Costa Coffee Grapples with Rising Costs Despite Revenue Surge, Posts £9.6M Loss

Costa Coffee faces financial turbulence in 2023, posting a £9.6M loss despite a notable revenue increase, as inflationary pressures and rising operational costs take a toll on profitability.

Costa Coffee, one of the world’s largest coffee chains, has reported a pre-tax loss of £9.6 million for 2023, a sharp contrast to the modest profit of £245,950 it recorded the previous year. This financial setback occurred despite the company’s revenues climbing from £1.11 billion in 2022 to £1.22 billion in 2023. The company, owned by Coca-Cola, cited a combination of rising energy costs, higher staff wages, and ongoing inflationary pressures as key contributors to its losses.

Inflation Bites Into Profits

While Costa Coffee experienced a significant jump in revenue—over £100 million—the company struggled to manage increasing costs. Rising energy prices and wage inflation hit the coffee chain hard, eroding its profit margins. Jane Carlin, Costa’s Finance Director, remarked on the situation in the company’s annual filings: “Inflationary pressures on the cost of goods, including energy and payroll, and the impairment of the company’s investments in two of its subsidiaries resulted in an operating loss for the year.”

In addition to rising operational costs, Costa’s dividend income from its subsidiaries plummeted, dropping from £245 million in 2022 to a mere £1 million in 2023, exacerbating the financial strain. Yet, despite these challenges, Costa Coffee still managed to pay out £85 million in dividends to its parent company, European Refreshments Unlimited (an Irish subsidiary of Coca-Cola) in February 2023, followed by an additional £80 million in April 2024.

Global Expansion and Strategic Adjustments

Costa Coffee’s current operational portfolio includes over 2,600 cafes in the UK and Northern Ireland and more than 3,900 locations globally, showcasing its international reach. In February 2023, the chain made a strategic decision to sell its 142 Polish and Latvian outlets to Lagardère Travel Retail, signaling a shift in its regional focus. The sale reflects Costa’s broader strategy to fine-tune its global footprint and focus on markets where it sees the highest potential for growth.

Continued Investment Amid Setbacks

Despite financial hurdles, Costa Coffee remains committed to expanding and improving its business. The company has invested heavily in new retail stores and upgrading existing locations. This reinvestment in its core operations aims to maintain its competitive edge in a saturated market, where smaller specialty coffee shops and other large chains continue to vie for market share.

Costa’s strategic investment includes proposition development to enhance customer experience, such as introducing new menu items, tech innovations for faster service, and sustainability initiatives. These measures are designed to attract a broader customer base and respond to evolving consumer demands, especially as environmental sustainability becomes a more prominent concern for global businesses.

Legacy and Future Outlook

Founded in 1971 by Italian brothers Sergio and Bruno Costa, the coffee giant quickly became a household name in the UK. Whitbread acquired Costa Coffee in 1995, and the business continued to thrive until its £3.9 billion acquisition by Coca-Cola in 2019. As one of Coca-Cola’s high-profile acquisitions, Costa Coffee has since been seen as a key part of the company’s strategy to diversify beyond carbonated soft drinks.

However, 2023 marked a challenging year for the brand, signaling the need for further adjustments in its business model to weather global economic pressures. Costa’s management remains focused on innovation, expansion, and reducing operational inefficiencies in the face of inflationary headwinds.

Balancing Growth and Profitability

As Costa Coffee looks ahead, the company will likely focus on balancing growth with profitability. Reducing costs, particularly in energy and labor, while expanding into more profitable regions and enhancing the customer experience, will be critical steps toward regaining financial stability. As Jane Carlin highlighted in the company’s financial report, despite the setbacks, Costa Coffee continues to prioritize investments in its core operations to secure long-term growth.