Wrestle with PESTLE: the evolving coffee market

Reading time: nine minutes

When was the last time you grabbed a drink from a coffee shop? Was it in a dash on the way to university, during a catch-up with friends or as a quick treat post-gym session? Perhaps you brew your own coffee at home? In any case, the market is growing. As of  January 2025, there were 11,456 branded coffee chain outlets, a 5.2% increase over the 12 months to January, according to Allegra World Coffee Portal’s 2025 Project Café UK report.  

Shaped by shifting health trends and changing consumer tastes, new artisan coffee brands are emerging, while established chains, like Costa and Starbucks, face fresh challenges. Keep reading this Wrestle with PESTLE article to find out how global trends, shifting consumer behaviours and economic pressures are reshaping the coffee industry.

Unsure what PESTLE is? Read this LCN Says explaining the technique.  

Political

In 2025, UK coffee shops have been navigating a politically charged environment shaped by trade dynamics and public health policies. One of the most impactful political moves is the government's target for 50% of food consumed in the UK to be domestically produced. While coffee isn’t grown in the UK, this policy influences sourcing strategies for complementary products like milk, pastries and plant-based alternatives.

Matcha is another popular product produced outside of the UK, primarily in Japan. As a fully imported good, it’s vulnerable to global supply chain pressures. Earlier this year, trade tariffs were placed on matcha imported into the US – initially set at 25% and later reduced to 15% as part of a trade deal. This was significant for the industry, as the US accounted for 78% of all powdered green tea exports from Japan in 2024, according to data from the Trade Statistics of Japan Ministry of Finance. The Nishio Tea Cooperative Association, which represents all tea farmers and wholesalers in Nishio, reported that 30% of its overall revenue comes from exports to North America. Trade tariff shifts, combined with rising global demand and a smaller harvest due to climate change, have driven up matcha prices worldwide.

Economic

Coffee shops make up a big part of the economy, creating 210,000 jobs in the UK. Allegra’s Project Café UK report found that Costa Coffee is the largest chain with 2,671 outlets, followed by Greggs (2,610) and Starbucks (1,354). However, independent coffee shops are also gaining ground. Allegra’s The Independents Report UK 2024  found that the £4.6 billion independent coffee shop market achieved 4% sales growth over the 12 months to March 2024. This inflation has “eaten into the [market] share" for big brands, according to Clive Black, vice chair of independent investment group Shore Capital. Allegra Group Founder and CEO, Jeffrey Young, said: “Despite the continued growth of chain concepts in the UK, consumers are eager to ‘support their local’ in these challenging economic times.”

On the other end of the spectrum, several chains are facing new challenges, including inflationary pressures, declining footfall and shifting consumer preferences. As such, Coca-Cola is reportedly looking to sell Costa, with one analyst estimating the chain could be valued at £2 billion, which is almost half of the £3.9 billion Coca-Cola paid for it in 2019. In its most recent financial report in 2023, Costa reported revenues of £1.2 billion. However, it said inflationary pressures, such as increased price of goods, energy and pay resulted in an operating loss of £14 million. Similarly, Starbucks, has seen six consecutive quarters of declining sales and announced store closures in the UK alongside 900 job cuts in the US.

Social

While the rising cost of renting spaces and buying goods plays a crucial role in the success of a coffee shop, social trends and consumer behaviour are arguably just as influential. In the UK, we drink around 98 million cups of coffee a day, according to the British Coffee Association; however, where, when and how we choose to buy that coffee is shifting rapidly.

Quality, personalised service, authenticity and localness are key drivers of customer retention in UK independent coffee shops, according to Allegra’s The Independents Report. Consumers are also increasingly driven by wellness and exciting new trends. Take Blank Street Coffee – a chain that promotes its “clean, natural, and high-quality menu” and continues to thrive. Originally from New York, the first shop opened in London in 2022 –  it now has 35 London stores,  with seven across the rest of the UK.

Founder Ignacio Llado explained that “2024 was definitely the year with a tonne of novelty”, referencing the wide array of colourful drinks on offer. Speaking about the amount of competition in the industry, he it’s “actually positive for us too because we thrive off innovation and we innovate better when we feel that we now need to raise the bar a notch higher”.

He also noted that people are drawn to “accessible luxuries” following the cost-of-living crisis. He added: “people are more ready than ever to spend money on a product or experience that involves stepping out of their home.”

This appetite for affordable indulgence is shaping the wider market. Speaking on Starbucks’ decline, head of strategy at Elmwood Brand Consultancy, Deborah Stafford-Watson, outlines that Starbucks has become “middle ground market”. She explained that brands can get stuck between being “too fancy to be basic” and “too basic to be fancy”. This means that brands are more likely to succeed when they focus on luxury or affordability. For example, affordable brand Greggs, which offers coffee and breakfast combo deals, has seen an 11.3% growth in the year ending December 2024. Stafford-Watson explained that brands pitching themselves at a higher price point need to provide “authentic speciality experiences”. For example, luxury chain WatchHouse is expanding its presence in London with five new stores. Known for its premium limited-edition beans and high-end service, the brand reflects growing demand for upscale coffee experiences. Allegra’s Project Café UK outlined that WatchHouse is just one of the specialty shops that’s expanding, with EL&N, Black Sheep Coffee and BEAR all raising investment over the 12 months to January 2025 to open more UK stores.

