Recession Reconfigures Coffee Retail
C o ee retail in America is undergoing a signi cant recon guration as a result of several seemingly contradictory trends. For example, there will be several thousand fewer specialty co ee shops in 2010 yet thousands of new outlets with espresso machines will spend unprecedented sums advertising premium co ee. Customer behavior continues its shi from indulgence to value as co ee drinkers forego $4 lattes yet consumption of foodservice co ee will increase and the amount of co ee prepared in-home will rise. Total dollars spent on both grocery and foodservice co ee will increase. To better understand these contradictions, Specialty Co ee Retailer sought the counsel of 25 industry leaders including association executives, suppliers, co ee growers, traders, buyers and, most important, retailers and retail roasters. is series appears in print and online, permitting readers to comment and suggest constructive solutions to the many challenges faced by this industry in transition. CHANGING RETAIL LANDSCAPE e National Co ee Association's annual survey on consumption found a reassuring 80 percent of co ee drinkers are doing nothing di erent despite the economic downturn. e remainder are visiting co ee shops less o en, trading down, making more co ee at home, buying less-expensive brewed co ee and looking for sales. Independent shops report holding their own thanks to loyal customers who are cutting back but not going away. Our members are showing signs of strength, which leads us to be more optimistic than not, says Specialty Co ee Association of America (SCAA) Executive Director Ric Rhinehart. Respondents to the Association's 2009 Retailer Survey report steady sales. Nearly half reported increases, albeit more modest than in previous surveys, says Rhinehart. Respondents were generally optimistic about the future. Between 2000 and 2005 the number of co ee shops increased by 70 percent, reaching a count of 21,400 or roughly one co eehouse for every 14,000 Americans, according to Mintel International a market research rm based in Chicago. Every new opening increases demand by pulling in customers who pass by while going about their daily routines, and this self-feeding cycle of growth has shown no signs of slowing or market saturation, Mintel analyst Billy Hulkower observed in 2005. He estimated saturation would occur at one shop in 10,000, based on the fact that Seattle shops continued to thrive despite the nation's highest concentration of shops per 100,000 residents. His prediction was realized in 2008 as the total number of shops neared 30,000. Rhinehart estimates that there were 27,715 specialty co ee outlets at the beginning of 2008 with 47 percent operated by Seattle-based Starbucks and other chains. is represents a net gain of about 2,000 stores since the last survey, a total that includes the closing of 1,000 shops in the 4th quarter of 2008, he says. Based on what's been reported thus far in 2009, we would expect to see another 2,000 drop in outlets this year, says Rhinehart. A correction was overdue, says Bob Phibbs, a consultant and former co ee chain marketing director known as the Retail Doctor. He estimates closures will reduce the all-time high by 20 percent, or 5,000 shops before the recession ends. MARKET OVERVIEW No longer is America the country that simply drinks the most co ee sales gures from 2008 reveal Americans are willing to pay for good co ee. Specialty co ee today accounts for $13.65 billion in sales, one-third of the nation's $40 billion co ee industry. Last year, growth in value of co ee surpassed volume growth. is is largely because demand for premium co ee such as Fair Trade, single origin, organic and Rainforest Alliance has transformed the overall market. BY DAN BOLTON Recession Reconfigures COFFEE RETAIL August 2009  www.specialty-coffee.com Specialty Coffee Retailer identifies 10 trends with the greatest impact on business with comments from 25 experts on how to react in the coming year.