The US coffee shop market is now worth $47.5bn, up by 3.3% from $45.4bn last year. In Allegra’s annual report Project Cafe USA, it reveals that while sales and outlet growth were up slightly, overall category growth slowed for the third consecutive year.
Coffee-focused chains in the US opened 1,070 locations in the last year, now totaling 29,812 outlets. Allegra said food-focused chains were more stagnant in growth, and because large cities are already crowded with coffee competition, brands are focusing their expansion into second-tier locations and less densely populated areas.
Big brand dominance
The usual coffee trends from young people are still driving the industry--they respond best to new products, keep Starbucks at the top of the industry with 40% of the market share and are still relatively likely to visit cafes in person.
Specialty coffee continues to be the most important consumer trend currently affecting the US coffee shop market. More than 80% of industry leaders surveyed by Allegra identified cold brew as the fastest growing product in coffee shops.
The leaders noted that nitro cold brew has had less of an impact and isn’t as widely available as mainstream coffee, but 62% believe it will become a coffee shop staple within the next three years.
Allegra also revealed that iced beverages now make up more than one-fifth of US branded coffee shops’ revenues, outpacing the growth of hot coffee sales. More than 90% of industry leaders agreed that the iced coffee market is positive and improving.
In big brand dominance, 90% of US consumers surveyed by Allegra purchased an iced coffee beverage at either Starbucks, Dunkin’ or McDonald’s in the last year.
Starbucks has 14,875 US locations and added 585 new stores over the last 12 months. Dunkin’ places second with 9,570 locations, 309 opened last year to reach a 26% market share. The Starbucks-Dunkin’ monopoly accounted for 80% of new US store openings in the last 12 months, according to Allegra.
This month, Starbucks will open its largest-ever location in downtown Chicago. The Starbucks Reserve Roastery debuts November 15 and will be approximately 35,000 square feet with five stories. The prime location on the city’s Michigan Avenue has been chosen to drive major foot traffic and become a tourist destination.
Digitizing the competition
But even with the coffee shop culture and boutique concepts powering coffee’s fifth wave and bolstering brick-and-mortar, digitization is increasingly creeping into the industry thanks to consumers under 30. They embrace technology more quickly, as with the Starbucks Rewards app and delivery platforms like DoorDash and UberEats.
Major coffee chains are getting in on the digital game, offering promotions and other incentives for online interaction. Allergra said young consumers also influence the social media use of coffee shops and brands, prioritizing an online voice and presence.
Jeffrey Young, founder and CEO at Allegra, said “The US coffee shop market is at a critical crossroads, with rising costs and consumer expectations combined with intense pressure on end-consumer spend. Only the very best brands and sharpest operators will capitalize on growth opportunities in this current market landscape.”
Allegra predicts growth in the immediate future will stay concentrated among the largest chains and most successful ‘boutique 5th Wave operators.’
Earlier this year Dunkin’ announced a coffee rebrand that has the chain focusing more on its beverage portfolio than its signature donuts, investing in premium coffee.
Dave Hoffmann, CEO of Dunkin’, said “The quality improvements are driving our results… but we also know that we can do more. We are a beverage-led brand, and espresso is a big part of our future. But we will also fight hard to protect our leadership in drip coffee, both hot and iced.”
Allegra warned about the possibility of an economic downturn in the US that poses a threat across coffee, “particularly those chains that fail to differentiate themselves amid intense market competition and rising property costs.”