PL

Wake up and sell the coffee

Retail & leisure
As large international coffee house chains continue to open new branches across CEE markets, they are also encountering a shift in consumer preferences worldwide. Faced with falling footfall in malls and consumers’ growing demand for a better social experience, these networks are experimenting with new locations and store formats

According to experts on the branded coffee market, the most critical factor for a successful coffee shop is to offer quality coffee in a high footfall location, a rule that is believed to work everywhere. For this reason, being located mostly on busy high streets and in shopping centres, branded coffee shops are one of the first tenant types to be hit by the falling number of non-virtual shoppers that has become increasingly prevalent across a number of Western and Central European markets. According to Experian Footfall, in November 2014, Poland – the largest CEE market – saw a 2.7 pct y-o-y decrease in shopping centre footfall. This has been caused by a variety of factors, including the rise of e-commerce and the ageing of Polish malls. Landlords and large international coffee house operators are acknowledging the trend and are now trying to adjust their leasing and operational strategies accordingly. “We can easily say that some of the shopping centres are not drawing in as many clients today as they did in previous years. It seems that some customers now shop in smaller, convenience retail facilities so that large shopping centres need to improve their offer,” admits Michał Nowak, the property and expansion director of Costa Coffee in Poland (Coffee Heaven International Polska), which currently operates 105 Costa coffee shops in the country under three brands: Costa Coffee, Coffee Heaven and Costa by Coffeeheaven. Whitbread-owned Costa Coffee acquired the CEE coffee house chain Coffeeheaven in 2010 and now both rebranding the Coffeeheaven units as well as expanding new Costa Coffee locations in Poland. As a recent survey of 23 European markets by Allegra Strategies reveals, following the relatively strong growth over the last five years (7.3 pct), the branded coffee shop market in Poland (app. 485 outlets today) is set to grow at a more modest 3.5 pct per year over the next five to six years, to reach app. 595 outlets by 2020. This is to be driven by the growth of international chains, particularly McCafé, Green Caffè Nero and Costa.

Shopping mall magnet

The three internationally-owned chains are already the top performers in Poland, enjoying continuous growth in revenue and new openings year-on-year. But will the increasingly strong coffee market segment, which for years has been a valuable high street traffic driver in more mature European economies such as the UK, turn out to be equally effective in the CEE region today? Costa Coffee takes up app. 7,000 sqm of space in Polish shopping centres, which makes up half of the company’s property portfolio in the country. According to Michał Nowak: “We can still see opportunities to develop locations in the shopping centre segment, especially since the supply of retail space is still growing. It is a mutual benefit – the coffee house takes advantage of a good shopping centre location, the large traffic and great visibility, while on the other hand providing the mall with a site where life genuinely takes place. (…) These facilities are also obviously less costly than high street locations, where the coffee shops need to be larger,” he says. According to Katarzyna Jamróz, an associate director at Colliers International, coffee house tenants might find a safe compromise between shopping mall and high street locations in choosing post-industrial projects, such as Fabryka Trzciny, Fabryka Koronek, Soho Factory and EC Powiśle. The other half of Costa Coffee locations are split between the other property market segments – including railway stations, airports, office buildings and residential estate sites. The company leases “the vast majority” of them. “Many property segments exist for us to invest into. We plan on accelerating our development once the rebranding process is completed [in 2015]. This could be done through organic growth, but also through acquisitions,” explains Michał Nowak. While there are many differences between the coffee house operators in the CEE region, putting the investment focus primarily on big city locations currently tends to be a common preference in CEE markets. [see box on CEE coffee house tenants]

A second life for coffee outlets

Falling mall visits are not the only problem large coffee house chains are faced with these days. According to a report by Euromonitor International, café customers are now becoming increasingly interested in the social experience rather than simply coffee-drinking, which the analysts attribute to the emerging popularity of specialist coffee shops. Due to this – and given the large variety and number of locations they serve – coffee house chains are attempting to diversify their store concepts in the markets they operate in. Differentiated store formats are designed to best serve different clientele at different locations, but also to help to draw and retain customers’ interest in locations with lower footfall rates during the day, for instance in residential areas, ensuring that ROI rates are sustained. While the average size of a Costa coffee shop in Poland is around 120 sqm (and leasing commitments usually go up to ten years, since the average cost of opening a coffee house in Poland is estimated at PLN 700,000 to PLN 1 mln), Costa operates a plethora of store formats – from bigger coffee shops of app. 100 to 180 sqm, to smaller concepts such as kiosks, or what are usually known as ‘islands’. It is also furbishing its coffee shops in three distinct interior design styles, so some stores can better serve busy travel hub locations, while others can be better suited for historic locales. But on other, more mature markets, international coffee chain operators are moving much further. US coffee house chain Starbucks, known for its generally standardised store concepts, is now gradually introducing concept stores with premium coffee products – and even restaurant-like locations, with dining interiors and menus. This trend is set to widen and deepen over the next few years, as, according to Euromonitor International, operators in other food and beverage categories are also now taking steps to claim “a slice of the lucrative demand for coffee and snacks throughout the day”. By the end of its 2019 financial year, Starbucks is planning for 20–25 pct of its coffee houses to offer what it calls the ‘Starbucks Evenings experience’ in an effort to turn its cafés, which tend to empty in the afternoons and the evenings, into lively local meeting places along the lines of pubs or restaurants.

