Cafe chain sacrifices profits for Polish expansion
sales rise and promising economic growth in host countries Poland,
Latvia and the Czech Republic to defend its policy of working at a
loss to pursue aggressive expansion plans. But there is a long way
to go, writes Chris Mercer.
Coffeeheaven International, formed in August 2000 by UK firm Bakery Services but independent since November 2001, said its new cafés had pushed sales up by a preliminary 9 per cent in the first half of 2004, helping the firm achieve its first ever positive EBITDA at £49,000.
The company claims these results justify its rapid expansion plan which has so far given it 23 cafés in Poland, seven in Latvia and two in the Czech Republic. Another 50 cafés are expected in Poland by the end of 2006 with 18 in the Czech Republic a year later.
And a continued strong economic performance from these three countries has made Coffeeheaven bullish about getting returns on its investment. The company posted a preliminary loss of £197,000 for the six months up to 30 September, though albeit slightly down on £214,000 for same period in 2003.
"Poland's economy appears to have entered a period of sustainable economic growth further boosted by EU investment funding. We believe the group is now very well positioned to benefit from the increasing affluence of Poland's 38 million population," said Richard Worthington, Coffeeheaven executive chairman.
Poland's gross domestic product (GDP) is expected to rise by 6 per cent in 2004 with 5 per cent forecast in 2005. There is a similar story in the Czech Republic and Latvia where GDP is expected to grow by 3 per cent and 6 per cent respectively.
Worthington also said the tourist potential held by Latvia and the rising number of tourists visiting Prague, already three times the resident population, would drive up sales.
But despite the economic up-turn, unemployment in Poland, Coffeeheaven's main market country, was still the worst of all EU members at 18.7 per cent in September this year, having hovered around 19 per cent since April. The majority of people also live in rural areas, away from the more affluent big cities.
Worthington admitted that "results from our new stores outside Warsaw are mixed. Some stores are performing to plan, some are not and patience is required as we remain focused on brand building and consumer education". Poland's modern retail space per capita is also still less than half the average of that in the 15 EU states pre-dating the May 2004 accession.
Even so, Worthington believes it is all about strategic positioning for future gains. "We are pressing ahead to expand both existing markets and to open new markets as rapidly as resources allow," he said.
