Coffeeheaven grows on wave of rising prosperity

Related tags Eastern europe Czech republic European union Poland

Strong sales growth at a young, up-market coffee and sandwich chain
in Poland, Latvia and the Czech Republic reveals opportunities for
suppliers and retailers as rising economic prosperity points to a
growing eastern European 'Starbucks generation', writes Chris

Coffeeheaven International, formed in August 2000 by UK firm Bakery Services but independent since November 2001, said its Polish revenues were up 48 per cent to €4.1 million for the nine months to the end of 2004.

The results are another sign that Coffeeheaven is on the right track in eastern Europe after the firm announced its first ever positive EBITDA (€71,000) for the first half of 2004.

The company has taken a hit on net profits, sitting €286,000 in the red after last year's first half, in order to expand aggressively and plans to have 39 stores open, including 29 in Poland, three in the Czech Republic and seven in Latvia, by the end of March. Another 50 cafés are expected in Poland by the end of 2006 with 18 in the Czech Republic a year later.

"Longer term Coffeeheaven will benefit from its prime positioning in almost every major shopping complex in the Polish capital,"​ said the firm, which believes its café chain will do well from the increasing affluence of Poland's city workers.

And Coffeeheaven's promising sales suggest there is increasing potential for Starbucks-style café chains across eastern European, growing out of rising disposable incomes alongside a budding consumer culture and general westernisation.

EU investment funding has benefited economic growth in the region. Poland's GDP is expected to have risen by six per cent in 2004 with five per cent forecast in 2005, and the Czech Republic and Latvia estimated to have grown by three and six per cent respectively in the last year.

A recent report by market researchers Euromonitor​ identified the popularity of western lifestyles as a key trend among Polish consumers, providing a good route in for the kind of high street coffee house concept found in Britain and North America.

Many eastern European countries, including Poland, Czech Republic and Russia, also already have a coffee drinking culture to build on, although an established café market in France has actually worked against Starbucks' progress there for the time being.

Starbucks announced last October its long-term intention to have 15,000 non-US stores, compared to around 1,500 now. The company said it was especially interested in eastern Europe and that it was actively exploring possibilities in Russia. Fast-food chain McDonald's recently told​ that its McCafé concept performed particularly well in Russia during 2004.

The 10 new EU members currently account for around 10 per cent of total EU imports and have seen their imports of coffee increase by almost 28 per cent since 1997, according to the International Coffee Organisation.

Coffeeheaven executive chairman, Richard Worthington, admitted that success would not come over night in eastern Europe. "Results from our new stores outside Warsaw are mixed. Some are performing to plan, some are not and patience is required as we remain focused on brand building and consumer education,"​ he said.

Despite Poland's economic up-turn, its unemployment rate remained the EU's highest at the end of 2004, hovering above 18 per cent. The country's modern retail space per capita was also less than half the average of that in the 'old' 15 member states, though Warsaw did open Central Europe's largest retail shopping complex, spanning 110,000 sq metres, last autumn.

Even so, Worthington said Coffeeheaven would expand as quickly as resources allowed to gain a good strategic position across eastern Europe. "To achieve this with available resources, we are negotiating the initial entry into some new markets under joint venture arrangements with locally established synergetic businesses,"​ he said.

Related topics Market Trends

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