x Abu Dhabi, UAETuesday 25 July 2017

Costa avoids a roasting on bean costs

Costa Coffee still believes the UAE has a taste for its business and is looking to expand in the Emirates.

Costa Coffee plans to add another five to six stores in Abu Dhabi over the next year and a half. Costa already has 12 outlets in the capital. Jeff Topping / The National
Costa Coffee plans to add another five to six stores in Abu Dhabi over the next year and a half. Costa already has 12 outlets in the capital. Jeff Topping / The National

The UAE's love affair with coffee is offsetting a global rise in the price of beans for the cafe chain Costa Coffee, which aims to continue expanding in the Emirates.

The price of a basket of assorted coffee beans has risen 35 per cent in the past year, according to the International Coffee Organization, based in London, meaning that the chain earns less on each cup of coffee it sells.

But rapid growth in the UAE is more than offsetting the reduced margin, Costa says. The company plans to add five to six stores in Abu Dhabi over the next year and a half. Costa already has 12 outlets in the capital.

"Abu Dhabi we see as a really big opportunity for us to expand," said Eric Hughes, the general manager for Costa Coffee in the UAE.

The new stores are expected to be located in malls, office buildings and residential developments.

Over the past year, the chain has enjoyed double-digit sales growth in the Emirates due to expansion, Mr Hughes said.

Costa in the UAE is part of the Emirates Group. Emirates Leisure Retail has the franchise from the UK's Whitbread, which owns Costa.

An average store requires an investment of Dh700,000 (US$190,000) to D800,000, Mr Hughes said.

"We've not increased our coffee retail prices for over four years now," he said. "It needs to be affordable so people can choose it everyday."

The company's size has helped it to save money by negotiating lower supply prices and obtaining its coffee beans from different sources, as well as taking advantage of exchange rates. But a price rise may be unavoidable.

"If coffee bean prices do remain high, we really can't rule out a retail price increase. We're trying for that not to be the case. It is a last resort," Mr Hughes said.

The chain has 80 stores in the UAE, and about 30 of those have been added since 2009.

Cafe culture has grown tremendously in the UAE. "This burst in coffee growth is changing national tastes, which previously were more aligned with tea, reflecting the 60 per cent of the population originating from the Indian and east Asian subcontinents," analysts at Euromonitor said in a report.

Coffee sales in the Emirates grew 11 per cent last year to 7,156 tonnes, with off-trade sales of Dh211 million, according to Euromonitor.

Despite competition from rivals such as Starbucks and Caffè Nero, Mr Hughes is optimistic about Costa's outlook. "There is still real opportunity here in the UAE."

Costa has 60 stores in Dubai and plans to open new outlets in Al Ain and Ras Al Khaimah. Mr Hughes said the chain closed "a handful" of stores in Dubai in 2009, mainly because of uncompleted or shelved developments.

"That was primarily where we had new stores in developments that didn't complete, and we had one or two where the occupancy didn't fill out in the development."

rbundhun@thenational.ae