A Cup of Jo(e.): Funding and M&A evolution in the coffee space

From neighbourhood cafes to culinary coffee empires, how can founders raise investment to expand their restaurant businesses sustainably? We will laser in on the funding growth of Gail’s, Blank Street, WatchHouse, Grind and 200 Degrees to highlight the potential evolution of capital as businesses scale. Further, we will explore what the five businesses are each doing to keep their cafés bustling, with repeat customers religiously queueing for their morning cup of Joe and Sunday brunch week after week. 

 

GAIL’S: OPTIMISING FOR LOCATION

Founded in Hampstead in 2005 as an off-shoot of the Bread Factory, founders Tom Molnar and Gail Mejia sold their namesake Gail’s to Luke Johnson’s Risk Capital Partners (“RCP” hereafter) in 2011. Following this, in 2021, Bain Capital Credit acquired a majority stake, with RCP retaining 15%, valuing the chain at just over £200m. RCP grew the chain to c.75 sites, whilst Bain has since doubled Gail’s presence in England’s leafy suburban high streets to encompass c.150 sites. For FY21, revenues stood at c.£60m, and by FY24 Gail’s had tripled revenue to £180m, highlighting the positive impact that Bain’s investment made. 

Bain have a strong appetite for investing in mid-market businesses in Europe through its growing portfolio. Bain’s investment was in partnership with EBITDA Investments, a food ecosystem fund which is backed by serial restaurant investors Henry McGovern and Steven Winega, who founded Amrest Holdings and Spanish restaurant group Grupo Zena, respectively.  

But, why is Gail’s so busy, with customers steaming out the doors? Earlier this year, CEO Molnar revealed that the chain has been using an “AI-like” algorithm for 8 years to choose locations. They provide it with inputs of various variables, such as competition in the area, number of schools, and distance from transport links, and then the algorithm “learns on its own”, optimising for location. 

Indeed, on the “Hungry” podcast he explained: “We want to go to a place that is competitive. So you look at competitive landscape, you look at the footfall, you look at the access to transport, you look at the spend that these people have available to them, so demographics. And we've put them into a model that kind of learns on its own. So every new site I have, I put in there.”

Similar sized chains can learn from this strategy, and develop their own location optimisation models to strategically locate their new branches, in order to maximise footfall and revenue. 

 

BLANK ST: PRODUCT INNOVATION & SOCIAL-FIRST MARKETING PROPELLING SALES

Blank Street is really revolutionising the coffee scene. Founded by former Reshape Ventures investors Vinay Menda and Issam Freiha in 2020, Blank Street snugly sits between fast coffee and slow coffee culture, in terms of taste, price and ambience. The secret sauce? Their automated Eversys machines which create almost-artisan level coffee at a fraction of the speed, due to the coffee grinding and steaming of milk being automated- and reduced labour costs.

In 2022, they raised c.£58m Series A, and in 2023 a further c.£22m Series B from General Catalyst and Tiger Global. This has helped fuel their organic international expansion across the pond into the UK, where it now has c.30 iconic mint green stores in London, and new cafes opening up throughout the rest of the UK. They also acquired London-based Over Under Coffee in 2022, which continues to operate under the Over Under name. 

For FY24, Blank Street’s revenues increased to £11.4m, up 517% year-on-year, but they  did see a net loss of £4.2m. The astronomical increase in revenues goes hand in hand with their UK store expansion, increasing by 13 in the year, bringing its UK total to 40 stores at the end of FY24, just below its 44 stores in the US. The chain has invested heavily in product development, menu innovation and innovative brand activation campaigns, such as their Battersea Matcha and Padel pop-up event. These have all significantly contributed to increased brand awareness, and a strong base of repeat customers and cult-like following, who eagerly await the next innovative coffee or matcha flavour combination- think “Blueberry Matcha” or “Mango Matcha Passionfruit” or “Watermelon Yuzu Matcha”. 

Founder Issam Freiha notes that Blank Street will continue to grow their brand awareness, and the strong revenue trajectory looks promising: “We continue to see lots of room for product and experience innovation in the market and we’re excited to deliver on it.” The meteoric rise in the top-line is unsurprising, and other innovative cafes should take note of this product innovation and marketing strategy. 