May contain traces of coffee

Apart from alcoholic offerings and a more dining-like menu, after 4 pm Starbucks’ customers will be offered “a more mellow, less hurried atmosphere.” The initiative is set to add USD 1 bln to the US giant’s revenue. At the same time, Starbucks plans to double its US food revenue to over USD 4 bln over the next five years. In Poland, Costa Coffee saw an 18 pct growth in its food capture rate after enhancing its food offer. Recently, Seattle-based Starbucks launched its first ‘Roastery and Tasting Room’, an app. 1,400 sqm upmarket roasting, education and dining facility. Surprisingly, in the search for new clientele and following health and nutrition trends, the coffee house behemoth also plans on reinventing its USD 109 bln global tea category. “Over the next five years, Starbucks will continue to lean into this new era by innovating in transformational ways across coffee, tea and retail, elevating our customer and partner experiences, continuing to extend our leadership position in digital and mobile technologies, and unlocking new markets, channels and formats around the world,” said Howard Schultz, Starbucks’ president and CEO, announcing the latest five-year development strategy for the company. Starbucks representatives have revealed to ‘Eurobuild CEE’ that in Q3 2014, the company had 2,102 stores across the entire EMEA region [for CEE statistics, see box] and expects to double the total over the next five years. In addition, the company has said that it sees licensing in supermarkets as a major new growth opportunity in the EMEA region.

Served… straight to your bed

CEE coffee house operators’ competitive advantage might also derive from the technology being adopted by them. Many have loyalty programmes serving digital wallets, or have introduced advanced stand-alone coffee vending machines. In the US, Starbucks is rolling out a range of mobile payment and loyalty schemes (including the endorsement of other retail partners) that could dramatically change the way coffee house chains operate today. Starbucks’ omni-channel tool, ‘Mobile Order & Pay’, which allows customers to pre-order and pick-up ready Starbucks food and beverages in the coffee shop, is now being developed to also provide food and beverage deliveries in select US metropolitan areas. “It will be game-changing for our customers and our business,” the company says. Only time will tell if and how these hi-tech innovations will impact the operations of coffee house chains’ property portfolios. ν


Shane Scott, a partner at Resolution Property, the investor behind the Galeria Pomorska shopping centre in Poland

Local Polish customers have international tastes

The dining out trend is becoming stronger in Poland and customers are expecting a wider international food offer, with smaller Polish cities and towns being no exception to this trend. It is important to be aware of the fact that our customers have international tastes, many have travelled abroad or have been to the larger cities in Poland and want to experience the same wide food offer as in their local shopping centre. Poles are not only more interested in international cuisine, but also, in what will probably be the main trend for the near future, becoming more aware of what they eat. Ensuring that we have a healthy offer as well as menus that meet certain dietary requirements is important. Also, we need to be aware of what is happening in other geographical locations and consider if these trends will emerge in Poland. For example, high quality gourmet coffee with trained baristas or American style burger bars, etc. Galeria Pomorska in Bydgoszcz is a prime example of how Polish shopping centres should react to the growing consumer demand for restaurants and cafés. In 2012 we took the decision to extensively modernise and expand the Galeria Pomorska food court, introducing a number of new food operators. Now can proudly boast that we have the widest food offer of all the shopping centres in Bydgoszcz. As well as expanding the food offer, we have also implemented a special support scheme for the operators, advising them on how to make their restaurants look better and make the offer more attractive for customers. Our investment has paid off, the improved and wider food offer is drawing in additional customers, which benefits the entire mall. Together with the new Helios cinema, this has created a well-balanced entertainment and leisure offer. Galeria Pomorska is being substantially extended at the moment and we are in discussions with more food operators to further enhance our food offer. This will include kiosks as well as restaurants to allow more casual dining and longer stay times. We appreciate those tenants who share our vision for the shopping centre, so it does not matter if they are local businesses or multinational chains. Their offer has to meet our clients’ expectations. Currently the food offer is a little under 5 pct of the total area, but there is room to increase this to cater for the increased food offer demand. A proportion of between 5–10 pct is perfectly acceptable.

Categories