International coffee franchiser Cooks Global Foods is pressing on with cafe acquisitions despite not expecting trading to return to near-normal until the second half of the 2021 financial year.
Cooks executive chair Keith Jackson said the coming year will be marred by the impact of the Covid-19 outbreak and the related shutdowns in all markets.
Despite this the group has been continuing with plans to acquire a new chain in the United Kingdom. This month’s purchase of the Triple Two chain, for an initial payment of $7.5 million, adds 13 franchises to Cooks’ existing 44 store UK network.
“The timing of the Covid-19 pandemic has been unfortunate to say the least and at this time we cannot accurately determine the impact,” Jackson said in a statement. “We believe that the business model is sound with the focus on clearly defined core business areas that we can scale and we are well placed to emerge from the outbreak.”
The firm’s shares fell 5 per cent to 5.7 cents, taking their loss so far this year to 7.7 per cent.
Cooks is continuing its expansion despite writing $2.5m off the value of its 21 per cent stake in Shanghai Yinshi Food. That pushed the company’s net loss for the year ended March 31 to $4.6m, from $4.8m the year before. Excluding discontinued businesses, the loss narrowed to $3.2m from $3.7m.
Group revenue rose 1.7 per cent to $4m and the firm reported a $379,000 pre-tax operating profit, from a $2.6m loss the year before.
Cooks’ annual result comes hot on the heels of a Rabobank report which said the closure of food service outlets and offices during lockdowns had created new caffeine habits.
Households were moving to online purchases and buying whole-bean coffee instead of visiting cafes. That could put the industry under significant pressure as global coffee demand will drop by about 60 million kilograms this year, the bank said.
Jackson said the firm’s franchise network gave the group the ability to respond to changes in local customer preferences.
Triple Two offers “speciality quality coffee” and “grab and go style food” in a relaxing and modern environment and plans to add 15 more sites by the end of 2020, despite the pandemic, Cooks said. Its purchase will provide “significant benefit to our scale and critical mass in the UK,” Jackson said.
He said the company’s key markets in the UK and Ireland are only slowly emerging from lockdowns. Sales in the first quarter will be “very small” as only some stores were able to open for takeaway coffee and food.
Shanghai Yinshi, the firm’s Chinese associate, is also responding to the new environment. The firm purchased a coffee roastery with capacity for 1,800 tonnes of coffee per annum this year. It also decided to no longer pursue franchise operations in China and instead branch out into “self-serve coffee outlets”.
Cooks said the uncertainty as to what earnings, if any, the new strategy will bring in the foreseeable future, prompted the $2.5m impairment.
Including Cooks’ share of Shanghai Yinshi operating losses, the Chinese business contributed a loss of almost $2.7m. A year earlier it was $399,000.
Cooks is also selling its consumer coffee brands, Scarborough Fair and Grounded, in favour of aggressively pursuing the cafe strategy.