The Changing Landscape of Away-From-Home Coffee

Quality coffee at a lower price continues to become available at more foodservice establishments, which is potentially problematic for specialist coffee shop chains.
By Stephen Dutton

Specialist coffee shops were one of the fastest growing foodservice channels by value in 2017, but growth was more modest than in past years, according to global market intelligence firm, Euromonitor International. Focused on delivering a higher quality cup of coffee, the format can be credited for both sparking and shaping the market for away-from-home coffee consumption. Consumers increasingly visit a coffee shop as part of their daily routine, meaning there is an enduring and highly lucrative demand for consumption outside of the home. However, other channels have looked to capitalize on that kind of foot traffic, using coffee as a hook to get consumers in the door.

This is not exactly new. Convenience stores, gas stations and many other outlets have offered cheap coffee for years. The change is in the quality. Other formats are offering better quality coffee, often at cheaper prices, to tap into the opportunity created by specialist coffee shops. Consumers can now get quality coffee at a lower price nearly anywhere they turn, and that is levelling the playing field. This is potentially problematic for specialist coffee shop chains that relied on quality as a niche for growth. Instead, the opportunity is shifting to convenience, and the ability to be available to consumers in any occasion or environment.

Quality Coffee is Democratizing

Sales through the specialist coffee shop format grew by an average 8.4 percent over the past five years, according to Euromonitor, making the format the single best performing segment in global foodservice during that time. In addition to reaping the benefits of essentially educating consumers about better coffee, growth was fueled by a demand from consumers in high-growth non-traditional markets like China where chained penetration is still low and coffee consumption is starting to become routine.

At just an expected 3.5 percent compound annual growth rate, however, the forecast is somewhat less impressive. One potential explanation is that not only are more players outside the coffee shop format offering coffee, but that more players are offering good coffee, or coffee that is comparable on quality. Competition is diverting traffic away from the specialist coffee shop format. Many of the largest quick-service chains, such as McDonald’s, can offer quality coffee at cheaper price points due to the relationships they have with global distributors that can source and sell quality beans cheaply on a wide scale.

Japan, the fourth largest specialist coffee shop market by value globally, offers a good example. In Japan, convenience stores are taking a greater share of away-from-home coffee. Companies such as 7-Eleven, Family Mart, Lawson and others, have each launched their own distinct café and coffee brands, and many offer dine-in seating, charging stations and free Wi-Fi. In 2017, there were over 70,000 chained convenience stores in Japan, and fewer than 5,000 chained specialist coffee shops, according to Euromonitor. With tens of thousands of convenience stores in the market that offer cheaper, good quality coffee, many consumers in Japan look to convenience stores rather than specialist coffee shops for their daily coffee.

The Opportunity is Changing

If the consumer can find quality coffee nearly anywhere, then quality is no longer a unique selling point for specialist coffee shops. Instead, consumers will gravitate toward value-for-money and convenience, and in the away-from-home channel, the greatest convenience is proximity. Consumers can get decent coffee from convenience stores, grocery stores, fast food outlets or vending machines, and will simply choose whichever option is most convenient.

Convenience, in addition to quality, has propelled certain specialist coffee shop chains in recent years. Format diversification and the ability to offer coffee for every occasion in any environment, is a key aspect of this. In addition to its standard café-style formats, Costa Coffee, a UK-based chain with a growing number of international outlets, employs an array of kiosks and to-go formats in dense urban environments to get in front of more consumers and to get them in and out more quickly. Costa Coffee also maintains thousands of Costa Express self-service machines in addition to its foodservice outlets to make its coffee – and the brand – immediately available to the consumer. In this way, Costa Coffee can capitalize on both impulse behaviour and routine traffic.

A strong digital strategy is also increasingly crucial to growing in convenience. Starbucks, for example, leverages an effective mobile platform to engage consumers in and out of the store, while its loyalty program incentivizes repeat visits. Consumers can also use the app to place orders, pay and skip-the-line in-store to streamline the process of obtaining their order. The chain’s unique package of digital engagement, loyalty and seamless ordering has been essential to navigating a more complicated competitive environment. Sales at Starbucks have grown an average 9.1 percent since 2012, making the company the fourth largest globally in foodservice, according to Euromonitor.

Differentiation, however, can take many forms. On the other end of the spectrum are coffee chains competing in the super-premium segment in order to double-down and stand out in quality. Smaller chains, such as Stumptown Coffee or Intelligentsia Coffee, have found room for growth here, and even Starbucks has launched its own line of super-premium Reserve Roasteries to remain relevant in quality.

Other super-premium chains like Counter Culture and Blue Bottle have used e-commerce to become more accessible to more consumers. Products like single origin, small batch, and hand-roasted beans can now be delivered on demand or on a subscription basis straight to the consumer’s door.

Consumers expect good coffee anywhere, so rather than simply competing in quality, which is a given, companies are competing in convenience and accessibility. Growing saturation, moreover, means that specialist coffee shop chains need to shift from an all-boats-rise mindset to figuring out how to take share from competing chains and alternative formats.

The away-from-home coffee landscape has changed, but opportunities remain.

Stephen Dutton is a senior consumer foodservice analyst at Euromonitor International where he covers global foodservice markets and dining trends. In this role, Stephen provides specific insights into global consumer preferences, as well as key markets, competitive landscapes and global growth opportunities to help companies make informed business decisions. Stephen has spent years working and traveling internationally, and is passionate about the way consumers dine, and how that’s changing, around the world.

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