No. 20: Caffe Nero


SALES: 98.2 million euros

Caffe Nero

HOLD THE TEA Java is gaining ground


Business is bubbling furiously at Caffè Nero. The British coffee bar chain, which has a slick 1950s Italian theme and a jovial Californian chairman and founder, continues to prove that with the right recipe, the English can be lured away from tepid beer and milky tea. "We're riding on a lifestyle change here that's moving away from pubs and towards sophisticated Continental drinking," says founder Gerry Ford.

The company is used to brewing hot results and this year is no exception. In the year ended May 31, 2005, the company beat analysts' expectations with pretax profits up 156%, to euro 8.2 million thanks to economies of scale. From humble beginnings as a five-store chain, Caffè Nero now counts 230 outlets in 101 towns and cities across the country.

Back in 1997, investors chuckled at Ford's conviction that people would pay upwards of euro 3 a day for a cup of coffee. But they did, and continue to shell out for their "little daily luxury," even through Britain's recent retail slowdown. Ford, 47, who studied for his MBA at French business school INSEAD, launched his company a full year before U.S. überchain Starbucks invaded Blighty in 1998 when it bought a local business with 65 outlets. In March, 2001, Ford and partners floated Caffè Nero on the London Stock Exchange.

Sheer force of scale has quickly pushed Starbucks Corp. (SBUX ) to the top of the British coffee bean heap, with a 26% market share vs Caffè Nero's 12%. But the company's European theme and stronger coffee have paid off. For the past five years, customers have rated Caffè Nero top for coffee quality, atmosphere, and service in surveys by London-based retail analysts Allegra Strategies. Over the past 12 months, the company's share price has risen 120%. Ford is now eyeing opportunities in Northern Europe and the Middle East. Coffee lovers, raise a cup for Caffè Nero.

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