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Costa Coffee owner Whitbread sees growth slowdown as rising popularity of artisan coffee shops and Airbnb takes a toll

Costa Coffee and Premier Inn owner Whitbread saw annual profits come in lower than expected as competition intensified from the likes of artisan coffee shops and Airbnb.

The group, while seeing a healthy rise in sales and ‘a good start’ to the new year, also warned it expected consumers to rein in spending this year as inflation rises as a result of the slump in the pound following the Brexit vote.

Shares in the FTSE-100 listed group took a hit, falling by almost 6 per cent after in early trading, after it posted a 5.7 per cent rise in pre-tax profits to £515.4million in the 52 weeks to March 2 – below analysts’ consensus of around £560-570million.

Whitbread said Costa was facing competition also from restaurants starting to offer coffee

Total group sales showed a healthy 8.2 per cent rise to £3.1billion when compared to the same 52 weeks last year, or a 6.3 per cent leap when compared to last year’s longer trading period of 53 weeks. This, however, is below growth of 12 per cent recorded the previous year.

Like-for like sales at its Costa Coffee chain business rose 2 per cent, compared to 2.9 per cent growth the previous year, with profits rising by 5.3 per cent to £158million. Whitbread said the coffee business was facing competition also from restaurants starting to offer coffee options.

‘The market and competitive landscape continue to evolve with more food-led operators now offering coffee and, while convenience and coffee quality remain the top decision criteria, customers are becoming more demanding in the way their priorities are met,’ the group said in a statement.

Neil Wilson, analyst at ETX Capital, said the company was growing sales, but at a slower pace than in the past as it struggled to fight off consumer trends at its two key businesses – hotels and coffee.

‘One big issue is the growth of artisan coffee – smaller independent outlets are a bit more fashionable these days, which is denting growth prospects at Costa.

‘The other is rise of Airbnb and its ilk, which is crimping growth at the Premier Inns hotel chain.’

Like-for-like sales at Premier Inn hotels rose 2.3 per cent, a slower growth than last year’s 4.2 per cent rise, with underlying operating profits rising 7.4 per cent to £468million.

But revenues per room fell by 0.6 per cent, dragged lower by a 3.3 per cent decline in London.

Hotels in the capital have been suffering from the rise of Airbnb, and analysts have blamed tourists avoiding city centre trips after terror attacks in European cities.

Chief executive Alison Brittain hailed a good start to the year but warned about a pullback in consumer spending due to rising inflation, caused by the post-Brexit vote collapse of the pound.

‘Whilst we are only seven weeks into our new financial year Premier Inn has had a good start to the year and Costa has also seen positive like for like sales growth, although we remain cautious and expect a tougher consumer environment than last year’, said Brittain.

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said that despite the steady growth, Costa was most at risk from a decline in consumer confidence.

London hotels: Revenue per room in the capital fell by 3.3 per cent, Whitbread said

‘Tougher conditions are having a particular effect on high street Costa outlets, where like-for-like sales fell by over 1 per cent in the final quarter of 2016. With Costa UK accounting for 98 per cent of divisional and 25 per cent of group profits, that’s far from welcome.

‘Fortunately outlets at travel locations and drive-throughs are growing rapidly, while the group is spending heavily on expanding the international estate and putting Costa Express machines wherever it can find a space.’

‘A downturn in the UK high street would be painful short term, but it’s unlikely to be the end of the world’s love of coffee and Costa is making sure it’s ready with a cup in hand wherever customers find most convenient.’

UK inflation has risen to 2.3 per cent, but forecasts by the Bank of England expect it to rise further to 2.7 per cent by the end of 2017, before peaking at 2.8 per cent in the first half of 2018 and easing to 2.4 per cent by 2019.

It comes as businesses start to pass on rising costs caused by the weaker pound following currency fluctuations in the wake of the Brexit vote, which has made imports more expensive.