Whitbread’s Costa Coffee shows signs of slowing

Britain is showing signs of getting over-caffeinated, and the shakes and tremors in Whitbread’s earnings are the early symptoms.

While the British conglomerate posted first-half earnings yesterday that beat analyst estimates, sales growth at its Costa coffee unit showed signs of petering out.

Growth at outlets open more than a year slowed to 2% in the three months through September 1 from 2.6% in the preceding three months.

Operating profit for the first half fell by 4% from the year-earlier period.

Whitbread chief executive Alison Brittain pinned the blame on an increase in the minimum wage and spending on IT that squeezed margins.

She is also investing in new concepts such as Costa Pronto quick service coffee bars, and cafes offering more food, and in some cases, late- night opening and alcohol.

However, the market is becoming increasingly crowded, with competition on all fronts.

It has no choice but to invest, particularly if it wants to meet an ambitious goal of increasing Costa’s sales by more than 50% to £2.5bn (€2.8bn) by 2020.

Life is about to get tougher still. Whitbread pays for Costa’s coffee in dollars.

Hedging is only in place until the end of February. If the pound stays weak, Costa will face more expense — even if Ms Brittain plans to offset this with cost savings.

Whitbread shares have dropped 11% since the start of September.