US coffee shop growth slows despite being driven by major chains

The United States coffee shop market, valued at US$47.5 billion, grew 3.3 per cent to reach 37,274 outlets over the last 12 months, Project Café USA 2020 reveals.

Annual sales also remained robust at 4.3 per cent, but growth has slowed for the third consecutive year.

Coffee-focused chains drive outlet growth, adding 1070 stores to reach 29,812 outlets, representing 3.9 per cent sub-segment growth. Meanwhile, food-focused chains added just 54 net new stores over the last 12 months, representing 0.8 per cent growth to reach 7462 outlets

The reports says intense competition within the largest cities has encouraged major operators to focus expansion in second-tier locations and less densely populated urban areas

Starbucks is by far the largest coffee chain in the US, retaining a 40 per cent share of the total coffee shop market with 14,875 outlets and adding 585 net new stores over the last 12 months. Dunkin’ remains the second largest branded coffee chain with 9570 outlets, opening 309 net new stores to achieve a 26 per cent market share. The two market leaders accounted for 80 per cent of new US store openings during the last 12 months.

German-owned conglomerate JAB Holdings continues to exert significant market influence, operating a total of 4739 outlets across 15 prominent brands including Panera Bread, Peet’s Coffee, and Caribou Coffee. Collectively, Starbucks, Dunkin’, and JAB Holdings-owned brands comprise 78 per cent of the US branded coffee shop segment, a collective increase of 899 outlets compared with 12 months ago.

Industry leaders surveyed by Project Café USA 2020 cited growth in specialty coffee as the most important consumer trend currently affecting the US coffee shop market.

More than 80 per cent also identified cold brew as the fastest growing product in coffee shops. These product trends are heavily influenced by under-30s consumers, who are more willing to try new products than older demographics. This age group is also most likely to have significantly increased coffee shop visitation over the last 12 months, making them a key demographic for sales growth.

Project Café USA 2020 says young people are also embracing technology such as mobile apps, online ordering, and social media, with industry leaders identifying the latter as the most effective form of marketing for coffee shops.

The report forecasts continued growth in the branded coffee shop segment, which is expected to exceed 41,700 outlets by 2024 at 2.3 per cent compound annual growth rate (CAGR) over the period. The coffee-focused sub-segment is anticipated to lead this growth at 2.7 per cent CAGR over the next five years, exceeding 34,100 outlets.

Growth is expected to be concentrated among the largest chains and most successful boutique operators. However, Project Café USA 2020 warns of the possibility of a wider economic downturn posing a threat across the entire segment, particularly chains that fail to differentiate themselves amid intense market competition and rising property costs.

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