Behind the barista boom

Coca-Cola appears ready to part ways with Costa Coffee. Reports suggest the drinks giant is in talks to sell the high street chain, with private equity firms showing keen interest and a sale price of up to £3.5bn under discussion. The move would mark the end of Coca-Cola’s seven-year ownership and signal a shift in how global players are valuing frontline retail brands.

Costa's appeal is obvious. It brings scale, brand equity and a national footprint, all of which are difficult to replicate. But the timing of the deal is just as interesting. With consumer confidence still uneven and input costs volatile, this is not an easy period for high-street operators. The underlying question is whether Costa is the exception or whether the broader café market in the UK justifies this level of investor enthusiasm.

According to Plimsoll’s latest analysis of the leading cafés and coffee shop businesses, the data tells a mixed story. The sector has returned to growth, with sales up by 6.7 percent over the past year. A third of firms are selling more than they were a year ago, and a select group has seen annual growth exceed ten percent. This reinforces the idea that demand is back, customers are returning, and smart operators are thriving.

But recovery has not “lifted all boats”. Nearly three quarters of the market is now rated Caution, Danger or Mediocre in Plimsoll’s latest financial health assessment. These businesses are either in decline or failing to meet key profitability and resilience benchmarks. The sector may be growing in the aggregate, but the margin for error remains narrow for most firms.

These dynamics echo trends seen across the wider hospitality and travel sector. There too, a small number of businesses are generating exceptional returns while many others remain under pressure from staffing costs, energy prices and uneven demand. Within the café market, the impact of these pressures is most obvious in profitability. A third of firms are now highly profitable, while a similar fraction continues to post annual losses. That gap is widening, not narrowing.

Mergers and acquisitions are already starting to reshape the sector. Almost one fifth of the café and coffee shop market has been rated as a “highly attractive” takeover target. Most of these fall at the smaller end of the revenue scale, suggesting a wave of bottom-up consolidation. This trend mirrors the broader hospitality market, where local operators with strong customer bases are being acquired for their brand value and location, not just their balance sheets.

Costa may become the largest coffee deal of the year, but it is not a one-off. It is a reflection of a sector undergoing strategic recalibration. Big players are reassessing their portfolios. Smaller chains are attracting suitors. And private equity is increasingly circling segments of the market once seen as slow-moving or fragmented.

The café industry, like hospitality more broadly, is divided into two camps. Those that can scale and differentiate are commanding premiums. Those that cannot are at risk of being priced out, acquired or replaced.

Plimsoll’s UK Café & Coffee Shop Industry Analysis places your business in context, benchmarking performance against 1,101 market leaders and tracking real-time shifts in value and growth. To explore the full data or understand where your business sits in this changing landscape, visit Plimsoll’s UK Cafes & Coffee shops market report.