Caffè Nero aims for 1,000 shops in five years

Business is steaming hot for Caffè Nero as founder Gerry Ford attempts to keep the coffee shop chain on an expansionary curve with a projected 1,000 outlets worldwide over the next five years.

Dr Ford, who is Chairman and CEO, told Emirates Business in Dubai this week that the company, currently only in Turkey and the UAE outside its British home market, is eyeing growth in China, the United States, central and eastern Europe, Scandinavia and the GCC.

"It's hard to say where exactly we're going right now, but critical to that success is finding the right partner, who will nurture the brand as it goes forward," he says at the brand's flagship Dubai Mall café. "Typically, we hope to hit one new market a year. If you go too fast, it hurts your brand."

The chain hopes to double its portfolio from just over 400 stores at present. Ford says such an expansion could take the nature of a franchise or a joint venture.

The brand currently has seven stores across the Emirates in collaboration with its GCC franchisee Al Tayer Trends. Ford says the brand could launch in Qatar and Bahrain as early as next year as part of the deal. Al Tayer Trends has previously committed to opening 50 stores across the region over the next five years. It runs seven Caffè Nero stores in the UAE.

Typically, in a market such as the UK, a new 2,000 square foot store requires initial capital expenditure of about £200,000 (Dh1.21 million) in build-out and equipment costs.

"Payback on that investment is just over two years in the UK. Here, the situation could vary – different markets have different results," says the Oxford graduate.

In making its regional debut – it opened at Dubai Mall this March – Caffè Nero steps into an already busy marketplace. Costa Coffee and Starbucks have carved up the region between them, each operating more than 200 stores across the Middle East, with several more in development, while other players such as Barista Espresso, Café Columbus and Caribou Coffee have percolated into the market in recent years.

But Ford is unfazed, having battled the majors on his home turf in the UK. Caffè Nero, he says, differentiates on everything from product quality and range to service, with add-ons such as entertainment setting it apart from the competition.

"Ours is a very European concept in look and feel. It's not necessarily quick service, but is about the overall experience. We're seen as a premium player, people come in and dwell here longer and in taste tests and accolades, we're always rated No1 or top-notch," he says, adding that it is this blend of factors that has consistently seen the brand rated No1 – "by any measure, from taste to profitability per store" – in the UK for the past eight years.

One important component of Caffè Nero's offering is food, which accounts for 35 per cent of its product mix as compared to 15 or 20 per cent of sales at competitors.

Ford describes the chain's food products as travelling through the day, meaning that rolls and bakery items are on sale in the morning, light meals such as paninis and salads are available at mid-day, while customers can tuck into cakes, cookies and other sweet treats each evening. By contrast, competitors tend to offer a mixed range of cakes and sandwiches throughout the day.

Overall, the industry has done rather well in the recession compared to other sectors of the economy. The six big chains in the UK, including Caffè Nero, ramped up combined shop numbers 47 per cent to 2,095 during the year to September, according to The Local Data Company. The UK is one of the markets hardest hit by the recession.

"We haven't exactly had a gangbuster year," Ford says. "But what we've found is that people have traded down and cut out big-ticket items, but they have been almost ritualistic about daily treats such as coffee. Small items are something they can enjoy – and the perception of Caffè Nero as a premium brand has helped our business."

According to numbers from Ford, Caffè Nero's UK sales grew 10 per cent from June 2008 to May 2009.

"Since then we've done better," he adds. While double-digit growth might seem healthy at a time when bigger chains have had to rethink operational strategies and are experimenting with new concepts, for Caffè Nero that 10 per cent contrasts against a growth of 35 per cent annually over the previous 10 years."

An American raised in Silicon Valley, Ford spent a lot of time in Italy, France and Germany as a young man and, inspired by the European coffee house concept, the consumer brands man founded Caffè Nero in London in 1997 with money from a private equity firm he had set up earlier.

The chain is now the largest independently owned coffee house brand in Europe, employing 4,000 people over its 400 outlets. Its turnover as of May 2008 was £130m, according to a company handout.

Surely it can't have been a smooth ride, I ask? As an entrepreneur who made a success of his first two businesses, what was the hairiest moment? "When a bank in England was bought up, and wouldn't honour a loan commitment to us, to finance the purchase of another chain of stores because they didn't want to be in coffee any more. From a remote part of Mexico with an irregular mobile phone connection, I ended up having to befriend a Texan oil and gas man to use his phone – so I could find the money. We convinced one of our investors to give us a 90-day loan that we were able to return in those three months. But that showed me how you can be totally exposed by someone else for no fault of your own."

Something to ponder about over a steaming hot cup of coffee, perhaps.

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