American-style coffee houses: Out of steam?

THEY have transformed our streets as well as the habits and tastes of ordinary consumers. But after a decade of apparently unstoppable growth, there are signs that the major coffee chains are aware trouble is brewing.

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Last week, the flagship Edinburgh outlet of Starbucks underwent a makeover designed to lessen, if not halt altogether, growing public weariness with the brand.

At the cafe on the Royal Mile, no longer will you be greeted by the identikit green and brown hues famous the world over, but features such as a large table made out of reclaimed wood and vintage wallpaper. It is one of 100 UK outlets - 20 of which are in Scotland - which will be redesigned by September as part of a 24m initiative.

Such measures, claims the world's largest coffee house company are designed to make individual branches more "local".

In an interview with our sister paper, Scotland on Sunday, Darcy Willson-Rymer, head of Starbucks in the UK and Ireland, admitted that the firm needed to take heed of shifting tastes. "The customer is getting more discerning, demanding ever higher quality," says Willson-Rymer. "That is not just the quality of the coffee, but also the space they are in."

There is no doubt that change is needed. In the 12 months to September 2009, Starbucks made a loss of 9.9m in Britain. It is a development that would have been deemed unthinkable at the turn of the century, when the coffee house culture usurped outmoded greasy spoons at a maddening pace and became key social gathering areas around the country.

Yet coffee and consumer experts have told The Scotsman that while their time may not be up, the major coffee chains should expect to see their presence decline over the next few years.

"The Starbucks format has become exhausted, one which is viewed by consumers as standardised and repetitive," points out Dr Eric Laurier, a human geography specialist at the University of Edinburgh. "The company embarked on a policy of saturation, where its own stores where deliberately competing against one another. It was inevitable that the decline would come.

"Because it became fashionable, it couldn't help but fall out of fashion. It's just a question of how far that fall will be.

"The worrying aspect is the trend of British people coming and going in their consumer habits. They may simply grow bored of coffee houses, and the whole sector will shrink.

THE experiment by Starbucks to renew the interiors of its outlets is not the only strategy being adopted by the major chains to maintain their appeal, and fend off competition from the likes of JD Wetherspoon and McDonalds.

The Seattle-based firm has expanded Wi-Fi access at its British locations, while Costa Coffee has also sought to change the furniture in some of its stores in an attempt to renew the ambience.

In the US, Starbucks has gone further with its novel approach. It has opened "stealth" outlets, without the famous Starbucks brand, to entice those people disenchanted with its corporate image. So too, it has piloted licensed outlets, where wine is available alongside coffee.

That pace of change has not yet reached Britain, where the big firms have concentrated on tinkering with their core product. Starbucks has made much of its efforts to source Fairtrade coffee for espresso-based beverages, and it has been trialling an instant brand known as VIA Ready Brew.

Costa, meanwhile, has enjoyed considerable success with the flat white, a type of coffee popular in Australia and New Zealand, where the milk is blended into three small shots of espresso, giving a smoot-her flavour. Coffee expert Emily Warner, manager of Perfect Cup, a consultancy for coffee businesses, believes the big names are increasingly aware of the importance of offering the definitive cup.

She told The Scotsman that our relationship with coffee is changing, similar to the way people have become more choosy about wine over the past generation

"As consumers, we are looking for something different," she said. "The big coffee chains offer consistency, but people are now becoming more discerning in their tastes, identifying things like the provenance of the coffee they are buying. It's similar to the way consumer tastes have changed regarding wine.

"For me, speciality blends are the haute couture of coffee, and I think we will see them increasing in popularity, as people concentrate on taste and ethical issues. The chains have caught on to the demand for flat white coffee, which is a kind of Antipodean latte."

WHILE the loss made by Starbucks last year suggests all is not well in the sector, other research suggests that our love affair with the coffee bean remains strong.

There are around 11,000 coffee outlets in the UK, of which 4,158 - at the end of 2009 - are branded, meaning the likes of Starbucks, Costa, and Caffe Nero.

According to market researchers, Allegra Strategies, such big brands are still finding favour even during these frugal times. The dominant firms, it found, posted a combined turnover of 1.63bn last year, with revenues rising by 6.2 per cent, compared to a growth of 12.6 per cent in 2008. The net number of new British outlets rose by 258, a 6.6 per cent increase.

While the average spend by an individual to a branded coffee shop fell slightly from 3.59 in 2008 to 3.50, it is partly due to a reduction in the proportion of customers who bought food with their coffee.

A separate study by the Local Date Company, meanwhile, found that the number of coffee chain outlets grew by 47 per cent in 2009, with the number of independent coffee houses up 12.5 per cent,

Dr Laurier, whose has studied the coffee house phenomenon as part of his research, warns that any impending decline is simply part of a cycle. Tearooms, he points out, were once considered permanent fixtures of British social life.

"The interesting dilemma is to what extent can Starbucks reinvent itself as a new brand, yet continue to offer people the same experience - the coffee, the atmosphere, the music - they have come to expect," he said. Starbucks is certainly the emblematic company, but the likes of Costa and Nero are pretty close behind, and I think they too will probably have to shrink their presence in the market. Costa has been trying to reinvent itself, changing its drinks, and looking at its interiors, but it and Nero are seen as part of the same trend as Starbucks."

He believes that even if companies like Starbucks contract further, it need not necessarily herald the demise of coffee culture.

"Starbucks has trained a whole generation of people how to make coffee, and a lot of them have gone on to set up their own businesses," he explained. "I would hope that the future for independent coffee shops is good. You only have to look at Edinburgh, which has the highest number of independent coffee shops outside of London."

Ms Warner, whose firm helps to train baristas, is also optimistic that independents will continue to attract consumers.

"I hope independents thrive," she added. "Consumers are increasingly looking for unique products, whether they are homemade, handmade, or locally sourced. When it comes to coffee, I think people would appreciate buying their cup from a skilled barista, rather than from someone following a major company's operations manual."