Booming US coffee shop market set to continue. Artisan coffee drives growth as espresso-based coffee culture takes hold. Estimated at 131,000 outlets the US coffee shop market shows significant growth with the branded coffee shop chain segment increasing by 7.4% in revenue and 3.1% in outlets in 2016.
According to the inaugural report from Allegra World Coffee Portal: Project Café2017 USA, the first of its kind on such a scale in the US market, the growth is driven by the coffee-focused chain segment (e.g. Starbucks, Dunkin Donuts, Tim Hortons), which records an impressive 8.2% revenue growth to $29 billion across 26,784 chain outlets.
Starbucks Coffee Company (with 12,938 outlets), Dunkin Donuts (8,573) and Tim Hortons (658) are the US leading brands with a combined 65% share of outlets in the branded coffee shop chain segment (including both coffee-focused and food-focused chains).
The US is a highly competitive market and branded coffee shops represent just 25% of the total market.
Growth in artisan boutique chains such as La Colombe, Blue Bottle and Bluestone Lane and the recent acquisition of small-sized artisan chains Stumptown and Intelligentsia signals a new era of competition.
With the rise of an espresso-based coffee culture and increased consumer expectations for quality and experience, Allegra observes a greater commitment to the delivery of authentic coffee across the market including the fast food sector, where chains such as McDonalds now offer a range of espresso-based beverages.
Jeffrey Young, MD of the Allegra Group commented: “This is a pivotal period for the branded coffee chain segment. We see a new era of consumers emerging, those who are tiring of big, ubiquitous brands and are instead looking for a more authentic coffee shop experience with artisan coffee and compelling foods.”
The US is already a nation of coffee drinkers with consumption firmly embedded in their daily lives and this, together with wider availability of specialty coffee continues to underpin market growth. US coffee drinkers consume 23 cups of coffee a week in various location and regular coffee shop visitors consume 4 cups of coffee per week in stores on average.
With the emergence of the rapidly expanding artisan scene, a growing number of Americans are becoming coffee connoisseurs demanding greater quality coffee wherever they are.
55% of the 5,000+ consumers surveyed by Allegra state they would be willing to spend more for higher quality coffee in coffee shops, putting their price ceiling at $3.18 per unit. Millennials are driving the increase in espresso-based beverage consumption and are more likely to order cappuccino (19%) than a filter coffee (8%).
Loyalty to a favorite coffee shop is relatively strong with 76% of US customers in 2016 mainly visiting their favorite venue. However, 42% claim they are convenience driven rather than brand loyal. Starbucks is voted ‘favorite coffee chain’ by US consumers, followed by Dunkin Donuts.
Allegra reports that 66% of consumers interviewed purchase food in coffee shops with some regularity and that the breakfast trade is particularly important for coffee operators. The survey saw that 34% of consumers visit coffee shops in the early morning and 30% mid-morning.
As consumers increasingly look for food out of home options from coffee shops, the market boundaries are blurring and so a compelling food offer is critical, a trend that leading chains already respond to.
Premiumization of the at-home segment continues to increase the availability of specialty coffee and further elevate US consumer expectations.
Coffee pods are growing in popularity. 32% of householders have a pod machine and 20% consume single serve / capsule coffee at home on a daily basis in 2016.
The US branded coffee chain segment is forecast to exceed $59 billion revenue across more than 39,600 outlets by 2021. Allegra predicts the branded coffee chain market will exceed 45,000 outlets and revenue of $85 billion by 2025, with 3.3% annual outlet growth predicted over the 10-year period.
The future marketplace
The future coffee shop marketplace will be shaped by increasing consumer participation and the desire for premium quality coffee anywhere and anytime. This will drive improved coffee offers across a broader set of channels.
US consumers will become even more educated in coffee preparation and delivery from bean to cup, in particular origin roast, taste, enjoyment and knowledge as well as the importance of milk texture and water quality.
With international brands such as Caffè Nero now entering the US market the branded coffee chain segment is poised for further growth.
Allegra expects to see continued and increased M&A activity and development of new artisan boutique concepts.
Leading brands will create and invest in sub brands to avoid ubiquity and brand fatigue, improve their offer, while stimulating growth, e.g. Starbucks acquiring Princi and Caribou merging with Einstein.
Jeffrey Young comments: “There is a new era coming for coffee in America. The market is moving beyond artisan, once championed by the raw, low-key approach of the independents, to a greater level of professionalism.
Artisan boutique chains such as Blue Bottle and Bluestone Lane now lead the way, stepping up to a new order of polished skills and sharp business practices to set the market trends and more importantly, higher market standards.”