In hard times, it is understandable that businesses wish to save money where possible in a bid to post higher profits and boost their share prices. However, in recent weeks the press has been flooded with tales of multinational companies failing to pay tax for trading on UK soil – something that hard pressed British tax payers have reacted to with disbelief and fury.
Starbucks is just one company which has been at the receiving end of consumer anger, with many previously loyal customers choosing to boycott the American owned chain in favour of a tax paying rival. This, of course, has shaken up the market somewhat, which has greatly benefited Costa Coffee.
The hot beverage chain, which is owned by the Whitbread Group, this week posted figures showing a spike in third quarter sales – coinciding with the period in which the tax scandal first hit the national press. Sales at Costa increased by 25.5 per cent from the second quarter as Starbucks customers jumped ship to the British brand.
Costa has always been a popular choice for coffee lovers in the UK, with more than 1,400 branches now open in towns and cities across the country. And with Starbucks’ reputation somewhat tarnished, it can be assumed that Costa will be considering further expansion in order to monopolise the hot drinks market.
The Whitbread Group revealed that sales in coffee shops which had been open for more than a year, thereby ruling out boom sales at initial openings, increased by 3.3 per cent overall. This compares well to the 2.4 per cent growth in this category during the same period last year.
While this does not quite compete with the 4.3 per cent jump in sales seen in the first half, factors such as the Olympic and Paralympic Games and the unseasonably wet summer must be taken into account. Rather than facing the rain when out on the high street, many shoppers chose to duck into their closest Costa branch to wait out the worst of the downpours.
Yet it is not only in the UK that Costa Coffee witnessed an increase in popularity, as sales in the Middle East are also climbing steadily despite a slowdown in the Chinese market. The Eurozone crisis is still affecting many businesses in mainland Europe, but the Whitbread Group appear confident that the coffee chain will remain stable in even the worst affected countries.
The Whitbread Group’s chief executive, Andy Harrison, remains cautious about trading in the UK – especially as the Chancellor’s Autumn Statement has sparked fears of a further plunge into recession. However, he feels that the Group’s forecasted annual profits will largely be accurate.
He says; “The economic environment remains challenging with no change in our background consumer market.
“We are on track to deliver full year results in line with expectations.”
This target will certainly be something to celebrate should the Whitbread Group manage to reach their goals, as the forecast figures are a definite improvement from the 2011/2012 financial year. The annual pre-tax profit is expected to total around £347.9 million – an increase of more than £20 million since the last financial year, where the Whitbread Group achieved pre-tax profits of £320.1 million.
Do you think the tax scandal has had a detrimental effect on the customer base of Starbucks, leading them to boycott stores, or does Costa Coffee simply offer better value for money and superior products than their rivals?
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