Besides luxury, healthy drinks are also a current craze. As head of financial analysis at AJ Bell, Danni Hewson, puts it: “If you think about a lot of gen Z, they're looking at matcha, they're looking at brews, they're more healthy. My teenagers, they don't drink caffeinated beverages at all.”

It’s true that coffee shop success isn’t just about coffee. Recently, Matcha has skyrocketed in popularity, with the global market expected to jump from $4.23 billion in 2024 to $7.86 billion in 2023, according to Uren Food Group. Matcha contains antioxidants and has a more tempered caffeine effect. The tea is a big selling point at Blank Street coffee, for example. This is something other chains, such as Starbucks and Pret, have rushed to emulate, with Matcha being added to their menus.

Meanwhile, Costa has continued to focus on more decadent drinks, such as frappes and fruit coolers. Perhaps this is a stumbling point. Independent retail analyst and founder of The Retail Champion, Clare Bailey, said: "I feel like businesses that don't reimagine themselves and don't respond to consumer behaviour, and perhaps get a little complacent, are the ones who end up in trouble.”

It’s not just the drinks that are informing buying habits. Consumers are also looking to the values of coffee shops. For example, Blank Street prides itself on paying “baristas above market wages”. Meanwhile, Starbucks has seen boycotts over its values. A growing emphasis on ethics and identity shows that for many consumers, where they buy their coffee is as much about values as it is about taste.

Technological

Technology is transforming every aspect of business – from how products are created to how they’re marketed. Take Blank Street Coffee, for example: TikTok has played a major role in its rise, with fans sharing videos of themselves sipping iced lattes and showing off the brand’s minimalist aesthetic.

It’s not just about visibility, technology is also changing how brands build loyalty. Loyalty cards aren’t a new concept, but many coffee shops have taken loyalty online, with customers collecting stamps through various apps. Pret’s subscription-based scheme is a prime example – for a monthly fee, customers can grab up to five drinks a day, all managed through an app. It’s a digital-first approach that blends convenience with customer retention.

But maybe you’re not heading out for coffee at all? According to Allegra’s 2025 Coffee at Home report, more people are brewing at home, driven by the cost-of-living crisis. This isn’t a surprise as coffee gets more expensive, Allegra’s Project Café UK Report found that the average price of a regular latte has risen by 5% to reach £3.64 over the past 12 months. While many stick to instant or filter coffee, there’s been a surge in espresso machines, making it easier to recreate café-quality drinks in your kitchen. The question for coffee shops is clear: how do you persuade customers to leave behind the comfort of home brewing for something worth stepping out for?

Legal

Baristas aren’t just the face of the coffee shop – they’re central to the customer experience. As employers, coffee shops must stay on top of employment law and policy changes that impact their teams. At the start of 2025, the UK government raised the employer National Insurance (NI) rate from 13.8% to 15.8%, meaning businesses now pay NI contributions on a larger portion of wages.

This has led to concerns across the retail and hospitality sectors. More than 70 major UK retailers, including Tesco, Boots and Marks & Spencer, signed an open letter warning that the changes to NI, alongside other policies like increased minimum wage, could lead to job losses and price hikes, estimating changes would add more than £7 billion in costs.

For Starbucks, financial pressures are compounded by scrutiny of working conditions in its stores. In January 2025, union Starbucks Workers United filed 36 unfair labour practice charges against the company – a move that highlights ongoing tensions between corporate strategy and employee wellbeing. As the coffee market evolves, brands like Starbucks face the dual challenge of staying competitive, while addressing the expectations of both consumers and staff.

Environmental

As consumers increasingly make purchasing decisions based on ethical and environmental values, coffee chains are responding with visible commitments to sustainability. Certifications such as Fairtrade, Rainforest Alliance and Organic not only reflect how coffee is sourced, but also signal broader environmental and social responsibility.

For example, the coffee brand Grind has built its identity around sustainability, offering home-compostable coffee pods and sourcing beans ethically from small-scale producers. This approach appeals to environmentally conscious consumers and sets Grind apart in a competitive market.

The industry is also grappling with the direct effects of climate change on supply chains. A notable example is the matcha shortage earlier this year. Matcha plants are highly sensitive to climate fluctuations, and last year’s extreme heat led to a poor harvest, driving up prices and limiting availability. This highlights the vulnerability of agricultural products to environmental instability and the need for resilient sourcing strategies.

In response to environmental concerns beyond sourcing, many coffee chains are also tackling food waste. Apps like Too Good To Go allow businesses to sell surplus food at reduced prices, helping to reduce waste while offering affordable options to consumers. Participation in such initiatives reflects a broader shift towards sustainability in both operations and customer engagement.

The verdict

The coffee industry is undergoing a seismic shift. Once dominated by global chains, the market is now being reshaped by independent brands that prioritise authenticity, innovation and values. From political pressures and economic uncertainty, brands will need to transform to succeed. Consumers are no longer just buying coffee, they’re buying into experiences, ethics and identities – whether it’s a compostable pod, a locally sourced pastry or a matcha latte shared on TikTok.