Friday June 29, 2001

Coffee Republic, the chain of coffee shops, is to scale back its expansion plans in a move that analysts say means that it is unlikely to post a profit this financial year.
New chief executive Peter Morris, who took over from co-founder Bobby Hashemi two months ago, said that the company's plans to open 40 new coffee shops in the year to next 2002 had been over-ambitious. The figure has been cut by ten.

''This is a more realistic goal in view of the current market,'' Mr Morris said. ''There's a lot of competition for new units. We need to avoid feeling pressured to put flags on the map; we need to focus on good returns.''

In the year to this April, the company failed to meet its target of opening 30 shops - managing just 20 new outlets while closing three old ones. It posted an operating loss of £2.53m - 15% less than the previous year. Turnover was £21m, with like-for-like sales up 8.4%.

Analysts at house broker Investec Henderson Crosthwaite said management changes and a slower expansion plan would mean a pretax loss on continuing operations of about £800,000 for the year to next April. It had previously forecast a profit of £400,000.

Yesterday, shares in Coffee Republic, which runs 82 coffee shops across the UK, closed down 0.5p at 18.25p.

In a note to be published today, Investec is expected to maintain a three-year sales growth forecast of 60%, after which it expects to see consolidation among competitors.

With Starbucks and Costa, Coffee Republic holds 50% of the Britsh market share, according to most recent figures. Mr Morris said he expected Coffee Republic to maintain its share of about 8% in the current financial year, despite forecasting a drop in like for like sales growth to 5%.

This is considerably less than the 20% growth rate at the peak of the coffee shop boom, and falls short of the 15% like-for-like increase posted recently by the smaller Café Nero.

Coffee Republic chairman Nicholas Jeffrey said: ''The UK espresso bar market is forecast to grow to 2,400 brand outlets by 2003. We plan to continue with our expansion programme and to be trading over 200 outlets across the UK by the end of 2004.''

Lucinda Kemeny
May 6 2001 Sunday Times

CLOSE BROTHERS, the independent merchant bank, has been appointed to sell the fast-growing chain of "cafe bars" owned by the Parisa retail group. The 20 outlets focus on Mediterranean-style food and include micro-breweries and a range of 250 wines.

Parisa also has Right Choice and Booze Buster, the cut-price off-licences, and the Wine Cellar brand. The group is owned by Nader Haghighi, its chief executive, and CVC and Bridgepoint, the venture-capital houses.

Haghighi, a flamboyant Iranian immigrant, built up Parisa after he led a management buyout of the off-licences from the Greenalls group in August 1997. He went on to launch his first cafe bar in 1998 in Putney, south London.

A former Pizza Express dishwasher, he had taken over the management of the Greenalls shops in 1994. At the time the chain was a mixed collection of 500 high-street and local off-licences.

The group now has 400 off-licences, 330 trading as Booze Buster and 70 as Right Choice. It had sales last year of £190m.

Parisa has most recently been mooted as a potential bidder for Oddbins, the 246-strong chain of high-street off-licences put up for sale by Seagram, the drinks arm of Vivendi Universal. It is believed the deal would be worth about £65m.

Other bidders are thought to include J Sainsbury, Southcorp, Australia's biggest wine producer, and Nomura, the Japanese investment bank, which already owns Thresher and Victoria Wine.

It is probably only in the past ten years or so that coffee has managed to find a place for itself in the England way of life. In the early 1980s there were hardly any cafes in London, like the typical ones in Paris, Vienna or Milan. The culture of Cappuccino and a Danish was still alien to most of the ''Yuppies'', after all in the 1980s you had Champagne not Coffee.

However, with the opening of the Channel Tunnel and the more European Friendly culture of the 1990s, London started to become more European and cosmopolitan. At first, places like The Dome and Café Rouge started springing up, followed by the smaller and sometimes one-off shops. Today, the consumer is totally spoilt for choice. Walk down any street in London today, and you will see several café shops and cafés trying to lure you in to spend your £1.20ish on a cup of their special brew!

