Is the Coffee Industry Still Growing and Improving?

By Perry Luckett, CoffeeMan1

Java, cuppa Joe, wakey juice, jitter juice, or whatever you want to call coffee, a ready-made cup of it isn't far from reach for most U.S. consumers. Besides restaurants and other food-service outlets, the U.S. is now home to 33,129 gourmet coffee shops: a 2 percent increase in units from last year. That’s based on a recent restaurant census by The NPD Group, a leading global information company. 

Is consumer demand keeping up with shop expansion?

Consumers’ demand for food-service coffee appears to be in line with their access.  They ordered 8.3 billion servings of coffee at U.S. restaurants and food-service outlets in the year ending August 2017, up 2.3 percent from the same period last year.  Regular or traditional coffee is still the most popular type, with 4.4 billion servings ordered in the period, but specialty coffee isn’t far behind with 4 billion servings ordered.    

Which cities have the most shops per capita?

Another way to look at the spread of coffee shops is to look at the number of shops for every million people (per capita). Having worked in Alaska as a consultant for 15 years, I wasn’t surprised to find two metro areas won positions 1 and 2 for numbers of coffee shops under this criterion: Juneau and Anchorage. Among metro areas Juneau, Alaska ranks the highest in density with 22 coffee shops serving the city’s population of 32,519. Its sibling city, Anchorage, is second with 170 coffee shops for a population of 431,231. Here's a chart showing the top eight:

 
Top 8 metro areas for coffee shop density. Source: NDP Group.

Top 8 metro areas for coffee shop density. Source: NDP Group.

 

What’s driving growth: chains or independents?

Chain coffee shop units increased by 5.9 percent in the census period to a total of 18,445 units, NPD reports. It was the opposite story for independent coffee shop units, which declined by 2.2 percent for a total of 14,684 units. Total coffee shops grew by 2,990 units over the past five years, according to NPD’s Spring 2017 ReCount® restaurant census.

“Coffee chains are expanding units to meet consumer demand because they have the resources to do so,” says Greg Starzynski, director of product management, NPD Foodservice. “Greater consumer access to chain coffee shops makes it more difficult for independent coffee shops to compete, which is why we’re seeing a drop in independent units.”

Buzz about the strength of independent restaurants has sometimes suggested independents are doing better than major chains. But visits to independent restaurants were down 3 percent in the first quarter of this year from a year ago, and consumer spending was flat. Combined with the drop in unit count mentioned above, these facts suggest the current market for independent shops isn’t positive.

What’s on the horizon for the coffee industry?

Probably continued mild decline in number of independent coffee shops but a smaller decline in visits, which means some good independent operators will keep growing. For example, independent operators doing well enough to order from food-service distributors increased their dollar spend by 2 percent, and cases ordered from these distributors were up slightly in the first quarter compared to a year ago.   

Also, some independents have been successful enough to expand to 3-19 units, which the NPD market-research group classifies as micro-chains.  Some examples: 

  • Coffee By Design in Portland, Maine, which has grown from their original Congress Street location to four other shops and a micro roaster on Diamond Street, where they process all their beans. They feature visual art created by Maine artists in all their shops.
 
Coffee By Design_Diamond Street_Portland Maine.jpg
 
  • Espresso Vivace in Seattle, which is famous for rich Northern Italian espresso since 1988. Each of their three locations remains unique: one a sidewalk bar, another a European style café, and the third a more modern coffee shop featuring a cool design.
  • Ozo Coffee, with three cozy locations in Boulder, Colorado, and a new one in Longmont. This local roaster has established itself as a staple of the craft coffee scene and takes coffee seriously: look for their barista competitions and other coffee pro events.
 
Ozo Coffee Pearl Street Bouldero.jpg
 
  • Ink! Coffee, with 16 locations in the Denver, Colorado area and plenty of growth on the horizon. They feature “roasting at high altitude,” proprietary blends, and “socially conscious” coffee sources—plus clean, well-lighted modern spaces that especially suit Denver’s young professionals.
 
Ink Coffee_16th street mall location.jpg
 

Micro-chain units, particularly in major metro areas, are increasing and often reflecting emerging trends in food and customer experience.  That often enables success.  Micro-chain case orders from food-service distributors grew by 3 percent in the first quarter compared to year ago. 

That said, large chains will likely still own the future. They represent 64 percent of total shop visits; independents (having 1-2 shops) represent 22 percent.  In the first quarter of the year, major chain visits were up one percent compared to a 3-percent decline for independents. Consumer spending at major chains increased by 3 percent; spending was flat at independents. 

The good news is this market is huge and still has room to expand, so you should be able to find quality local shops in your area that can deliver a different experience and superior quality. Try especially a coffee shop that roasts its own beans and has a reputable, consistent supplier. Its coffee will be fresher and often more robust, reflecting the passion of its owner. 

Wherever you drink your brew, enhance your experience by keeping it hotter, longer with our Thinsulate-insulated cup lids, cup wraps, and French press covers at www.koffeekompanions.com. Have a favorite local coffee shop or micro-chain in your area? Tell us about it in the Comments section below.

Resource for coffee-industry information:

www.npd.com

The NPD Group, Inc. 
900 West Shore Road
Port Washington, NY 11050

 

 
Perry LuckettComment