Cooks Coffee Company (AQSE:COOK) Executive Chairman Keith Jackson caught up with DirectorsTalk to discuss their latest trading update, highlighting strong like-for-like sales growth, expanding partnerships, and new master franchise agreements in the UAE and India.
Q1: When I last spoke to Aidan, we talked about the company’s growth model and the levers behind the momentum. It seems you’ve delivered another strong trading update this week. Keith, can you just talk us through the key highlights?
A1: We’re very pleased with the continued momentum that we were able to be sustaining and really to be outperforming the market in the way we are both in the UK and Ireland, which are our core markets.
We’re very pleased about that, both in store numbers and in actual total revenue. We’re really very pleased to do this in a continuing way, it’s part of an ongoing drive to continue to grow our footprint in these very important core markets for our company.
Q2: So, what is it that’s driving the like-for-like sales growth across UK and Ireland?
A2: The like-for-like sales are really critically important, obviously, but we believe that they’re really being driven by a few key factors.
Number one is we’ve got a very loyal following of regular customers, and that’s very important and we believe it’s a key factor of our franchisee-driven model where we have local people delivering service to local customers. So, that’s a very important thing for us. The loyalty of our existing customer base is very important.
We’ve also brought in a lot of innovation, both in our beverages and our food menus so that’s assisted in that growth. We’ve also had enhancements in our digital ordering, where in some markets we’re using kiosk-type models, which we’re finding actually deliver some very interesting results.
Those things combine to add to something that I’m sure everybody would be having as well, which there are some cost increases which had to be passed on, but they’re a small part, really, of the overall growth in our like-for-like sales. So, it’s the combination, we believe, of those various factors.
Q3: Now, Cooks Coffee Company has continued to expand the store network. How confident are you in the rollout pipeline?
A3: That’s a very good point. We’ve had a good run recently, but we believe we’ve got a very solid pipeline going forward, I guess driven out of our belief in a strong offering.
The core of the brand is based on ethical principles. We have a sustainable approach to all aspects of both store design, but also product usage. We’ve recently rebranded and using the Organic Coffee Company to illustrate that and we only use organic coffee. So, that type of thing is very important. Sustainability and also fair trade being the ethical side, the treatment of farmers etc., which is really important to us and then very importantly, delivering that by local people. That’s being, again, the franchise model. I think what we try and do is then deliver that in a very welcoming environment and we believe our design is very good.
Also, if you stand back and look at it, our market shares are actually really quite low. In the UK, we’re less than half of 1% of the market and in Ireland, we’re 2.5%. The markets themselves are growing strongly, and we believe we can grow our share within those markets.
I’m based in New Zealand, and the number of cafes per head of population here in New Zealand compared to the UK, we’ve got about one and a half times the number of cafes per head. So, we believe there’s significant growth left yet in the UK and Irish markets so we’re very keen and excited to get our share of that and to build our share over time.
I think to an extent that we’re growing in possibly not necessarily traditional markets. We’re growing in market towns, we’re doing a lot of growth in new housing developments and we’re growing in some retail parks. We have some exciting recent partnerships for us where we’ve done partnerships now with Dairygold in Ireland, where we’ve gone into four of their co-op super stores with cafes aligned with their garden centres. We’ve recently begun a partnership with Tesco in Ireland, where we’ve now got three cafes there and two more coming up in the very near future. We’ve also begun a partnership with Next in the UK, where we’ve got two stores and more coming. So, those partnerships as well are exciting for us and give us an ongoing pathway, we believe.
Adding to that, we see we’ve got very strong regional developers and particularly in the southeast and around London, we’ve got a very we’ve had a lot of growth in that area and that’s local people who know the areas very well. We believe in that localisation.
So, we feel that the key levers are very important and we’ve got them at the moment working very well.
Q4: All those partnerships that you’ve got must increase brand awareness.
A4: We believe it will do quite a bit for our brand awareness, being aligned with such strong brands and we believe that will be beneficial in the long run. So, yes, I agree totally with that.
Q5: How important is the new UAE master franchise agreements to the wider strategy for Cooks Coffee Company?
A5: We’re very excited, frankly, to be entering the UAE. It’s a rapidly growing market and along with our recently announced similar deal, master franchise deal in India, which we announced in May, we see that we can have two very exciting markets that we’re not into date, which are growing rapidly.
Whilst they’ll take some time to contribute as the store numbers start to build and we get established, we believe that those new markets, along with potential others in the future, adding to our existing markets, such as in Pakistan already with seven stores, in Saudi Arabia, Bahrain and Kuwait and we’re coming back into those markets shortly that we’re establishing quite a footprint in the Middle East and South Asian areas.
We think that that is a big opportunity. These markets are growing rapidly, and we believe that in the medium to long term, that the contribution of these markets to the overall business will be very, very strong.
Q6: Finally, what can investors expect in the coming months?
A6: I think from our perspective, we see that investors will see continuing positive top line growth, maybe not quite at the same percentage levels as what we are as we grow but we’ll continue, we believe, to grow the store numbers at the same sort of levels. That will begin to flow through more positively through into the financial performances over time. So, if we’ve got a strong top line, the bottom line should follow and that’s what we’re working on.
We’re working on doing that within a franchise environment where we’ve got a profitable and sustainable franchisee network and we’ve already got a number of those who have got multi-site arrangements and we want to continue to build that partnership with our existing franchisees and new ones that come in.
So, I think we’ve got a very good model, we’re looking forward to building that rapidly as we go forward and to see the benefits of that flow through to investors and shareholders.
