Activities

Caffè Nero is the owner and operator of a chain of upmarket, Italian-style cafés selling gourmet coffees and deli products. It is a leading and fast-growing player in the UK coffee bar market and is now seeking joint venture and franchise partners to expand overseas.

Timeline

• 1990: Ian Semp sets up the first Caffè Nero in South Kensington, London, and this bar is still operating today. Over the next six years, he opens four more bars.
• 1997: Paladin Associates, a venture capital group founded in 1991 by Gerry Ford, buys the five Caffè Nero bars.  By the end of 1999, the company had expanded to 13 bars, and decided to open outside London. It has 30 sites by the end of 2000.
• March 2001: The group, which now numbers 58 stores, floats on the London Stock Exchange at 50p per share. By the end of the year it has 75 sites.
• 1999: Caffè Nero strikes up a partnership with the British Airport Authority (BAA). By early 2005 it has eight sites on BAA land.
• 2002: In March, the company acquires 26 Aroma coffee bars from McDonald’s. It builds up a 10% stake in the ailing Coffee Republic but its offer for the company (rumoured to be £10m) is rejected in November. Caffè Nero makes its first pre-tax profit in the six months to 30 November. 
• September 2003: Caffè Nero opens a unit in Selfridges in the Birmingham Bullring.
• 2004: By early 2004, the group has 145 sites. Early in the year, Caffè Nero partners with House of Fraser to open a concession in its Dickens and Jones store in London’s Regent Street. By the end of the year, the partnership has expanded to stores in Glasgow, London Victoria, Croydon and Guildford.
• June 2004: Caffè Nero buys eight Coffee Republic outlets in Cardiff and southern England for £700,000 in cash and for its 5.7% stake in the company. It quickly boosts their turnover by 25%.
  

Financial snapshot

Full year
Turnover: £70.1m (2004: £50.5m)
Pre-tax profits: £5.1m (2004: £1.7m)

Half year
Turnover: £43.4m (2004: £32.8m)
Pre-tax profit: £3.5m (2004: £717,000)

Financial year end: 31 May 2005
Half year end: 30 November 2005

Operating data

Number of coffee bars: 262 (including eight sites on BAA land and concessions in Selfridges and House of Fraser stores)
Number of employees: more than 1,000

Figures for the six months to 30 November 2005
Store profit increased by 45% to £10.9m (2004: £7.5m)
Like-for-like sales grew by 4.5%
The group opened 30 new stores, of which 24 were outside Greater London

Strategy

"Our roll out continues apace and is ahead of schedule with 250 of this year's target 255 stores already trading. 

The Group has also reached the fortunate position of self-financing, where its UK roll-out can be financed by its own internal cashflow.  EBITDA at the current rate is more than adequate to fund the capital expenditure for the anticipated 40-45 new sites in the UK per annum.

Further afield, international expansion continues to be an area of interest and focus.  We are still exploring which opportunities and markets are best suited for the Caffe Nero brand.

Source: Chairman, interim results statement, 2 February 2006

Chief executive

Gerry Ford

Key directors

Chairman: Gerry Ford
Financial director: Ben Price
Managing director: Jonathan Hart
Commercial Director: Paul Ettinger
Retail director: Andy Wilson

Contact

2nd Floor
3 Neal Street
London
Greater London
WC2H 9PU

Tel: 020 7520 5150
Fax: 020 7379 0858

E-mail:
Website: http://www.caffenero.com

Commentary

Caffè Nero is the third largest player in the £1b branded coffee bar market and in 2004 claimed an 8% slice of the pie. It is the second fastest growing brand after Starbucks and has increased its market share by 4.3% since December 2001. The company was also named as the 20th fastest-growing company in Europe by Business Week in October 2005. 
 
Caffè Nero’s Continental-style offer has differentiated it from the American style typified by Starbucks and Coffee Republic and it has been voted the consumers’ favourite brand for five years running in the annual report into the market by Allegra Strategies.

Like many other coffee shop owners, it has been expanding its food offer to increase average spend, and food has become an increasingly important part of the sales mix as it has expanded into the provinces. In 2004, the group was selling 70,000 paninis and sandwiches a week.

The company is expanding at a rate of four openings a month and is forecast to reach 400 or 500 branches within the next five years. It is also looking at branching out into branded products such as CDs, retail coffee packs and ice cream.

Overseas expansion is also on the cards and will most likely take the form of a joint venture partner in northern Europe and a master franchisor in the Middle East. In February 2006, the group revealed that it was in talks with a number of potential partners and expected to sign a deal before May.