Analysts believe thousands of outlets on the congested market’s shopping streets are now at risk. Trouble has been brewing since the pandemic, but a shortage of low-wage labour, the rising cost of coffee and milk, skyrocketing energy bills and pressure on living standards have all hit the industry hard.
Coffee is big business, with more than 95 million cups drunk every day in the UK, according to the British Coffee Association.
Walk through any town and you won’t be far from a chain or independent cafe offering a range of options – from flat white to iced – as well as food.
There were around 25,000 outlets in 2019. At the turn of the century, there were less than 5,000.
With over 2,000 outlets in the UK, Costa is the market leader, a position helped by the brand’s purchase by Coca-Cola in 2019.
It is now the second largest coffeehouse chain in the world after Starbucks. However, the pandemic saw the sector suffer a 40% drop in sales in 2020 as people worked from home.
Forecasters predicted “a modest return to outlet growth in 2022”, while a full return to pre-pandemic levels would take at least three years.
But these forecasts came before the economic downturn and rising coffee prices in Europe.
Lou Ellington, director of London data analysts Kantar, estimates that a third of high street shops could close: “I think there will be a few cafes on a high street, rather than the three or four we see now. It must be remembered that there was massive investment in the sector in the five years leading up to the pandemic.
“What has happened since then is a sort of readjustment as the chains deal with new working and living practices.
“With people unwilling or unable to go back to their old routines, it has already hit them hard.
“But it seems clear that Costa, Starbucks and Caffe Nero are all competing on the same streets is not sustainable.”
Starbucks last week named former Reckitt chief Laxman Narasimhan, 55, as its next CEO to turn around a situation that has seen the company’s share price plummet 30% in a year.
Ms Ellington said: “There is no doubt that the hospitality industry as a whole is going through difficult times.
“Small shops will suffer the consequences, but many of them are franchise operations and even if they will suffer, they will have a lot more support available.
“While the real independent cafes are all facing very difficult problems. At the moment they have to be able to absorb the massive increases in energy prices after the last two years, which will have been a huge drain on resources.