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Coffee Shops' Post-Coronavirus Evolution

8/30/2021
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Coffee Shops’ Post-Coronavirus Evolution

 A version of this article originally appeared in the digital edition of Nation’s Restaurant News

By Michael Schaefer

The pandemic’s impact on coffee shops was significant. While no segment of the US restaurant industry was spared, the importance of morning commuter traffic to away-from-home coffee consumption meant the initial effects of lockdowns and work-from-home orders on channel demand were especially severe. According to Euromonitor International data, traffic through US coffee shops fell 22% in 2020, compared with a 15% contraction in the restaurant industry overall.

Over the course of 2020, however, coffee shop operators adapted, making major investments in drive-through, mobile ordering and takeaway. At the same time, consumer behaviour evolved as group ordering picked up considerably, sending average ticket size through coffee shops steadily higher. In contrast to traffic, sales growth through coffee shops outperformed the US restaurant industry overall, contracting 16% versus a 21% contraction in overall sales. While coffee shops have not been a major component of delivery traffic compared with many other quick-service categories, the segment has led the way in terms of mobile-led service models, allowing for a (relatively) successful pivot to the reality of 2020.

Going forward, the emphasis on quick, increasingly contactless service is expected to intensify, particularly as well-resourced competitors like Coca-Cola and others step up their investments in this space. As consumers return to coffee shops, smartphones will remain central, with new business models increasingly linking home consumption, retail locations, coffee shops and advanced vending machines.

Unlike other quick-service restaurant categories, there is considerable interplay between coffee shops and home consumption. Over the last 10-15 years, consumers around the world have repeatedly upgraded their home coffee consumption during economic downturns, with premium packaged coffee for home use still notably cheaper per cup than daily trips to cafés and coffee shops. The US was no exception in 2020, with shipments of coffee machines up 10%, the strongest performance for the category in at least 15 years. Over the next 1-2 years, this heavy investment in home coffee equipment could prove a drag on away-from-home coffee consumption.

In the post-pandemic environment, boundaries are expected to blur further between away-from-home channels – such as coffee shops and vending machines – and home consumption, with smartphones increasingly serving as the linking factor. Smartphones could potentially carry consumer preferences and facilitate purchases across a range of different points of sale, all under a single brand.

Among several major players, this process is already underway. However, for smaller chains and independents, the post-COVID-19 environment carries real challenges. In addition to the enormous pressures brought on by the pandemic, a lower-contact, more takeaway-focused coffee industry could potentially make it far more difficult for smaller operators to differentiate themselves. As more coffee shop occasions become takeaway occasions made via smartphone, the practical difference between the average coffee shop and, say, an advanced coffee vending machine becomes more tenuous. While there are a host of apps allowing independents to take advantage of smartphone ordering, there is a practical limit to how many individual apps consumers can be expected to use for coffee shops.

Euromonitor International currently projects sales through US coffee shops to approach USD50 billion by 2025, representing 10% average annual growth from the low of 2020. While pressures on independent coffee shops are very real, there is also an unquestionable ongoing shift towards higher consumption of “prepared coffee”– be it via vending machines, coffee shops, ready-to-drink products, or elsewhere.

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