There is great optimism among coffee bar companies that the upward trend in sales will continue, however currently none of the leading chains are covering their costs and making a profit. Although cafe bars are often very busy, have a sleek interior and charge upto ÃÂ£2 a cup of coffee, the intense competition and rapidly increasing burden of rent and rates have had the consequence of substantial financial loss for the operators. Coffee Republic is one of the biggest chains in the UK (second to Starbucks) with 105 branches and an impressive growth in turnover (from ÃÂ£12.5m to ÃÂ£21m in the last financial year) but the company made an operating loss of ÃÂ£2.53m (a 15% improvement on the year before). Analysts predict that by the end of this year they will still be making a loss of ÃÂ£1.6m.
The new management of Coffee Republic are confident the profitability of the business will turn around in the long term (although the stockmarket remains skeptic, with shares trading at a record low of 6p) and remain committed to their expansion plans, opening 20 new bars in the next year.
As with all high street retailers, location is vital. For the opening of a new bar to be a success it needs to be situated in the busiest areas on large towns and cities where the target market is likely to pass by, unfortunately such areas tend to have expensive rent costs and have fierce competition for the lease on property.
Although the high level capital investment by Coffee Republic may overshadow the absent of profits, like-for-like sales are actually falling with especially poor results in January (a 10% slump in profits and a warning to investors). This clearly shows that Coffee Republic is not just suffering from the external factors of high...