The Coffee shop has grown from a small corner in a café Rouge where you could have a coffee without ordering food, to places like Starbucks, Costa Coffee and Coffee Republic to name but a few; where the whole culture of the place is based around coffee. You don't go to these places for their gourmet cooking. The attraction is that hot, steaming cup of coffee you buy first thing in the morning!

Today, Londoners are spilt for choice when it comes to coffee places. Ask anyone who works in London to list the names of the coffee shops they know off-hand, and you will get a list of at least ten different places right away, most of which will invariably have the world ''Coffee'' in their name: Newspapers and magazines set competitions to find the best Cappuccino in London and write the columns about how to achieve that ''coffee shop taste'' at home. Even television programmes like Ally Macheal are filming scenes around Cappuccinos, showing the sexy side of your morning coffee!

Most of the top coffee shops that have started to open branches around London have managed to offer a high quality cup of coffee, in an aesthetically pleasing environment, with good services at a reasonable price. So, how do you stay ahead of the competition? The idea of merchandise with the shop's brand name have been picked-up by most of the coffee shops, but one establishment that seems to be on the right track is Costa Coffee.

As well as offering all the above, we have the Costa Coffee ''CARD''. The idea is the same as the loyalty cards used by Supermarkets. Titled ''Sharing a love of coffee'', for every cup of coffee purchased at a Costa Coffee shop you get a stamp (in the shape of 3 coffee beans), once you have collected the maximum 10 stamps, the 11th cup is on the house! Simple idea but I tell you when you are faced with so many choices between coffee shops, you go to the one that gives something back and eventually feels more like home. Costa Coffee then decided to look beyond their usual customers and came up with the great idea of coffee shops in Airports. You can now have a decent cup of coffee in the terminals at Heathrow while waiting for your flight that has been delayed or share your precious last moments with your loved ones flying off.

The management of the Company then went even further, why stick to people with two feet on the ground, why not follow them up all the way to 20,000 feet? Well, that is exactly what they did. You can now enjoy a frothy cappuccino while flying on ''GO''(the low cost airline from British Airways). You have to pay for your Cappuccino/ café mocha etc.., but I tell you it is worth every penny. You can even buy one of their sandwiches or Danish. So Forget about all that dreary food on the plane, Costa Coffee TO THE RESCUE!

So, where do the others go now? Compared to Costa coffee, even Starbucks with its superior cup of coffee feels a bit tame. Yes, they have bought Seattle Coffee Company, and will be refurbishing all the branches into brand new Starbucks; but it still feels like they should do something extraordinary to stand out! May be that could be the first coffee shop on the moon, or the ''Space Village'. At least they would be higher up than cost Coffee. I will leave you to come up with the next big idea in coffee shops. Where can they go from here? How about hearing from the coffee shops themselves. Maybe Mr. Bobby Hashemi of Coffee Republic can enlighten us. Over a Cappuccino perhaps?

Bobby Hashemi's Coffee Republic-

Anyone who was in the US a few years ago could have predicted that Starbucks coffee-mania could soon be exported to the UK. But ''anyone '' didn't. Bobby Hashemi did. He got the idea for Coffee Republic when he was a student in New York and set up a pilot store with his sister Sahar in London's South Molton Street.

Their aim was to offer top coffee in a fresh environment with No.1 service from students recruited like the ''barristas'' that they have in Italy. His model was successful and Hashemi set about finding the money to expand. His operation being too small to attract venture capitalists, Hashemi went in search of an investor.

He sent his business plan to Oxford Venture Capital Report (VCR) which is like a dating agency for investors and entrepreneurs. Coffee Republic appeared in the April 1996 issue of their report and Hashemi met several potential investors before agreeing to a deal. He received £300,000 from an investor for 50 percent of the firm guaranteeing a further £300,000 if performance targets were met.



But why did the investor do it?

His investor still prefers anonymity but has revealed he was 'attracted by the energy and drive of the entrepreneurs, and by the force of the idea whose time had come.'

The fact that Hashemi's investor had already established a branded clothing empire of his own proved a great asset.

