Canada branded coffee shops segment on track for recovery despite $2billion decline

Ninety per cent of branded coffee shops in Canada have resumed trading as of September 2020 following peak closures in March, according to the inaugural Project Café Canada 2021 report.

The study into Canada’s branded coffee shop segment estimates total store sales to exceed C$9.5 billion (US$7.2 billion) in 2020, a 22 per cent contraction since C$12 billion (US$9.1 billion) was achieved in 2019.

Researchers World Coffee Portal says Canadian operators now face a long road to recovery in a significantly altered market landscape. It forecasts a return to outlet growth in 2023, following projected outlet decline of 1.2 per sent in 2021

Canada’s cafés re-open but face further hurdles ahead
Canadian operators reported an average 50 per cent loss of revenue for the six months March to August 2020, equating to C$27,786 (about US$20,953) in lost earnings per month, according to the report’s survey of industry leaders.

Fifty-one per cent of industry leaders surveyed believe coffee shop trading conditions will improve over the next 12 months, but 22 per cent forecast further deterioration.

Hand-sanitiser and social distance markers have been the most common initiatives deployed by operators to encourage the public to return to coffee shops, with 75 per cent of industry leaders believing consumers should now feel safe in-store.

However, with just 44 per cent of Canadian consumers indicating they feel safe physically visiting coffee shops, operators have some way to go in rebuilding consumer confidence.

Canadian coffee shop market reshaped by Covid-19
The report says operators have sought to build new revenue streams by accelerating the introduction of cashless transactions, collection-only formats, such as Starbucks Pickup, and using third-party delivery providers such as Door Dash and Uber Eats.

Drive-through sites, which already account for more than 40 per cent of all branded outlets in Canada, have also proved invaluable for operators seeking to deliver physically distanced services during the pandemic, with the format already highly used by Canadian consumers.

Major chains dominate Canada’s branded café market
Holding a dominant 54 per cent share of the domestic market, Tim Hortons is Canada’s biggest coffee chain. Underlining the chain’s significant brand loyalty, Tim Hortons was voted The Nation’s Favourite coffee shop among researcher’s independent panel of consumers*, with consumers aged 55 and over rating the chain most highly.

Together, Tim Hortons and Starbucks hold a 75 per cent share of Canada’s roughly 7476-store branded coffee shop market.

Under-35s leading a shift in Canadian coffee shop culture
Traditionally a nation of filter coffee drinkers, under-35s are leading the popularisation of espresso-based beverages. Almost 60 per cent of this demographic believe a barista-prepared beverage adds value to their purchase, compared with 35 per cent of those aged 55 and over.

Non-dairy options are becoming increasingly prevalent at coffee shops, with almond and coconut milk favoured by younger consumers. Coffee sourcing transparency is also gaining traction in Canada, with 47 per cent of consumers agreeing it is important for them to purchase ethically sourced coffee where possible.

No return to outlet growth predicted until 2023
COVID-19 continues to generate significant uncertainty in Canada’s coffee shop segment. Assuming the pandemic is largely resolved during 2021 and a relatively swift economic recovery, the report forecasts the market will recover to C$10.5bn (US$7.92 billion) sales in 2021, an annual increase of 10.8 per cent, and return to pre-pandemic levels by 2023.

Two further years of outlet contraction are expected before growth resumes and the current market size is exceeded by 2024. The report projects total market sales will approach C$13billion (US$9.8 billion) across 7600 branded chain outlets by 2025.

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