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There are approximately 20,000 coffee shops in the United States with combined annual revenues equaling almost $10 billion. This industry is highly concentrated in that the top 50 companies generate 70% of total industry sales, (First Research, 2011).
Consumers spend an average of $2.45 for an espresso-based drink or $1.38 for a cup of brewed coffee. The majority of Americans (65%) drink coffee at breakfast. Thirty percent report drinking coffee in between meals, while 5% say they drink it with meals other than breakfast, (Harvard School of Public Health, 2012). The following table shows the percentage of people who drink coffee, by age, (National Coffee Association, 2010): 80% 71% 70% 60% 51% 50% 41% 40% 30% 20% 10% 0% 18-24 25-39 40-59 60+ 34% 31% 66% 63% 61% 68% 74%
53% 44% 2008 2009 2010
The following factors contribute to the success of coffee shops in the United States, (IBISWorld 2011): Business expertise of operators Business expertise is required in an industry that generates high revenue, but low margins, and has a high propensity for losses.
Center for Economic Vitality
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January, 2012 Effective cost controls Cost controls with minimal waste are important in this low margin industry, particularly related to food inputs. Ability to franchise operations Franchising in both the United States and overseas is now a significant component of this industry and can assist by providing necessary support to owners. Product is sold at high-profile outlets It is important to have high-profile locations for stores, with easy access, parking and drive-thru services for customer convenience and service. Market research and understanding Firms need to monitor market and consumer needs, wants and desires, particularly in relation to demand for more healthy foods. Access to multi-skilled and flexible workforce Firms need to have access to a good supply of skilled, casual workers to meet peak service demand periods.
Risks and Challenges
The follow are challenges that coffee shops face, (First Research, 2011): Dependence on Healthy Economy - Specialty coffee sales depend on personal income and a strong economy. Consumers consider specialty coffee and espresso drinks affordable luxuries due to premium pricing. Spending on expensive coffee drinks may fall as disposable incomes decreases. Industry Concentration - Starbucks operates throughout the US, and chains like Caribou and Peet’s can have a strong regional presence. Independent coffee shops have been able to capitalize on the growing popularity of specialty coffee created by large companies. However, chain-saturation in some markets has forced independent coffee shops to close. Influence of Weather - Weather can influence coffee consumption, store traffic, and supply, as consumption of coffee and hot coffee-based specialty drinks tends to decrease during warm weather. Rain or snow can also reduce store traffic and consequently sales, as can extended periods of unseasonably warm temperatures. In addition, poor conditions in grower countries can reduce or destroy a coffee crop, affecting supply. Health Concerns - Negative publicity about caffeine and the high caloric content of some specialty drinks can reduce demand for coffee products. Coffee contains significant amounts of caffeine, and some studies linking caffeine to medical conditions can lead some consumers to Center for Economic Vitality www.cevforbusiness.com
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January, 2012 decrease consumption. On the other hand, some studies also show medical benefits of caffeine. In addition, concerns over obesity have focused attention on certain specialty coffee drinks that exceed...