The COVID-19 pandemic hit hard on the coffee shop market, with nearly a quarter of all the shops in US being erased by it, according to the latest annual report from coffee market research group Allegra World Coffee Portal.
A key sector of the US economy, the coffee supply chain's overall value of the market, valued at $36bn, suffered a decline of on store sales valued at $11.5bn over the last 12 months. The current number of outlets is 37,189, with a contraction of 0.6%. This was the first time in history that a shrinking of coffee stores in the US was registered.
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The coffee market in the US remains a strong sector, that only the pandemic-related restrictions managed to halt its growth last year. And even that, only marginally. Due to its steady past performances and how it managed to sustain the negative effects of the COVID-19 pandemic, there's room for much optimism in the World Coffee Portal report.
Coffee company owners are increasingly negative about the future
First, the negatives. World Coffee Portal tells us that only 38% of coffee industry leaders believe the current trading is positive, which is a huge drop from the 65% surveyed in 2019. Coffee operators estimate the losses to accrue to $32,500 per coffee store, per month. An amount capable of putting many small coffee shops out of business. Despite these gloomy data, a good 81% of these same industry leaders believe there's still a lot of potential for growth already this year.
Covid-19 quickened changes in the coffee industry
Consumers hit by the lockdowns and restrictions are increasingly looking at ways to access their favorite coffee shops in safety. Ordering from home or without much contact with the servers are a priority that is going to remain this year too. These needs were caught by the coffee industry by offering drive-thru options, which now account for 37% of all US branded café outlets. Surveyed US customers said they favoured this way of getting their coffee was up to 63% in 2020, compared to 48% in 2019.
The digital operations of many coffee chains have been enlarged and improved for some time now. The COVID-19 pandemic helped quickening this trend. Small and medium coffee businesses have been increasingly using online platforms, like Shopify, to help leveraging the Internet's potential and access customers stuck at home, continuing to do business with them or acquiring new ones. 45% of US customers surveyed by World Coffee Portal indicate they would be up to regularly order drinks for delivery, if such an option was available. Coffee outlets lacking it would do well to pay heed to this or risk losing an important share of the coffee market.
At the same time, consumers' increasing attention to ethical trading, fair businesses practices, and the wellbeing of all the workers along the supply chain of coffee hasn't stopped due to the pandemic. Initiatives such as the use of reusable cups in-store, recycling the packaging, offering compostable and biodegradable options (often in the shape of single serve pods), ethical certifications like FairTrade or RainForest Alliance and more are increasingly sought after by consumers. 57% of those surveyed by World Coffee Portal said it is important for them to purchase ethically sourced beverages where possible, an increase percentage compared to the 48% of 2019. Coffee chains not giving consumers the possibility to be more ethical to coffee workers and the environment will do well by quickly changing their route to include in their products ways that signal consumers how much they care about the coffee supply chain and our Earth.
Overall, more specific trends can be extrapolated from the main requests of coffee consumers that arise from the report: faster delivery, lower fees and spill-proof packaging. This shows how much of an importance is playing the drive-thru and delivery for consumers stuck at home or not being able to sit at their favorite café. Perhaps even more than ethical sourcing of coffee or the traceability of the coffee beans.
Despite the difficulties, optimism prevails
World Coffee Portal forecasts that the branded coffee shop segment will return to pre-pandemic sales levels by 2023, still 2 more years then to reach a full recovery. Yet 65% of US industry leaders surveyed are optimistic enough to believe the shop trading conditions will improve already over the next 12 months. These two data aren't necessarily in contrast, as the expectation of the industry may go against the market research's results.
A further optimistic prevision by World Coffee Portal is more enlightening of the industry leaders' optimism: the 2020 report forecasts that the total number of coffee outlets will reach 40,900 by the end of 2025, with a five year growth of 2% CAGR. The total market value is projected to reach $40bn sales over the next year, and exceed $50bn by 2025, at 7% CAGR.
This optimism is also shouldered by a few data that have been collected already during, and despite of, the 2020 pandemic. Some of the major coffee chains in the US have seen an increase of their total stores in the US: +368 for Starbucks, +439 for Dunkin' and +9 for Panera. This may in turn be seen as a negative for smaller coffee shops, as Starbucks and Dunkin' alone comprise the 66% of all coffee stores in the US, a situation that no other country finds itself in, leaving little room for smaller parties to carve into this market.
That shouldn't prevent new protagonists from entering the US coffee market though. With plenty of ways to differentiate themselves, in terms of offering, quality, types of drinks, brand awareness and, last but not least, a huge segmentation of the consumers' needs and tastes, small US coffee company can play an even larger role than hoped for due to the effects of the pandemic. 2021 may be a good year to start, focusing on offering what the consumers have shown in the World Coffee Portal report to desire and care about. It is expected that by the next summer the sector will have stabilised, with a positive trend to restart by the end of this very year.