Costa cashes in as coffee-lovers 
boycott their tax-dodging rivals

Costa said it served almost four million customers last week – the same week that US rival Starbucks bowed to public criticism and agreed to pay more tax.

Andy Harrison, chief executive of Costa’s parent company Whitbread, said: “Costa’s been the UK’s favourite coffee shop for quite some time and we remain the taxman’s favourite coffee shop too.”

Like-for-like sales at Costa rose 7.1 per cent in the 13 weeks to November 29, up from 6.8 per cent in the first half as shoppers started to boycott overseas companies that have been accused of tax-dodging.

Mr Harrison said brand preference data showed that US-based Starbucks “had taken a knock”, although he said it would be difficult to single out any benefit it was getting from Starbucks’ woes.

Analysts at Panmure said in a note: “Costa’s performance is likely to have received a boost from the negative publicity around Starbucks’ tax affairs, although it has consistently reported this level of like for-like-sales growth over the past 18 months.”

Last week Starbucks said it could pay £20m in corporation tax in Britain over the next two years, responding to public criticism over allegations of tax avoidance.

Starbucks has paid just £8.6m in corporation tax in 14 years of trading in Britain and has paid nothing in the last three years.

The revelations sparked a customer boycott and protests.

Analysts said Costa is likely to benefit from the bad publicity surrounding its non-UK based rivals.

Another competitor Caffe Nero, reportedly paid no corporation tax last year, despite making profits of almost £40m.

Whitbread said sales at the Costa Coffee chain, which has over 100 outlets in Yorkshire, were also boosted by new food and Christmas ranges.

Sales hit a record £10m last week after 3.8 million customers flocked through its doors.

Whitbread, which also runs Premier Inn hotels and the Beefeater and Brewers Fayre restaurant chains, reported overall growth of 3.3 per cent.

This represents a slowdown from the first half’s 4.3 per cent rise in underlying sales but this was expected as the first six months were boosted by wet weather and the Olympic Games, which gave the whole country a feel-good boost.

Underlying sales at Premier Inn grew by 2.5 per cent in the quarter, as it benefited from a growing market share, particularly in London.

It has also benefited from cost-conscious customers opting to stay in its affordable rooms.

The budget hotel chain has also benefited from an advertising campaign featuring comedian Lenny Henry.

Whitbread said overseas sales at Costa, which is aiming to double in size to 3,500 stores worldwide by 2015/16, were also up.

The company has reported solid trading in the Middle East and China although underlying growth in the Chinese market slowed slightly from 19 per cent in the first half.

Whitbread said central and southern Europe remains difficult.

Total Costa sales for the first 39 weeks of the year were up 22 per cent to £734m.

Like-for-like sales at its restaurants in the quarter rose 1.9 per cent.

Whitbread said it is on target to meet market expectations for the full year.

It is expected to report a pre-tax profit of £347.9m for the 2012/13 financial year.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said: “Whitbread continues to please, despite the dual headwinds of tough comparatives and a post-Olympic slowdown, which had already been trailed.

“Costa Coffee remains a particular engine of growth, whilst Premier Inn made its own subdued contribution as compared to previous quarters.

“Even so, the Premier performance compares well with its peers, as does that of the restaurant business. There was an inevitable word of caution from management on the immediate outlook, although it reiterated its previous guidance.

“The company continues to benefit from being well positioned in a cost conscious consumer environment, and this momentum has filtered through to both the underlying numbers.”

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