A tie-up with Greene King is just the beginning for Coffee Republic. Kelly Smith reports on the high-street chain's plan for pub domination
Coffee Republic, the chain that began its café crusade with a single shop on London's South Molton Street, today has 46 branches to its name and is looking to roll out a further 31 by Christmas.
In the last six months, Coffee Republic has turned its attentions rather deftly to the pub sector which, fresh from the smoking ban, is obviously looking to capitalise on the burgeoning hot beverages market. Following a recent trial, the company installed automatic bean-to-cup machines in the back bars of 26 Greene King town and local outlets - all of which are located within the M25.
The scheme has so far been beneficial to both parties. It's a shrewd move for Coffee Republic as it gets to build customer loyalty and technically retain trade that could be lured away by other pubs and competing businesses.
Expansion across many outlets
The licensed trade is not the only target - cinemas and other leisure outlets are ear-marked for the Coffee Republic treatment. Its hot drinks were eating well into Coca-Cola's sales after only two weeks at Cineworld, says Coffee Republic chief executive Steve Bartlett.
He believes the "Coffee Republic served here" sign has a powerful pull on the brand-conscious consumer. "Cineworld is going very well. If there's a good offering, most of the adult customers will switch to coffee. We've got new packaging - corrugated cardboard cups - which lend themselves well to a cinema.
"There is a big difference between a generic coffee brand and the presence of a high-street coffee shop chain," Bartlett continues.
"Pubs could have a sign saying 'we serve coffee', which is a common sight. To put in a big brand like Coffee Republic or Costa takes it up to another level. People just won't put up with weak brands and don't necessarily want what they can have at home when they are out."
The pub concept is not "officially exclusive" to Greene King. Bartlett hopes to team up with other pubcos on a similar deal, but doesn't think it would work with individual operators.
"We're only really going to be dealing with corporate clients and not independent pubs because we won't be able to guarantee consistent quality.
"It's not just a case of putting in a machine and calling back occasionally to check on the coffee. There's a lot of backroom work that goes into it. We believe the only way to keep the brand integrity is by working with pub companies and regional brewers that have high standards. If a pub wants to sell our coffee for 99p we would seriously look to withdraw our product. We do not want it to be discounted."
The lucrative pub market
For the managed pubs involved, Bartlett estimates the profit margin opportunity to be about 85% to 90% depending on the demographic of the outlet, how much food it serves and if it has a decent day and night trade.
"There's huge room for pubs to build into the coffee market. If you're selling a £1.89 cappuccino and you're making an 85% margin in a pub that's discounting throughout the day to keep its trade going, you would be making more money per drink on your coffee than anything else. Because you can sell premium coffee at the premium coffee rate, and if your footfall goes up, then it can be a very profitable situation, especially in the daytime."
Not content with trying to find ways to take a slice of coffee sales in pubs, Bartlett is also planning to roll out a new concept that will go head to head with licensed outlets. He is developing a "lounge" format that will sell both hot drinks and alcohol, inspired by the "café by day, bar by night" venues on the Continent.
"You don't doubt for a second that those cafés in France and Italy aren't licensed," he says. "There is room for X amount of alcohol - be it a small bottle of beer or a small selection of wines and liqueur coffees - and bars open until midnight. These won't be the stores in the big shopping malls or stand-alone coffee bars; they will be significantly different.
"All wine bars sell coffee - if you reverse that, all coffee bars will end up selling wine. We feel that we'll be the first coffee chain to come up with an all-round high-street evening format."
Coffee Republic and Greene King - how it works
Coffee Republic has developed a kind of branded hot drinks station, which is tailored around each of the 26 Greene King pubs involved. Bean-to-cup machines are plumbed into the back-bars and staff simply fill them with coffee beans and top up the milk, which is fed through a tube from a fridge under the bar.
At the push of a button, each pub can make 100 cups of coffee or hot chocolate an hour. Branded crockery, sugar and napkins, etc, are ordered by the pub direct from Coffee Republic's supplier. Prices range from £1.30 for an espresso to £1.89 for a cappuccino or latte. Although the machines have been purchased by Greene King, Coffee Republic charges a negotiated royalty fee for the use of its branding.
The innovative scheme is all about exploiting the high-street brand and enabling pubs to generate trade from the Coffee Republic name. Point-of-sale materials are chosen from a catalogue (Coffee Republic advises its customers to use as much as possible to maximise the pull). A large "Coffee Republic served here" sign is usually placed above the machine on the back-bar, and external advertising, such as an A-board or window sign, is also recommended.