Sweden, Scandinavia’s largest branded coffee shop market by outlets and most populous of the region’s three countries, is forecast to close more net stores over the next five years, although contraction is expected to slow from 1.7% to 0.2% during the period.

Outlet growth is likely to be led by operators that can command a higher average ticket price by catering to consumer preferences for afternoon visits, a preference for food and higher dwell times.

Sixty-four percent of Scandinavian coffee shop consumers visit in the afternoon, compared to 28% in the morning, while 32% stay longer than 30 minutes. Additionally, 41% of consumers ordered food with their beverage on their last coffee shop visit, with 6% ordering food only. Operators with a focus on health & wellness, including organic and plant-based products, also resonate with Scandinavian consumers, as demonstrated by the success of operators such as Sweden’s Espresso House and Denmark’s Joe & The Juice.

Nearly three-quarters of Scandinavian industry leaders surveyed by World Coffee Portal cite organic products as the health-based trend most likely to have the most longevity in their market, ahead of meat-free products and no added sugar, at 33% each.

ITALY – INTERNATIONAL BRANDS EYE NEW OPPORTUNITIES IN TRADITION-STEEPED MARKET

Now exceeding 1,160 outlets, the Italian branded coffee shop market is the ninth largest across Europe. Following another year of gradual but steady growth, the market could be poised for a new wave of development as international operators seek to tap into Italy’s world-renowned coffee culture.

Highlighting the scope of opportunities for coffee chains in Italy, World Coffee Portal data shows 84% and 35% of Italian consumers surveyed drink coffee and visit coffee shops on a daily-basis respectively. Italian coffee shop visitors are also quality-orientated, with 83% of those surveyed citing barista skill as key to beverage quality and 55% recognising specialty coffee as important for a high-quality coffee shop.

However, while Italian espresso based beverages have profoundly influenced global café culture, the Italian market has historically been difficult for international coffee chains to navigate.

With espresso widely expected to cost around €1 ($1), price sensitivity has also made the Italian market challenging for major operators. Eighteen of the 24 coffee-focused branded coffee chains in the country are domestic brands.

However, rising inflation has pushed the average cost of a single espresso in Italy 15.6% higher over the last 12 months to reach €1.48 ($1.59). Meanwhile, a growing number of consumers, particularly those under 30, are exploring international specialty coffee culture and premium café experiences, which typically command a higher price.

Significantly, Starbucks has expressed increased optimism for outlet growth across Italy, having doubled its footprint in the country over the last 12 months. The US coffee giant, which is seeking to reach 37 stores across the country by 2024, also chose Italy to launch its Oleato olive oil-infused coffee range in 2023 – a further indication of growing Italian appetite new coffee experiences.

London-based boutique café group EL&N made its Italian debut in June 2022 and became the first branded coffee chain to enter the Italian market since Starbucks, which opened Europe’s first super-premium Reserve Roastery in Milan in 2018 and Dunkin’, which made its debut in the same year.

Meanwhile, UK-based Pret A Manger entered Italy with a store at Milan Malpensa airport in May 2023 and plans to reach 40 outlets within the next few years.

The Italian branded coffee shop market added a net 10 stores over the last 12 months — the same number of new outlets as in 2021 and 2022. However, the market is forecast to increase by 100 net new stores over the next five years, reaching 1,269 outlets by 2028.

While many domestic operators, including Caffè Pascucci and La Bottega del Caffè, closed stores last year, market leader McCafé opened 35 net new stores to reach 556 outlets and now holds a 57% share of the coffee-focused segment, underlining the potential for coffee chains already focused on value in Italy.

IRELAND – DISPOSABLE COFFEE CUP BAN SET TO SHAKE-UP TAKEAWAY SALES

In April 2022 Ireland outlined its ambition to become the first country in the world to eliminate disposable coffee cup use, with the government’s Circular Economy Bill seeking to phase out single-use products, including the estimated 200 million disposable coffee cups used in the country every year.

The so-called ‘latte levy’ is expected to come into force in 2023, initially banning the use of disposable coffee cups for sit-in customers in cafés and restaurants, before introducing a mandatory €0.20 ($0.21) charge on disposable cups for takeaway trade that will potentially rise to €1 ($1.07).

With a transitional period allowing appropriate arrangements to be made before the levy is enforced, the Irish government hopes the move will kick-start wider reusable cup adoption across Ireland’s 680-strong branded coffee shop market.

According to Ireland’s Department of the Environment, Climate and Communications, nearly half a million disposable coffee cups are sent to landfill sites for incineration every day in Ireland. The legislation puts Ireland on the path to fully banning single-use coffee cups by 2026.

The move could have a similar impact to the plastic bag levy, which resulted in a 95% reduction in usage between 2002 and 2014. Only 38% of Irish industry leaders surveyed by World Coffee Portal stated their national coffee shop market could be proud of its efforts to tackle sustainability issues to date, with none strongly indicating so.

However, the proposed levy is not fully supported by many in the industry, who have expressed concern over additional costs and loss of trade.

Some industry figures argue the levy could adversely impact operators already using compostable cups, which will not be exempt from the charge. Ireland’s strong self-serve coffee segment, led by Frank and Honest and Insomnia with 700 and 400 units respectively, could also be impacted.

World Coffee Portal research indicates that Ireland has one of the strongest takeaway coffee cultures across Europe, with 36% of Irish consumers purchasing coffee to takeaway on their most recent coffee shop visit.