The investor appreciated the amount of investment Coffee Republic would require and provided judgment, creativity and contacts. He opened a lot of doors to Coffee Republic.

Now with 11 Central London stores, Coffee Republic has gone on to list on the Alternative Investment Market (AIM) where it raised £3.5m to roll out across London before going national.

During the office hours the city of London is still one of the most densely populated areas in the country which creates a lucrative lunch market for the local caterers. The composition of the lunch customers in the City of London in the weekdays is about 70% office workers, 30% passers-by and residents. The office workers and service providers need to have quick breakfast, lunch and snacks in their short breaks. This was traditionally catered by the made to order caterers. The appearance of self-service supermarkets and fast food outlets like McDonalds has changed the scenario. The fast food customers find the traditional approach time consuming, inconvenient and expensive. In the 80s Benjys pioneered a new style in the fast food by combining café, sandwich bar, supermarket, And McDonald serving . The new system has improved over since and other major players like PERSY'S, Pret a Manger, Kellys, Eat and Treats entered the market, as a of fact this is a dominant market culture at the moment and the fast food industry is constantly growing there.

Just to survive in this very competitive market a player should be aware of what is happening there.

To reduce the costs and increase efficiency, a trend has already started in the City among the employers to:

1. Out-source staff
2. Out-source services.
3. Abolish the staff canteens, out-source the catering services, or replaceit with the luncheon-Vouchers
4. Move out of the City
5. Ask the staff to work for them from their residence using the ever-improving telecommunication facilities.

Items 2 and 3 above are a blessing to the caterers in the city, while the other s have a negative effect on them. Although the paces of these measures have been pretty slow, acceleration has already started. Caterers in the city are advised not to panic (there is still time to adapt to the new environment), but do not ignore the criteria.

The other issues, which affect the market drastically, are trends and fashions, health, environment, weather, politics, economics, and competitions.

Trend used to be to lunch at pubs and restaurants, then having a sandwich at the made to order sandwich bars, then launching at McDonalds or similar outlets, then buffets and self services, and now sandwich supermarkets like PERSY'S. The favourite lunch once used to be fish and chips, then burgers and fried chickens, then pizza, then sandwiches, and now everybody is craving for Tex-Mex.

The next issue is the health every now and again our customers are pre-occupied by BSE, CJD, salmonella GM, foods, or get obsessed with free-range products, organic food, fat-free, low calorie, health foods, etc. To my experience these have all been issues that dominated the market for a short while giving way to the next one. While ignoring them is a big mistake blindly falling in their traps is even a bigger mistake unless a major market research has been carried out (these is always a very profitable niche market for the health conscious, but getting involved in it requires a proper market research).



Mr Reza Taheri
The next issues is the economy, when the economy is booming customers are mostly extravagant, while in the recession or a period of uncertainty people tend to spend less especially on food. At the moment it seems that the providers of a meal at £4.99 or less per head are booming, the ones of over £25 per head meal providers do not experience any charges, while the caterers who are aiming at markets between these two are generally suffering and having a hard time.

Competition is another worry for the caterers in the city. Not only they have to watch their existing competitors, almost every day a new food outlet is appearing in the area. My advice to the city is appearing in the area. My advice to the city caterers to handle the competition is as follows:

1. Share the existing market in a win-win situation between themselves (e..g. one aiming at the cheap end of the market and the other one at the high end, one takes care of sit in customers and the other one take away ones).
2. Combine the two outlets and get a bigger, better, and more profitable one in a form of company or partnership (a good example of this approach is Marks & Spencers).
3. Co-operate with the competitors to promote the market they are both in to get more business to be shared between them (e.g, mark the area more attractive to customers).
4. Encourage more competitors to the area in order to give the area a reputation to be a food centre with lots of choices, attracting more business to the area.
5. Out-perform their competitors.
6. Go beyond their customer's expectations.
7. Innovate and be always at least one step ahead of their competitors.
8. Use customer loyalty schemes.
9. Get to know their customers, get friendly with them and show them that they care about their customers.
10. Be aware of events, changes, and advancements in their markets and respond to due course.
11. Lead their business and market not manage it.

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