 

WATCHHOUSE: ACHIEVING AMBIENCE & ATMOSPHERE 

Now, let’s take a look at WatchHouse. Pun totally intended. The quaint artisan chain has established a strong foothold in London, and is now making waves in New York. 

What WatchHouse has done well is that it has grown sustainably – expanding its presence without compromising on its artisan quality, feel, and aesthetic. Founded by Roland Horne in 2014, the original watch house itself also has a deep history, spanning since 1829- it was humbly and historically a shelter for guards guarding the graveyard of St Mary Magdalen’s Church in Bermondsey Street. It was also a place for local Watch before a police force was established. Today, the interior of the cafes retain the distinctive feel of the original WatchHouse, with a neutral colour palette and sleek, clean and airy feel. 

Other chains should not neglect the importance of the hard and soft furnishings inside their cafes, and consequent ambience created. Customers frequent cafes as much for the atmosphere, and relaxing emotions evoked, as for the food and coffee itself. Whilst more mainstream coffee chains (no names mentioned) may economise on the interior and furnishings, squeezing as many chairs as possible into a cramped space, and providing below-average furniture, this cost cutting reduces the customer experience and the number of repeat customers, damaging margins in the long run. WatchHouse focuses on customers who would much rather spend a little bit more on their morning brew to enjoy it in a refined atmosphere, than save a few odd pennies (30p per coffee on average). This 30p uplift means customers avoid being squeezed onto a broken three-legged wooden bar stool in a packed café with excessively loud 00s music blaring through the speakers. Of course, cafes should balance cost and quality, ensuring that capex levels are moderate, so that potential investors can reach their target Return on Capital. 

In 2023, WatchHouse raised c.£7.9m in Series A funding led by Edition Capital, and a high-quality mix of family offices and HNWI globally, including the UK, US, Europe, Asia and South America. This was billed as the largest equity-only raise for a hospitality business. At the time, the coffee collective voiced their intention of using the financing to expand rapidly in both the UK and New York over 36 months. Horne noted that, “The injection of growth capital will power the expansion of our estate in the UK and the US, in addition to supercharging our e-commerce platform to keep pace with our rapid and sustainable growth.”  

Indeed, WatchHouse have used the capital injection to open their first international outpost in New York in April 2024, along with 5 new locations in London in FY24, including Canary Wharf and Hampstead Heath. The speciality chain is already a hit in the US, with a second location set to open in the Chrysler Building in the coming weeks. In FY23, revenue was just shy of £10m, whilst FY24 saw revenues hitting £15.4m, a 62% year-on-year growth. In May 2025, WatchHouse announced its acquisition of 5 Oree Boulangerie sites, after the speciality patisserie went into administration. 4 of the stores will continue to trade as Oree, before being rebranded to WatchHouse within the next 12 months. 

 

GRIND: FROM COFFEE AND COCKTAILS TO D2C

If coffee chains are to produce above average returns, they need to make bold moves. David Abrahamovitch and Kaz James’ Grind has been doing this right from the beginning. 

Whilst Blank Street lasers in on micro innovation, creating unique coffee concoctions that keep Gen Z coming back for more, Grind focuses on macro innovation, diversifying its business model to cater to, and even revolutionise, coffee culture at a market and industry-wide level. Indeed, their first café-bar, founded in Shoreditch in 2011, focused on artisan coffees by day, and it transformed into a dynamic cocktail bar by night. Grind was a hit, and its popularity helped it to expand its café-bars across London. With London rent at astronomical levels, this helped the chain to optimise revenues throughout the clock. 

And it didn’t stop there. The pandemic wiped c.£2 bn from the UK coffee market, but Grind was adamant to find revolutionary ways to stay afloat. The outcome? The gas pedal was pressed on its D2C arm, which included Nespresso-compatible compostable and organic coffee pods, and revenues soared as customers couldn’t get their daily quick caffeine fix via cafes. Even post-pandemic, the consumer arm continues to satisfy taste buds as customers enjoy Grind coffee both in cafes and at home. 

