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Coffee’s Revolution: From In-Home Coffee to Starbucks

1/8/2018
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Consumers are redefining/reassessing their values and priorities, placing more emphasis on value-based consumption (ethical, emotional, aesthetic). Interesting business models have also emerged as a result, which offer unique and ethical product offerings. Coffee shops such as Starbucks are a good example of how an ordinary product such as coffee can be turned into an indulgent luxury product and experience. Many lessons can be learned in how to turn chocolate consumption into experience-led consumption.

Coffee’s revolutionary growth strategy over the years

For much of the 20th century, the story of coffee was a story of retail coffee, with mass brands such as Nescafé and Folgers growing sales in consumers’ homes across the world. Since the late 1980s, however, the focus of innovation and expansion has shifted to the coffee shop, led first by Starbucks and then by a host of smaller “third wave” operators, such as Intelligentsia and Stumptown. Joh A Benckiser’s recent wave of acquisitions in the coffee shops channel, however, could potentially bring the two forces together, with coffee shops experimenting with even more luxurious presentations, while also becoming – alongside other foodservice players – increasingly vital drivers of branding and innovation for coffee globally.

The Waves of Coffee Throughout the Years

Coffee throughout the years. First wave - mass market coffee. Second wave - Rise of the coffee shop. Third wave - coffee as artisanal luxury. Fourth wave? More and better.

Source: Euromonitor International 

 

Ever walked into Starbucks and ordered just “coffee”?

Coffee shops such as Starbucks are a good example of how an ordinary product such as coffee can be turned into an indulgent luxury product and experience. Indeed, Starbucks has successfully educated consumers on the possibilities of coffee and the versatile offerings we see to date. An ordinary coffee has been replaced by a skinny double shot flat white, to name one example. This transformation lends itself well to be replicated in other industries, such as chocolate, yet so far retail sales still make up the vast majority of chocolate sales.

Foodservice growth is driving long-term evolution in coffee

Coffee sales through retail have shown steady growth over time in both North America and Western Europe, yet specialist coffee shops is by far the revenue-driver. In North America it already represents the majority of sales, whilst Western Europe is following suit, with a quarter of sales now going through the specialist channel, which was negligible in 2002. This drive has created demand for better-quality, higher-priced options through retail, while also driving increased competition, as out-of-home brands increasingly look to establish themselves in the retail space. Coffee shops are becoming new product discovery labs. More than almost any other foodservice channel, coffee shops have the credibility to create whole new categories of soft drinks, benefiting from daily consumer attachment and strong artisanal appeal.

North America: Coffee Sales by Channel 2002-2020 graph. Western Europe: Coffee sales by channel 2002-2020. Both comapre retail coffee and specialist coffee shops.

Source: Euromonitor International 

Social commerce is the platform to emphasise emotional benefits

Starbucks has a new promotion in China, whereby consumers can use the mobile app WeChat to send their friends coffees or gift certificates. The feature, which arrived in time for Valentine's Day, is called "Say it with Starbucks”. This is a play on words, as the phrase in Chinese sounds similar to "say it with your heart”. This platform is a great example to showcase how social media can inspire gifting in coffee. Consumers spend more on their friends or loved ones than they would on themselves. Allowing consumers to collect a coffee from a Starbucks store ensures greater footfall to the store, which in turn might lead to additional sales or friends tagging along to collect the gift.

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