Costa says, 'Thanks, Starbucks!'

Costa Coffee appears to have made some ground in the coffee chain wars after the very public backlash at arch-rival Starbucks over its skinny tax bill.

Costa’s like-for-like sales were up 7.1% in the three months to the end of November (that compares with 6.8% in the first half of the year), and total sales jumped by 25.5%.  That extra shot helped owner Whitbread’s overall sales rise 3.3% in the third quarter.

Costa, which has around 1,200 stores in the UK, has benefited from consumers’ wrath over Starbucks and Caffe Nero’s tax arrangements. In the last two months, Starbucks has had a national boycott on its hands after it emerged that the coffee giant’s UK business had diverted profits to tax havens in order to lower its tax bill.  Starbucks paid no corporation or income tax in the UK in the past three years, and paid £8.6m in total over 13 years on sales of £3.1bn. Costa’s tax bill came to £18m in the latest financial year - around a third of its profits.

Amid the furore, Starbucks was forced to change its tax arrangements and it will now pay around £10m in corporation tax this year. But the bad publicity has already helped its nearest UK rival Costa - and the news that Caffe Nero also reportedly avoided paying any corporation tax last year despite making almost £40m profit also didn’t do Costa any harm.

‘We remain the UK taxman’s favourite coffee shop,’ Whitbread’s chief executive Andy Harrison said in the FT, but he warned that ‘the economic environment remains challenging.’ Despite this, Costa is continuing with its aggressive expansion plans. In the next year it’s opening 330 new stores worldwide and around 1,300 Costa Express self-serve coffee bars.