The owner of Costa Coffee is facing pressure to spin off the high street cafe chain after activist investor Elliott Advisors built up a stake of more than 6 per cent in the group.
Whitbread’s share price jumped more than 6 per cent on Monday morning following reports over the weekend that Elliott had bought more shares in the company.
Costa’s owner, Whitbread, said like-for-like sales at its UK outlets had fallen 1.5% in the 13 weeks to 30 November. Costa Express machines, which are mainly in petrol stations and convenience stores, fared much better, with 6.7% underlying sales growth.
The Whitbread chief executive, Alison Brittain, said like some highstreet retailers Costa had been hit by a decline in consumers, partly caused by a “structural shift to online shopping”.
But she insisted this did not mean the end of the coffee shop boom. “I’m a great optimist … that people do like to socialise with each other. In the old days this would have been the pub environment,” she said. “I don’t think coffee drinking and quality coffee drinking is in any danger of going backwards.”
In light of the difficulties on the high street, the company is focusing on opening more coffee shops in drivethroughs and other travel locations, as well as rolling out more Express machines. Costa is serving more hot food, including chicken and chorizo rice boxes and egg muffins for breakfast, and has just launched a range of coffee with coconut milk.
Elliott’s holding is now worth more than £430m, making it the largest shareholder in Whitbread and giving it various voting rights that will allow the investor to press its case for splitting Costa Coffee from the rest of the business.
Excluding new stores, Costa’s overall UK sales dipped 0.1% in the quarter, marking only the second time they have ever fallen. The first decline was in the quarter to February last year, when they dropped by 0.8%.
Neil Wilson, senior market analyst at the financial spreadbetting firm ETX Capital, said: “The drop in Costa sales seems to be down to shoppers shunning the high street, resulting in lower footfall for stores, as well as pressure from the artisan coffee retailers who are gaining market share.
“At present it does not appear that higher-margin finer coffee products, as well as the newly launched Cold Brew and Frosting lines, are helping to improve sales and margins.”
Costa has 1,357 high street stores, 1,032 franchise stores and 7,100 Express machines in the UK.
The figures came after reports that the activist fund Sachem Head, which has built a 3.4% stake in Whitbread, was calling for the company to spin off Costa.
The company has joined Wagamama, JD Wetherspoon and All Bar One in ditching plastic straws. The decision follows Theresa May’s pledge to eliminate all avoidable plastic waste within 25 years.
Costa uses 19m plastic straws a year and 26m stroons – straws with spoons on the end. They will be phased out this year and replaced with a non-plastic alternative.
Disposable cups are harder to tackle. Brittain said the company was working “very hard” with the rest of the industry and local processing plants on recycling all drinks containers that are thrown away on the high street.
Costa has ramped up its own recycling of disposable cups and is now recycling 12m a year, out of nearly 200m sold. Every Costa store now offers recycling. The chain is also offering a 25p discount to customers bringing in a reusable cup.
Whitbread’s budget hotel chain Premier Inn posted slower UK like-for-like sales growth of 0.5% after a tough October. It explained it had sold rooms cheaply in advance, rather than filling them later at a higher price.
Wilson said Premier Inn was probably under pressure from the rise of Airbnb and similar ventures, adding: “Given the weakness in sterling and increase in UK tourist spending, Premier Inn arguably should be doing better.”
Whitbread, which owns the Premier Inn brand, is also under pressure to spin off Costa from another New York-based investor, Sachem Head, which has a 3.4 per cent stake in the group.
Whitbread, which reports its full-year results next week, declined to comment.