What Does The Future Hold For Independent Coffee Shops?

by Russ Shumaker
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As a specialty coffee shop owner, you’re part host, part mixologist and part business executive—all in one.

If you’ve been busy tending to your customers, pull up a stool, pour yourself a steamy latte, and get the skinny on your business forecast beyond 2020.

Hint: Despite the current pandemic, people love their coffee fix… and the forecast is much brighter than you think!

State of the Coffee Shop Industry

In December of 2019, forecasts predicted that the coffee shop industry would grow by $58.7B, with a compound growth rate globally of 4.1%. The surprising result is that despite lockdowns and shutdowns, the global coffee market is forecast to grow to over $237.6B by 2025.

Would you repeat that, please?

It’s true: Over 75,600 coffee shops exist in the US, and today they have generated $49B in annual revenue, nearly double what it was just over a decade ago. Despite the top eight companies making up 70% of total revenue, small coffee shops have discovered they can compete effectively by differentiating themselves with unique customer-centric experiences.

Two trends to watch:

  • Upscale products and creatively mixed coffee or tea-based drinks, serving up hyper-local experiences.

  • Convenient drive-throughs to compete with the ease of chains like Starbucks and McDonalds that dominate the commuter market.

Coffee Consumption by Income

Segmented by income, the largest consumer segment consuming coffee makes between $30k and $70k, followed by those making over $150k. What does this say about your customers? They might be young and part of the new workforce, taking their college coffee-drinking habits with them into their careers. Or they might be well-established and able to indulge in small luxuries that make life a joy. Either way, you can explore a multitude of ways to successfully market to these demographics using data and insights from your current customers and local demographics.

At Home vs In Store

On average, Americans consume 3 cups of coffee per day, and over 1/3rd of the US population drinks coffee. That’s impressive—it’s not just a drink that goes with your morning bagel anymore. Coffee concoctions that can be enjoyed after lunch, after work and even after hours (think coffee-rich ice cream or served “affogato” style) could generate all-day interest.

Even more impressive, over 79% drink coffee prepared at home, meaning that they likely purchase shop-quality beans at a coffee shop or store. Whether you roast your own beans on site, or contract with a good supplier, there’s clearly opportunities for additional sales in packaging your beans to-go.

Coffee Labor Statistics

Your shop may also play a role in helping recover the local economy. Think of this: According to the Bureau of Labor and Statistics, in 2019, average coffee shop employees made $11.06 per hour, and the industry employed 774,902 people. Growth is expected to trend upwards by 10% over the next ten years. With so many out of work or losing jobs, it’s good to know that a stable income and opportunities for employment abound because of your investment in coffee.

Growth Driven by 5th Wave Coffee Shops

According to Allegra, much new growth in the industry will be driven by 5th wave coffee shops, where customer experience is the focus, built on artisan coffee, scientifically roasted and crafted into signature beverages. Growth is driven primarily by the surge of specialty coffee shops dotting the national landscape. In virtually every town and in every urban center, the coffeeshop has become a place of gathering and community.

Still, the product with the highest sales continues to be roast coffee, with revenue coming in at $55.7M.

Impact of Covid

Covid-19 restrictions have caused most coffee shops in the US to restrict operations, or in some cases, shut their doors. As a result, 2020 revenue is down, and current year forecasts are likely to be inaccurate. However, growth trends are expected to continue and may reach the above forecasted goals by 2025 as covid vaccines become available.

GO ONLINE

For coffee shops that stay open through the pandemic, there is still hope for growth in areas like online sales. One popular chain, Stumptown Coffee, has seen online sales boosted by 250% and retail sales up by 60% by engaging customers through their online ordering portal. Online orders can make up 80% of total sales even during the height of lockdowns. (Not surprising, as online grocery shopping has reached $8.3B since quarantine started).

BRING THE COFFEE TO YOUR CUSTOMER

More impressively, industry wide, curbside pickup is up a whopping 5,380%, delivery orders are up 340%, subscription sales are up 109%. Those who invest SBA loan dollars into delivering an optimal customer experience can easily find themselves in better shape than pre-COVID days.

DIVERSIFY

Beyond selling coffee itself, other shopkeepers are increasing sales by hitching their product to other high-demand items. For example, local roasters are focusing on getting their product into grocery stores, or have added ‘grab and go’ food items to increase lunch-time sales. Still others have embarked on cause marketing campaigns, offering free coffee to first responders and documenting their generosity on social media to increase visibility.

WAIT IT OUT

Thankfully, the opening of the economy is at hand, but even now studies show that purchasing and drinking coffee is a safe covid activity (as long as consumers do not linger in coffee shops to drink.)

Conclusion

While short term forecasts may be temporarily suppressed, hang in there. Long term growth is still predicted to be strong. And for shops that innovate and continue investing in marketing and advertising during the pandemic, the opportunity clearly exists to capture market share and increase customer loyalty.

LUMINAITE’S MARKETING TAKEAWAYS:

  • Differentiate yourself with unique customer-centric experiences, such as
    • Upscale products and creatively mixed coffee or tea-based drinks
    • Hyper-local experiences
    • Convenient drive-throughs
  • Explore creative ways to market to young professional and luxury markets
  • Consider after hours options like coffee ice cream or desserts for round the clock interest
  • Packaging your beans to-go and court the make-at-home crowd
  • Keep hiring the best employees
  • Make your shop the neighborhood hot spot