Activities

Coffee Republic is the owner and operator of a chain of espresso coffee shops and deli bars located primarily in the south of England and the Midlands. After facing swingeing losses in 2002, the group has scaled back its estate and elected to convert its remaining Coffee Republic coffee bars into a more food-focused US-style deli. It has pinned its hopes for the future on franchising the brand.

Timeline

• 1995: Coffee Republic is founded by brother and sister team Bobby and Sahar Hashemi, opening its first site in London’s Mayfair towards the end of the year.
• 1998: The group enters the Alternative Investment Market (AIM) by reversing into Arion Properties. The group grows to 24 branches after opening 17 new sites between March and November and has by now expanded beyond the capital to York, Birkenhead, Newcastle and Manchester.
• July 2000:  Coffee Republic switches from AIM to the full list and raises £10.25m for expansion through equity funding. At this point, it has 61 coffee bars and cafés and announces plans to open 80 more by 2002.
• March 2001: Hashemi steps down as chief executive but continues as a non-executive director. He returns as executive chairman in the summer of 2002.
• December 2001: Coffee Republic buys the GoodBean coffee bar chain for £8.6m, gaining 12 outlets in south-east England and seven further sites under construction. The acquisition takes the group to 108 outlets.  
• 2002:  In July, the group announces plans to halt its expansion programme, sell underperforming bars and launch a strategic business review as annual losses plummet from £2.7m to £7.5m. A number of takeover talks ensue with easyGroup, Benjys and Caffè Nero. Benjys’ £8m offer is rejected in October and Caffè Nero’s rumoured £10m bid is rejected in November. In November, Coffee Republic sells 13 sites to Starbucks for £2m and returns to an AIM listing.
• August 2003:  Coffee Republic unveils a survival plan to convert itself into a New York-style deli-bar chain called Coffee Republic Deli and whittle its numbers down to a core of 50 outlets. It pilots the concept at Baker Street and Exchange Street in London.
• November 2003: The group raises £2.45m in a placing and open offer to convert 50 core coffee bars into US-style delis
• June 2004:  Coffee Republic sells eight outlets in Cardiff and southern England to Caffè Nero for £700,000 in cash and Caffè Nero’s 5.7% stake in the company.
• November 2005: The group signs its first franchise deal and ends the year with four franchised outlets. It intends to retain just 10 to 15 bars under company ownership.

Financial snapshot

Full year 

Turnover: £17.6m (2004: £22m)
Pre-tax profit: -£1.23m (2004: -£1.57m)

Half Year

Turnover: £7.7m (2004: £8.9m)
Pre-tax profit: -£661,000 (2004: -£799,000)

Financial year end: 27 March 2005
Half year end: 25 September 2005

Operating data

Total number of coffee and deli bars: 46

Number of deli bars: nine

Number of franchised deli bars: four

Outlets range from York in the north to Eastbourne in the south. They are located in high streets, shopping centres and airports.

Number of employees: 520

Strategy

"These results demonstrate the continuing improvement in the underlying performance of the business. The encouraging progress of our franchising efforts to date, together with the strong pipeline and interest in franchising the Coffee Republic brand demonstrates that the next phase of our turnaround strategy is starting to gain momentum and deliver results.

The initial focus has been on franchising existing bars and in November we completed our first franchise.

Starting in the New Year we will look to open new franchised bars. Clearly with new sites there will be a longer lead time as both franchisees and new sites are selected. Nevertheless we anticipate taking the significant step of opening our first new site for four years in 2006."

Source: chairman's statement, interim results, 22 December 2005

Key directors

Executive chairman and co-founder: Bobby Hashemi
Finance director: Simon Drysdale
Commercial  director: Mike Baker
Head of operations: Kevin Frostick

Contact

Ground Floor
109-123 Clifton Street
London
Greater London
EC2A 4LD

Tel: 020 7033 0600
Fax: 0207 033 0464

E-mail: email@coffeerepublic.co.uk
Website: http://www.coffeerepublic.co.uk

Commentary

Coffee Republic, like Madisons Coffee, has been one of the casualties of the boom in the increasingly-crowded coffee bar market and has been forced to switch to a more food-based offer to survive. As Hashemi himself concedes, the group grew too quickly and bought expensive sites in areas of high competition. Also, its Seattle-based coffee concept did not differentiate the group sufficiently from competitors such as Starbucks.

The company, which was one of the top four brands in the £1b branded coffee shop market, has lost 5% of market share in the coffee-focussed sector since December 2001. By the end of 2004, it had dropped to 12th place with a 2.5% share of the £1b branded coffee shop market, according to the annual report into the sector by Allegra Strategies.

The sale of underperforming stores, which is now largely complete, has shrunk the group from 108 outlets stretching from Glasgow to  Brighton, to 46 clustered largely in the south-east and Midlands, venturing as far north as York and as far west as Worcester and Chester.

Although the cost of the transformation deepened the group’s losses in 2003, 2004 brought a sharp decline in the profits freefall and a halving of the overhead costs of two years earlier. The stores converted into delis have boosted sales by more than 20%. However, the move to a more food-based operation does bring the group into direct competition with the likes of EAT, Benjys and Prêt à Manger.

The group is seeking to expand the deli concept through franchising both in the UK and overseas. It intends to retain just 10 to 15 bars in company ownership.

An improved performance could allow Coffee Republic to bounce back and perhaps buy another chain – or attract more predatory offers. More losses could likewise trigger another rash of takeover bids.