What fuelled the success of this expanded business model? Their iconic pink brand, for sure. Grind’s success demonstrates the importance of strong branding and collaborations. Grind’s pink grew beyond their brick-and-mortar stores, and entered Soho House, who use Grind beans in their flat whites across restaurants, and Nespresso-pods in guest rooms, across their Houses and Farmhouses globally. Innovative marketing strategies, such as offering  free pink storage tins with Grind's subscription coffee service, secured recurring sales and made the tin a prominent feature in coffee lovers' kitchens. Grind continue to focus on innovative marketing strategies, partnering with visual artist Shantell Martin to create a limited-edition collection featuring her distinctive line drawings on reusable coffee cups, coffee storage tins, and other goods. More recently, Grind collaborated with British artist Sophy Hollington, known for her otherworldly designs and folkloric influences. Currently, Grind is collaborating with “Clueless” to commemorate 30 years of the film, offering bundled branded products which include coffee pods, a Grind tin, and Iced Coffee Cups. As a more established player in the artisan coffee world, these collaborations ensure the brand stays fresh and exciting. 

Grind has completed 3 funding rounds to date, with a £1.3m debt round in 2015 and £1.9m of crowdfunding in 2017. In 2021, Grind raised £22m in growth financing, led by entrepreneur Richard Koch, known for his book “The 80/20 Principle” and being the founder of L.E.K. Consulting, and first investor in Betfair. It’ll be interesting to see what is next for the bold coffee chain. 

 

200 DEGREES: PREPARING FOR TRADE EXIT WHILST RETAINING ARTISINAL FLAIR

Should owner-managers prefer a clean-cut exit, or to combine forces with a larger player, then they can choose a trade sale. They can opt to be rebranded under the acquirer’s umbrella, or maintain their own branding.

Leading Nottingham-based coffee chain, 200 Degrees, initially received £3m in a round of funding from Foresight Group in 2017. The funding propelled growth to 21 cafes across the UK and in October 2024, 200 Degrees was acquired by Caffe Nero, becoming the 5th brand in the Nero Group. Nero Group founder Gerry Ford highlighted, “Our intention is to support 200 Degrees to continue its growth journey and allow the brand to operate separately alongside the other brands in The Nero Group.” 

The acquisition will enable 200 Degrees to continue its path of opening further cafés across the North. As a coffee roaster, they could potentially supply beans to Nero (although this of course remains to be seen). Nero were likely attracted by 200 Degrees’ strong, and deep-rooted dominance in the North and Midlands coffee scene. The chain roast >200 tonnes of coffee a year in their roast house, selling D2C online, and managing >500 wholesale clients, from small independent cafes to high-end restaurants to universities to corporate offices. 200 Degrees is a clear example of a well-run artisan coffee chain, which has commercialised operations and diversified revenue streams, whilst simultaneously retaining the artisan feel of the brand.  

 

TAYLOR ST: EXCESSIVE DEBT PUSHING CAFES INTO ADMINISTRATION & TRADE EXIT

Trade exits are also an option when chains are on the brink of administration, such as WatchHouse’s acquisition of Oree. 

Further, seasoned coffee connoisseurs may remember London’s Taylor Street Baristas – once a hive of activity and the “go to” chain for City coffee addicts. In 2019, it went into administration due to excessive debt, with accumulated loses of £3.9m and a negative net worth of > £2m. The brand, roastery and customer base were acquired by Department of Coffee and Social Affairs, whilst its nine London cafes were bought by Black Sheep Coffee, who converted the cafes into their own Black Sheep Cafes. 

How did Taylor St get into this situation? Whilst correlation does not necessarily equal causation, Taylor Street opened in 2006, and partnered with well-established roasters, such as Monmouth Coffee, but in 2015, they opened their own roasting division. Within a couple of years, Taylor Street’s balance sheet was riddled with “too much debt” and this leverage led to their demise. 

 

FOOD FOR THOUGHT

The size of the business, international and regional growth plans, and level of control desired, will all impact the type of funding and exit which is most suitable for café and roastery owners. Hopefully our article has given you some food for thought on the different funding possibilities, key players in the market, and considerations for growing the top line. 

 

Sources