Long ago, Pret was a utilitarian, aluminium sandwich shop serving freshly made sandwiches to time-strapped customers. Back when I started working on their account as a consultant, coffee was barely on the menu and the estate didn’t span beyond city centres. We ran an insight program with the first few openings in market towns, where coffee was a core part of the strategy to succeed in lower footfall locations. Along with the coffee, came larger formats, more natural wood and a greater prevalence of burgundy red upholstery. Up went signs about British milk and fair-trade coffee, and up went sales with them.
The trial was such a success that these learnings were brought back into London and incorporated into new formats. Since then, Pret has grown to c.500 sites, and the coffee cups are even more ubiquitous than their take-away bags. In the City in particular, Pret became a habit for many customers more than just a lunch spot. Average transaction value likely had a negative correlation with sales, since single coffee purchases bringing down the metric were from the same people coming in for lunch and for an afternoon pick me up. Average customer value (much harder to track) became far more pertinent, and it is exactly that metric that the Pret Club subscription model targets.
When Pret introduced its subscription trial in September 2020, it certainly raised some eyebrows. An aggressive move to steal market share that presumably saw sufficient success to roll it out permanently and, as of late last year, internationally. Pret is playing for maximum loyalty, offering up to 5 daily coffees for a monthly fee. Pret Club encourages caffeine addicts to get all their coffees from Pret, even when they aren’t the closest option. And if, on one of their several coffee outings a day, the customer happens to also pick up lunch, snack or water, all the better for Pret. Never mind the other coffee shops losing out, further consolidation of the high street only strengthens Pret’s bargaining position with landlords.
Another major player, Greggs, pivoted towards coffee back in 2016, expanding its menu to include flat whites and mochas. In 2020, they further invested in their coffee offering by upgrading their machines and introducing larger stores with WiFi, effectively competing with national coffee chains. Their long-established rewards scheme, offering customers digital stamp cards, embodies a "no-frills British sensibility" and reinforces Greggs' commitment to value and reliability. Like Pret, Gregg’s has veered away from the somewhat complex, Avios-style points schemes that Starbucks and Costa offer. Gregg’s is now the market leader for food-to-go breakfast visits, with close to 20% share across its 2,300+ sites, and continues to attract customers with its price-beating coffee. However, even at around half the price of Pret, Pret Club works out cheaper if you buy a coffee more than every other day.
McDonald's has also made significant strides in expanding its share of the coffee market through various initiatives, including redesigns of the McCafe brand (a clever way of making coffee more acceptable in a burger and chips context) and coffee product extensions. The introduction of the new CosMc's format in the US represents a strategic move to target smaller-format locations with a edited menu of coffee, soft drinks, breakfast items, and McDonald's best sellers. The first store opened in Illinois, with plans for 10 pilot locations across the US by the end of 2024. Whilst early days, initial performance data reports promising foot traffic, with CosMc's locations attracting more than double the visits of the average US McDonald's outlet. Time will tsell whether the format exports to the UK.
In the midst of this competition, the coffee specialists’ share is under pressure from the grab-and-go and QSR sectors. But far from resting on their laurels, they are expanding into previously underserved spaces and investing in their brand. Starbucks, for example, continues to launch innovative new products including olive-oil infused coffee, highlighting its dedication to pushing boundaries and emphasising its coffee credentials with Reserve stores and single origin beans. Furthermore, Starbucks continues to be vocal about CSR, establishing ethical sourcing practices and exploring sustainable dairy sourcing in furtherance of its net zero by 2050 pledge. Meanwhile, both Starbucks and Costa have taken advantage of post-pandemic changes in behaviour by expanding their reach via drive-thrus, forecourts and self-service machines. Both brands now have around 300 drive-thru sites each. Greggs too has been exploring the format with a couple of dozen sites, whilst Leon has closed its drive-thrus, instead investing in automatic coffee machines. The broader self-serve coffee market has seen remarkable growth and now sits at close to 21,000 machines. Costa leads the segment with over 13,000 units, mainly located in petrol stations, supermarkets, and convenience stores.
Pret's subscription model and the growth of these new formats has certainly shaken things up, and will force many to re-evaluate their strategy. Established players may experiment with subscriptions, loyalty schemes, and different formats, but the future is likely to see new models emerge fuelled by potential collaborations between smaller brands, integrated subscriptions within broader programs, and the increasing power of digitisation and AI analysis. One thing is for certain, the war for coffee share will have some casualties.
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