After surveying more than 5,000 US consumers and 50 industry insiders, Allegra determined that the US coffee shop market grew to a $45.4bn valuation this year and that there are now 35,616 stores nationwide.
The report revealed that industry leaders are positive on market conditions, anticipating 40,800 outlets by 2023 with a 5-year CAGR growth of 2.8%. But the industry also sees a high staff turnover rate, with labor costs and increased competition cited among main challenges for the coming year.
Allegra predicts a ‘5th wave sector’ will continue shaping the premium coffee market due to increasing consumer sophistication and larger multinational investments. It defines the 5th wave as the Business of Coffee driven by focus and excellence from smart boutique concepts. This recent era follows the 4th wave Science of Coffee, which Allegra says was driven by science and roasting obsession born from custom, in-house brews.
"The 5th Wave is characterised by hyper-professionalism, operational excellence, investment in technology, and training and people development programmes – ultimately supporting valuable career paths for a new breed of hospitality professionals," Allegra said.
“An influx of international investment is pushing once niche artisan principles into the mainstream across the US coffee and food-focused sectors, with premiumization a key marketing strategy deployed to sustain growth.”
Premium demand drives innovation
Nearly 60% of US consumers visited a branded coffee shop chain at least once a month in 2018, according to the report, though comparable sales among the top chains are flattening.
The three largest coffee-focused chains are Starbucks, Dunkin’ Donuts and Tim Hortons, and they comprise 68.1% of the total branded market. Starbucks comes out on top with a 40.1% hold on the total branded coffee shop market, by far the largest.
These top chains are being influenced by consumer demand for premium products and experiences, broadening their specialty coffee options and emphasizing quality. About a quarter of consumers said coffee quality is the biggest reason behind a repeat coffee shop visit. The industry insiders surveyed by Allegra believe this to be the biggest continuing trend in the coffee sector.
It’s a competitive market that fights to maintain consumers who are becoming increasingly particular with how they spend their money.
“Operators must successfully combine convenience, coffee quality and good location to maintain footfall, with loyalty apps, product diversity and a compelling brand USP all essential factors to success,” Allegra said.
