Coffee Republic today hailed the popularity of its new deli outlets as it posted narrower first-half losses.

The group said sites converted from standard coffee bars to delis as part of a major strategy change had shown a "significant" increase in sales.

It also said like-for-like sales had turned positive in the last few weeks as its core coffee shops also reaped the rewards of a wider restructuring.

Losses came in at £900,000 in the six months to September 26, compared with £1 million for the same period last year.

London-based Coffee Republic has been moving towards a deli format - offering fresh sandwiches and hot food counters as well as coffee - in a bid to cut exposure to competition from rivals such as Starbucks, Costa Coffee and Caffe Nero.

Six of its 49 sites are now trading under the new format, and chairman Bobby Hashemi said he expected the majority to be converted in the next few years.

He said the format was popular with "time-pressed" people who wanted fresh food and coffee without having to go to a restaurant.

"A deli option gives them both hand made coffee and hand made fresh food," he said.

Outlets transformed into delis saw sales rise by more than a fifth. Those converted include two sites at Heathrow Airport.

The move has helped the group continue its recovery from tough trading experienced after the economic and tourism downturn of 2001.

It has been closing non-core stores - halving the estate since the downturn - and refurbishing its coffee bars. New equity and banking facilities were secured last year, improving the group's financial stability.

Total sales were 22% lower at £8.9 million, as expected following the closure of non-core bars. On a like for like-basis, sales were flat during the six months, but were 2% higher in the weeks since then.

Overhead costs were now half what they were two years ago, as a result of the restructuring.