A shakeout is brewing as coffee competition heats up
The U.S. may be reaching a saturation point with coffee shops, according to The Wall Street Journal. Research from Mintel says there are almost 33,000 locations across the country, a 16% increase since 2012.
The coffee shop expansion trend is expected to slow as other competitors — including McDonald's, gas stations, convenience stores and grocery outlets — enter the space or improve their existing offerings while also featuring lower prices.
As a result, the number of consumers going to big chains such as Starbucks is slowing down, and small coffee companies and independent coffee shops are seeing less traffic, the newspaper noted. The work-at-home trend also is having an impact, as are those employees grabbing coffee in their offices instead of going out.
Coffee fans are finding they can get a decent cup of joe at their local supermarket or c-store, so there's less of an incentive to shell out $2 or $3 more for the premium beverage at Starbucks or their local shop. Independent chains also are seeing lease rates go up, and some don't have the resources to pay for high-rent retail space like their big chain competitors.
Meanwhile, fast-food companies continue to get in on the coffee action. Coca-Cola and McDonald’s have partnered to introduce a line of ready-to-drink McCafe Frappes in grocery stores in early 2018. Starbucks has already partnered with PepsiCo to produce ready-to-drink grocery store versions of its popular cold brew coffee beverage, while Dr Pepper Snapple has established a distribution deal with cold brew coffee maker High Brew Coffee.
In order to expand, high-end premium coffee purveyors such as Stumptown Coffee Roasters, Blue Bottle Coffee and Intelligentsia are reportedly supplementing their cafe businesses by offering subscription services, selling their beans to hotels and restaurants and getting packaged products into grocery stores.
Nestled purchased Chameleon Cold-Brew earlier this month, further increasing its presence in the U.S. coffee market following its September decision to purchase a 68% share of Blue Bottle Coffee, a fast-growing coffee brand known for high-quality artisan coffees brewed on site. These acquisitions better position the Swiss company to compete with coffee giants Starbucks and JAB Holdings, which owns Keurig Green Mountain, Peet's Coffee and Stumptown Coffee Roasters, as well as J.M. Smucker's Folgers and Kraft Heinz's Maxwell House.
It's no wonder that coffee shops keep opening up as consumers purchase more of the popular beverage. Americans ordered 8.3 billion coffee servings at restaurants and food service outlets for the year ending in August, which is 2.3% more than the previous year, according to The NPD Group. An online survey in 2013 by the National Coffee Association said about 83% of American adults drink coffee, about three cups per day, or 587 million cups, USA Today reported.
Adding coffee to their offerings also can help boost retail businesses when consumers come in for a quick cup in the morning and grab a few items on their way out. In addition, grocery stores stocking refrigerated cold brews provide the jolt that millennials crave and will hopefully come back for again — and maybe bring along their friends or family members.
Given the growth in coffee shops and improvement in the quality of the beverage being offered, a reckoning was inevitable. One thing is for certain, no matter where they do it, people will still find a way to get their coffee.
- The Wall Street Journal Too Much Caffeine? Coffee Shops Face a Shakeout