Costa Coffee's Stagnating Growth: Can the UK's Coffee Giant Survive a Shifting Market?

The UK coffee market is a battleground of innovation, convenience, and consumer loyalty. For years, Costa Coffee has dominated this space, but recent trends suggest its reign may be under threat. With a 38.3% market share by outlet count as of mid-2025, Costa remains the largest branded coffee chain in the UK. However, its growth has stagnated, and its financial performance has failed to justify Coca-Cola's £3.9 billion acquisition in 2019. Investors must now ask: Can Costa adapt to a market where premiumization, convenience, and sustainability are reshaping consumer behavior?

The Stagnation Story

Costa's revenue in 2023 fell to £1.22 billion, a 9% increase from 2022 but still below its pre-acquisition 2018 revenue of £1.3 billion. While the brand has maintained its store count (2,663 outlets as of mid-2025), it has closed six UK locations in the past year, signaling a defensive strategy. Meanwhile, competitors like Starbucks (18.7% market share) and Greggs (9% of out-of-home coffee occasions) are gaining ground. The rise of challenger brands—Urban Baristas, Knoops, and WatchHouse—further fragments the market, targeting consumers seeking artisanal quality or novelty.

The root of Costa's struggles lies in its inability to align with evolving preferences. While it introduced bubble tea and hot milkshakes in 2023, these moves feel reactive rather than visionary. Consumers now prioritize premium, ethically sourced coffee and cold/ready-to-drink (RTD) formats, which Costa has been slow to embrace. Its RTD segment, for instance, saw a 23.2% volume decline in 2024, contributing to a £4.7 million loss.

The Cost of Complacency

Coca-Cola's ownership has not been kind to Costa. The parent company reported a 3% volume decline in its coffee segment in 2024, with Costa's UK performance dragging down results. Rising green coffee prices (up 50-year highs in 2024) and inflation have eroded margins, forcing Costa to implement cost-cutting measures. Yet, these efforts have not translated into profitability. The brand's 2023 loss of £9.6 million underscores its vulnerability.

The UK's economic climate compounds these challenges. With 15.1% of consumers opting for out-of-home coffee in 2025 (up from 13% in 2022), demand is growing—but so is competition. Starbucks's 4.7% year-on-year outlet expansion and Greggs' value-driven model are outpacing Costa's cautious approach. Meanwhile, the shift to remote work has reduced foot traffic in city-center locations, where Costa's traditional model thrives.

A Market in Motion

The UK coffee sector is evolving rapidly. Premiumisation is no longer a niche trend; it's a necessity. Chains like Gail's and Blank Street Coffee are winning over consumers with single-origin beans and barista-driven experiences. At the same time, convenience-focused players are leveraging Costa Express vending machines (12,000 units in the UK) to capture on-the-go demand. Costa's reliance on its 2,300 traditional stores is a liability in this new landscape.

Sustainability is another battleground. Consumers increasingly favor brands with transparent supply chains and eco-friendly practices. Costa's efforts here are commendable but lack the urgency of competitors. For example, Urban Baristas has built its brand around ethical sourcing and carbon-neutral operations, attracting a younger, more conscious demographic.

The Road Ahead

Coca-Cola's rumored £2 billion sale of Costa (a £1.9 billion writedown) signals a strategic pivot. While the brand's scale and brand recognition remain assets, its operational inefficiencies and misaligned product offerings make it a risky bet. A new owner would need to address three critical areas:
1. Product Innovation: Double down on cold brews, RTD formats, and premium blends to compete with Starbucks and Gail's.
2. Operational Efficiency: Streamline supply chains and reduce overheads without compromising quality.
3. Digital Integration: Enhance loyalty programs and mobile ordering to meet Gen Z's expectations for seamless experiences.

For investors, the key question is whether Costa can pivot quickly enough. The UK market is projected to grow to £6.1 billion in turnover by 2025/26, but Costa's market share is likely to shrink unless it reinvents itself. The brand's Costa Express machines offer a glimpse of potential, but scaling this model requires significant investment.

Final Verdict

Costa Coffee's dominance is waning, not because of poor management but because it has failed to anticipate the pace of change. While its brand equity and scale provide a foundation, the window for transformation is narrowing. Investors should approach Costa with caution, favoring competitors like Starbucks or emerging premium players that are better positioned to capitalize on the UK's evolving coffee culture. For now, Costa's story is one of stagnation—a cautionary tale for any business that takes its market leadership for granted.