Whitbread reverses sales decline at coffee arm Costa

The latest results from coffee shops-to-budget hotels group Whitbread highlight that it is not the stellar story of recent years, but remains resilient even in tougher times for consumers.

Costa owner Whitbread faces headwinds as consumer spending is squeezed by inflation. Picture: Newscast/PA Wire

Chief executive Alison Brittain also said that the Costa chain had rolled out its new “cold brew” and cooler drinks in time for the June heatwave.

The group said same-floorspace Costa sales rose 1.1 per cent in the 13 weeks to the start of June, reversing a 0.8 per cent decline in the final quarter of its last financial year.

However, the company’s Premier Inn hotel chain took up the slack, with like-for-like sales 4.7 per cent ahead.

• READ MORE: Costa Coffee owner ‘cautious’ despite rise in profits

Shares in Whitbread rose 4 per cent after the update as Brittain said she has “confidence that we will make further good progress this year”.

Neil Wilson, leisure analyst at ETX Capital, said: “In a heatwave a hot coffee doesn’t quite hit the spot, so Whitbread will be hoping its Cold Brew and Frostino products will catch on.”

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City experts said that the latest numbers continued the gradual decline in growth at Costa as it faces rising competition, partly from the burgeoning artisan coffee sub-sector.

Many Whitbread-observers believe there will be an increasing focus on overseas expansion as the business suffers from adverse factors like the national living wage and rising commodity costs due to sterling’s year-long weakness.

They also say coffee shops and budget hotels are vulnerable to the rising cost of living as squeezed average earnings trail current inflation of near-3 per cent.

• READ MORE: Holiday costs push inflation towards four-year high

Nicholas Hyett, equity analyst at broker Hargreaves Lansdown, commented: “These results are pretty solid all things considered. They don’t show the spectacular growth of years past, but the UK business is a more mature animal than it was and that is inevitably going to slow growth.”

He said that despite “a rather chilly economic backdrop”, Whitbread had delivered sales growth – both total and like-for-like – across the board. However, Hyett added that it was “the international business that seems likely to become the long term growth driver”.

Costa launched its new breakfast range towards the end of its first quarter and more food ranges are planned over the coming months. The company is looking to overcome tougher trading with more expensive finer coffee concepts, while also expanding rapidly overseas and installing more Costa Express machines, with a net 300 opened during Q1.

Whitbread also continued adding a raft of Premier Inn rooms, with more than another 1,000 rooms since March in the UK. Even so, some doubts remain.

Julie Palmer, partner at Begbies Traynor, said: “Although Whitbread has made a good start to its new year, (it) still faces significant headwinds, with rising wage costs linked to its labour-intensive structure, wavering consumer confidence and higher input costs on account of ongoing sterling weakness.

“With these challenges coming to the fore at once, within an increasingly delicate UK economic and political environment, time will tell whether the business can maintain this positive momentum over the remainder of the year.”

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