Kraft has green-lit Cadbury’s plan to create a network of 60 branded cafés across Britain. Can Cadbury succeed in a fiercely competitive market, ask Alex Beckett and Carolyn Wilson

Short of sponsoring a village cricket team or replacing the Caramel bunny with Stephen Fry, Cadbury's plan to create a chain of branded cafés serving afternoon tea is as quintessentially English a brand extension as one can imagine.

The official line from Cadbury is that Kraft last week okayed a plan "to create a cocoa house outlet" but that it was still at the design concept stage. It would not divulge details of the venture but said the aim was to launch up to 60 cafés over a number of years.

"The plan is to build on the strong Cadbury brand across the UK," says Tony Bilsborough, head of external communications. "We'll know more in coming weeks."

However, this isn't the first time Cadbury has had this idea. In 2001 it opened Café Cadbury in Bath, but closed it six years later. What is more, previous branded café ventures have, on the whole, failed to stay the course.

Nestlé's Café Nescafé closed down about eight years ago, as did Unilever's Cha tea houses, while Tetley's tea house chain collapsed around nine years ago.

One brand that has had more success is Thorntons, which saw the first of its 37-strong chain of branded cafés open in 1996 and is "faring well," according to Jeffery Young, MD of consulting firm Allegra Strategies.

"Thorntons has a natural advantage over Cadbury in that it already has an established presence on the high street with its branded stores," he says.

So what makes Cadbury think it can succeed on the high street?

Concepts under consideration are believed to include afternoon teas, a dedicated chocolatier service and oversized Flakes and Curly Wurlys speculation that Cadbury has not refuted.

"The cafés are a viable prospect as Cadbury is a powerful brand with a lot of goodwill, but it all comes down to quality of execution and level of investment," says Young.

Because the venture was developed prior to Kraft's hostile bid last September, Cadbury's new owner will not provide financial backing. This could be a boon for Kraft, suggests Malcolm Pinkerton at Verdict Research. "There would be uproar if the public sees Kraft meddling in Cadbury's business. It's not going to start meddling in strategies that strengthen the Cadbury brand."

As for how the cafés should look, Young advises Cadbury to learn from its experience in Bath. "It should look like a place where people can go to treat themselves. An indulgent, female-friendly experience. I wouldn't recommend the Willy Wonka-esque giant Curly Wurlys as it would appear as a bit of a fad, which is what I imagine they were trying to do in Bath."

But keeping the place free of Oompa-Loompas isn't the only challenge. In venturing into retail, Cadbury is crossing into a fiercely competitive market that includes giants such as Starbucks, says Simon French, director of leisure research at Panmure Gordon. The six biggest coffee shop chains increased shop numbers by 47% to 2,095 in the UK over the year to September 2009, according to The Local Data Company.

The expansion of the branded coffee shop market is being "partly driven by an influx of newly redundant Blackberry-wielding businessmen making use of the free wi-fi", according to Oliver Toogood, analyst at The Local Data Company.

French says competition will come from many players, including coffee shops and food-led cafés such as Pret A Manger. "There are an increasing number of independent chocolate cafés too," he adds.

With Cadbury targeting only 60 stores in the UK, emphasis will be on high-impact locations in major cities and town centres including key tourist destinations, predicts French. "This brings with it high rents so location will be crucial."

Nevertheless, with glass-and-a-half full optimism and careful planning, Café Cadbury could brew up a success.

Read more
Kraft presses on with Cadbury Euro sales (12 April 2010)
Kraft backs Cadbury café plan (9 April 2010)
MPs slam ‘irresponsible’ Kraft over Cadbury deal (6 April 2010)