5th December 2011
Starbucks has revealed plans to open a further 300 stores in the UK over the next five years. It will be creating jobs for 5000 people. In theory, expensive coffee would seem to be an easy target for a consumer austerity drive, but the company appears confident that people will continue to buy. Does Starbucks have something that the rest of the market does not? Or could it be a sign that the corporate sector might finally be willing to set aside the macroeconomic climate and start spending again?
This piece points out that Starbucks' UK sales have grown for nine quarters in a row on a like-for-like basis. It also shows that Starbucks' expansion plans have not always gone to plan before. A previous attempt in 2008 ended badly for the group.
Management believe that coffee is just ‘having its moment': "Drinkers are discovering a taste for different varieties and an interest in the provenance of the product." But there are also more pragmatic reasons, as Kris Engskov, managing director for the UK and Ireland adds: "Rents are coming down across the UK. If there's anything we've learnt over the last few years, especially in the US, it is to invest ahead of the curve."
Certainly niche consumer brands have shown that people are still willing to spend money on areas they consider important. Majestic Wine has been a beneficiary both of its unique proposition and the weakness of its near-competitors. In its last set of results total sales and pre-tax profits rose 8.7% and 20% respectively: "The wine retailer increased its divided by 15.2% to 3.8p per share and now has a payout ratio of 55%. The wine division saw sales increase 9.8% to £117 million, with average spend per transaction at stores rising from £122 to £125 and the average bottle price rising to £7.13, up from £6.67 last year." It too is expanding, targeting more than 50% estate growth over the over the next ten years, and investing excess cash into freehold properties.
There are signs of life in some US private companies as well. Last week's US employment figures also suggest that firms are starting – tentatively – to hire again.
However the vast majority of firms are still sitting on their hands. Chris Williamson, chief economist at Markit, said: "Companies kept headcounts largely unchanged, highlighting a reluctance to expand workforces as a result of the uncertain outlook.
"The CIPD's quarterly survey of 1,000 employers has found that there has been a marked downturn in recruitment . This is very bad news. The public sector is haemorrhaging jobs and the private sector is only mopping up a small fraction of the newly unemployed.