A taste of things to come?

The acquisition of Coffee#1 by The Caffè Nero Group is a significant addition to the business founded by Gerry Ford, back in 1997. The addition of the 92-strong Coffee#1 chain takes the group’s estate to more than 750 sites in the UK. That is still nowhere near Costa Coffee’s +2,000 UK stores, but it is now closing the gap on Starbucks.

Under Brains’ stewardship, Coffee#1 has seen sales increase six fold, but the board said it felt the time was right to join with a “major player in the coffee market” to take it forward to the next stage of its development. It is the end of a long courtship with various suitors eyeing the chain, including Patisserie Holdings at one point. There was even a suggestion at one point that former Brains chief executive Scott Waddington could lead a management buyout.

As it is, Brains retain a chunky a c30% share in the business, following the sale of the majority of its shares to Caffè Nero Group - a process that was acted on by Sapient Corporate Finance.

So what are Ford’s plans for the brand? He told MCA that Coffee#1 is a great brand, with premium coffee, “that matches the premium nature of Caffe Nero and Harris+Hoole”. “We very much see them as strengthening the group and operating alongside and complimenting those other brands,” he said.

Ford admits that while Coffee#1 already operates in several areas where there is a Caffè Nero – Coffee#1 is predominately located in Wales, the Midlands and southern England – “the two brands offer a different customer experience and so running them side-by-side means they act in a complimentary way.”

In terms of where he plans to focus the growth of the Coffee#1 brand moving forwards, Ford said he believes there is scope for expansion within those existing regions, “and to slightly expand them”.

Graeme Smith, managing director, AlixPartners thinks the move makes a lot of sense for Nero. “The market is maturing and the nation’s tastes are as well. The rise of artisan coffee started in the cities but is spreading around the country at a pace,” he said.

However, he notes that “it is hard for established brands to address this market with derivatives of their core brands”. “The tactic of Nero to acquire other brands more associated with artisan coffee (i.e. Harris and Hoole) therefore makes sense as well as getting some synergies from scale and head office sharing.”

The chance to capitalise on the growing coffee shop market is certainly not one many would pass up given the right opportunity. According to recent data from Allegra, the £10.1bn UK coffee shop marker grew by 7.9% in turnover last year, representing 20 consecutive years of sales and outlet growth – and shows no signs of slowing down. Even McDonald’s has been getting in on the action, and says that coffee drinkers are now its most frequent customers.

So are we likely to see further M&A activity in the sector? Speaking to MCA recently, Allegra’s Jeffrey Young said: “M&A is the name of the game at the moment”, adding: “You need to be able to do that if you want to be a serious player going forward.”

In terms of predictions for the future, Smith said the fusion of good coffee with an all-day food offering is also growing in importance. “Great operators such as Caravan know the value and potential for this and will be expanding in the coming years,” he added.