As one of the most successful chains in the coffee-café segment, Starbucks is the dominant category leader. This 40-plus-year-old brand has successfully grown to more than 11,000 U.S. locations, with sales topping $11 billion, accounting for a U.S. market share of nearly 55% of coffee cafés. Loyalty is strong and American consumers are in love with their Starbucks.
The segment continues to be the high-growth industry leader with Dunkin’ Donuts and Tim Hortons rapidly expanding. But consumers are finding new ways to brew specialty, gourmet coffee at home with branded K-cups and Nespresso pods, making it more affordable and convenient to do it yourself. So what are the challenges ahead for coffee cafés?
Saturation Is Inevitable!
Same-store sales growth will ultimately hit a ceiling, and with consumer sensitivity to price increases, sales growth will become a greater uphill battle.
Coffee-café segment competition will heat up, and new national chain, regional chain and independent units will increase major market penetration. Smaller rural and suburban markets will be getting more attention. Fast-casual brands in the bakery-café segment like Panera Bread, Einstein Bros. Bagels and Corner Bakery will also create new options for consumers as more locations open. Quick-service brands like McDonald’s will provide lower-priced, drive-thru convenience that provide value-seekers with a strong level of quality that is also affordable. Brands like Subway and Taco Bell’s entry into breakfast will create new formats and offerings that appeal to consumers, taking some wind out of the coffee-café segment’s growth sails.
So Where Are We Headed?
Coffee cafés will continue to focus on brand opportunities that increase check average as guest counts decline through greater saturation. New emphasis on the quality of baked goods, healthy food options and snacking will provide fuel to drive higher sales. On the beverage side, consumer demand for quality teas and fresh-pressed juices will give consumers more reasons to increase spend and look to coffee cafés for better-for-me food and beverage.
Aging stores will require remodeling, and new technology integration is a necessity to remain relevant to consumers, because long lines force loyal fans to go elsewhere to avoid the wait and get similar quality and prices elsewhere. Interactive, high-quality service will become a standard, and experienced baristas will look to competitors for career and compensation growth.
How Do You Make a Difference?
Strong efforts by front-line staff to provide fast, accurate and engaging service with a smile, keeping units clean, and continuing to provide high levels of value through menu, price, ambiance and strong emphasis on the overall consumer experience will give brands who invest a huge advantage.