Coffee culture in the UK is undergoing a notable shift, with traditional giants like Costa Coffee finding themselves increasingly challenged by emerging trends and changing consumer preferences, particularly among younger generations. Costa, long a staple on high streets across the country and now owned by Coca-Cola, is facing mounting difficulties in staying relevant as evolving tastes lean towards healthier and more innovative beverage options such as matcha and other speciality teas.

Costa’s predicament is underscored by its recent financial performance. The 2023 financial year saw the company generate revenues of £1.2 billion, yet report a £14 million operating loss attributed to inflationary pressures including heightened costs for goods, energy, and labour. Despite a vast footprint of over 2,670 stores and 15,000 self-serve machines across the UK, Costa’s market share declined by 1.3% to 23.3%, as competitors like Starbucks, Pret, Greggs, and artisan chains such as Gail’s and Black Sheep Coffee aggressively expanded. Coca-Cola is now exploring strategic options for Costa, including a potential sale estimated around £2 billion, significantly less than the £4.9 billion paid in 2019.

Younger consumers’ preferences are especially pivotal to this market disruption. The rise of the so-called “matcha generation” is a telling phenomenon. Matcha, a vibrant, finely ground Japanese green tea rich in antioxidants, has surged in popularity due to its perceived health benefits and versatility in beverages. While Costa’s offerings include various frappés and fruit coolers, these are often laden with syrups and whipped cream, falling short of the “clean living” appeal sought by Millennials and Gen Z. By contrast, specialist cafes like Blank Street Coffee, which opened in London after its 2020 Brooklyn origins, have capitalised on this trend with colourful, flavour-infused iced matchas—strawberry matcha in particular gaining cult status among fans and celebrities alike. Its social media presence, notably on TikTok, fuels its appeal to a younger demographic looking for distinctive, photogenic drinks.

Blending aesthetics and health-consciousness, these smaller or independent chains are preferred by many young consumers who deliberately choose to avoid large coffee franchises, both for taste and ethical considerations. Customers often view regular coffee, such as a simple latte, as a daily necessity rather than a treat, meaning they seek more innovative or luxurious experiences to justify spending nearly £5 per drink at a café. This behaviour is echoed by experts like Clare Bailey, retail analyst and founder of The Retail Champion, who notes that businesses failing to adapt or reimagine their offerings in response to shifting consumer behaviour risk decline.

Global coffee market trends mirror this local shift. Alongside matcha, other Japanese teas like hojicha—an earthy, roasted green tea with lower caffeine content—are emerging as the next wave of speciality beverages, particularly during warmer months. Hojicha’s growing appeal in cafés from Japan to New York, London, and Los Angeles reflects consumers’ expanding curiosity about Japanese tea culture beyond traditional matcha. Specialty venues like London’s Matchado and Tokyo’s Satén showcase hojicha’s comforting flavors, while brands such as Kettl promote it with masterclasses and high-quality Uji-sourced powders, signalling a potential diversification beyond the matcha trend.

Industry perspectives highlight that while matcha’s skyrocketing global demand has boosted Japan’s tea exports by around 25% in value recently, it also faces sustainability challenges. Matcha is notoriously labour-intensive, shade-grown, and vulnerable to climate extremes—Kyoto, a major production area, has experienced crop damage from heatwaves, pushing prices up significantly. The longer-term viability of its boom is uncertain, with some experts noting the rise of alternatives like hojicha may help balance supply issues and introduce consumers to a broader spectrum of tea experiences.

This global enthusiasm has spurred innovation in major cities worldwide. For instance, Café Kitsuné in London’s Covent Garden offers creative matcha drinks such as iced strawberry matcha lattes made with premium Uji matcha, alongside French-Japanese fusion pastries enhancing the cultural experience. Other international operators likewise experiment with varied matcha flavours and formats, from cocktails to cold brews, positioning matcha as a versatile ingredient in modern café culture.

While Costa once dominated the UK coffee scene with its expansive presence and convenient offerings, it now finds itself navigating a tougher trading environment marked by fragmented consumer tastes and growing competition from nimble, trend-savvy independents. The younger “matcha generation” are less drawn to conventional coffee chains that have been slow to embrace these emerging demands for healthier, novel, and visually appealing drinks. Costa’s challenge will be whether it can innovate quickly enough to reclaim youth-driven market relevance or whether it will continue to cede ground to more agile players in an increasingly diverse and health-conscious coffee market.

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Source: Noah Wire Services