The coffee category is facing new challenges due to inflation, work-pattern changes due to the pandemic, and the ease in making a better cup of coffee at home.
To combat this, big-name chains are adapting, said Los Altos, California-based location-analytics company Placer.ai in a new report with lessons for convenience stores.
Some coffee chains have locked in on attracting specific consumer segments, while others are diversifying the selection of products, Placer.ai said.
- Read about CSP’s 20 Great Coffee Programs for 2023.
Despite the aforementioned challenges, the coffee space is proving resilient, Placer.ai said.
Since January 2020, “coffee’s COVID recovery regularly outperformed that of the overall dining industry,” Placer.ai said. “And since January 2022, monthly year-over-three-year (Yo3Y) visit gaps in the coffee space were consistently narrower than Yo3Y visit gaps for the wider dining category.”
These good times might be due to recent economic challenges spurred by rising commodity costs, Placer.ai said. “With many consumers feeling the strain of inflation, going out for a meal might feel like too steep of a splurge, but picking up a coffee can be an affordable indulgence. The dip in dining visits, then, may partially explain some of coffee’s relative strength.”
Lunch: Key Daypart
Location intelligence from Placer.ai shows a relative increase in midday visits at many coffee leaders nationwide. This shift in visit times offers a new opportunity for sellers of coffee to boost lunch offerings and “tap into the market of customers looking for a convenient and comfortable place to grab a bite alongside their coffee or tea,” Placer.ai said.
“Between Q1 2019 and Q1 2023, almost all coffee chains analyzed, including Starbucks, Dunkin’, Tim Hortons, Peet’s Coffee and Caribou Coffee (and excluding Dutch Bros) saw an increase in visits between 11 a.m. and 2 p.m.,” the company said.
This growth in these visits might be due to people looking for a midday jolt or hybrid workers seeking a place to feel more creative.
Employees back in the office also could be choosing coffee shops for lunch to combat skyrocketing lunch prices, Placer.ai said.
Weekdays
Changes in weekday coffee visits between 2022 and 2023 show the shift from remote to hybrid work is affecting some of the recent visitation shifts.
“Between Q1 2022 and Q1 2023, weekday visits to coffee shops increased across all four major chains,” Placer.ai said. “Dutch Bros, the one chain that hasn’t seen an increased share of midday visits, saw the most significant shift in its visitation patterns, with weekday visits to the Oregon-based brand growing from 59.3% in Q1 2022 to 61.8% in Q1 2023. Starbucks took second place, followed by Tim Hortons and Dunkin’.”
Catering to Youth
Many Americans try their first cup of coffee before they can vote, Placer.ai said. “And with the rise in popularity of TikToks focusing on coffee orders, recipes and menu hacks, there are now many different channels to reach younger cohorts—and the long-term potential of wooing young consumers is significant.”
Placer.ai said Dunkin’ is one chain focusing on reaching a younger audience, rebranding in 2018 by dropping “Donuts.”
“The name change was driven by the recognition that coffee drinks, especially iced beverages, were gaining popularity over sugar-laden pastries and wanted its new name to de-emphasize donuts to reflect shifts in consumer tastes,” Placer.ai said
Location intelligence indicates this rebranding is working, Placer.ai said, as between Q1 2019 and Q1 2023, the median age of Dunkin’s visitors dropped from 36.2 to 33.6.
Happy Helps
Dutch Bros is successfully targeting younger audiences and has enjoyed explosive growth, doubling its store count since 2019.
“And while the chain offers plenty of incentives for coffee lovers, perhaps one factor driving its popularity is its commitment to customer service,” Placer.ai said. “Known for its ‘bro-istas,’ or perpetually friendly and cheerful coffee slingers, Dutch Bros aims to create a customer experience that resonates with younger customers likely to seek out companies that share their values.”
Placer.ai said the company appears to be succeeding in reaching younger audiences. “In 2022, residents of Dutch Bros’ trade areas in California had a median age of 32.7, while the median age in the trade areas of the wider California coffee industry stood at 34.0.”
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