SBDCNet Connections Issue 43: Coffee House

Today, consumers aged 18 through 24 represent the fastest growing segment in the industry. College students and business persons alike are conducting their study groups and business meetings at coffee houses. Other trends indicate that as consumers become more health conscious and environmentally aware, they are becoming more concerned about the source of the products they purchase.

NAICS Code: 722213
SIC Code: 5812
Compiled by Johnny Garcia

Coffee House Demographics

Coffee drinkers come in all shapes and sizes.  Today, young Americans are the fastest growing segment in the coffee market.  Consumption of coffee has risen among young consumers in 2007 with a new record high at 37% -- up from 31% in 2006.  As the most devoted coffee patrons are in this age group with annual incomes of $75,000, it may behoove entrepreneurs to more narrowly focus their desired target market.  Patrons who earn more than $75,000 account for 42% of people who head to popular coffee shops for their cup of Joe.  The coffee industry will be facing new challenges as the population segment of America’s youth increases with a melting pot full of potential customers.  More than half of whites (55%) are regular coffee consumers while 41% of Hispanics and 31% of African-Americans drink coffee regularly. As a whole, over 50% of the U.S population (18+) consumes coffee on a daily basis. ⁷




     Source: National Coffee Association¹

Trends

Many trends have emerged in the coffee industry, such as wireless networks, music selections, cozy couches and other varieties of caffeinated beverages.  Coffee shops are tailoring their beverages to suit health-conscious customers, who are often carb watchers.  Coffee shops long ago broadened their menus with offerings such as lattes and mochas.  The market should also keep close eyes on consumers 60+, who are beginning to more regularly consume coffee outside of their homes.  Another recent trend is that, since 2006, patrons are conducting more business meetings  at coffee houses, which offer faster and more comfortable service than many restaurant-style meetings.  Eagerness to support environmental issues has promoted interest in the coffee’s origin and roasting process.  Another trend emerging is smaller servings with intense and exotic flavors.  Consumers are willing to pay more for a small delicious specialty drink, a premium and profitable market.  Though the drink may be small, the flavor is rich and memorable. ³    

     Source: National Coffee Association¹

Coffee and Convenience Stores 

Who would have thought that convenience stores could make a good profit selling coffee?  According to Samuel Nahmias of StudyLogic, 18% or nearly one out of every five cups of coffee was purchased at a C-Store in 2005.⁷  Americans are a people on the go and they purchase coffee at gas stations more than anywhere.  Over 95% of all convenience stores sell coffee. According to NACS 2006 "State of the Industry" report, warmly-dispensed beverages including coffee account for 3.8% in-store sales at convenience stores but account for 7.3 percent of the in-store gross profits.  In addition, more than 2/3 of C-store coffee shoppers buy coffee four or five times a week and 96% of consumers intentionally stopped at a C-store to buy coffee.  In 2006, convenience stores sold more than $5.7 billion in coffee averaging about  $40,000 per store. ⁷

Industry Forecast

Where is the coffee industry headed and what is the forecast?  For 2008/09, the production forecast is set to reach a record of 140.6 million bags.⁶ This is due to heavy production forecast in both Brazil and Vietnam mixed with the fact that prices rose consistently throughout 2007.  The favorable forecast in Brazil is due to consistent rain through their summer months and this being an on-year for the Arabica trees biennial cycle.  Production in Vietnam is forecast to climb 23 percent due to favorable weather.⁶  Because production is overwhelmingly Robusta, in Vietnam, output is primarily determined by weather and not biennial cycles like Arabica trees.  The weak U.S. dollar has eliminated gains from coffee prices because most coffee contracts are quoted in dollars.  Even with prices increasing 31% due to the exchange rate, many countries, like Brazil, are seeing decreases in coffee prices in their own currencies.⁶

Links of Interest

Associations

Specialty Coffee Association (SCCA) - http://www.scaa.org/ 
National Coffee Association (NCA) – http://www.ncausa.org/
International Coffee Organization (ICO) - http://www.ico.org/
The Association of Convenience and Petroleum Retailing (NACS) http://www.nacsonline.com/NACS/default.htm

Sources

1 National Coffee Association- http://www.ncausa.org/i4a/pages/index.cfm?pageid=1

3 CafeMakers - http://www.cafemakers.com/press.html

4 Mintel - http://www.mintel.com/frontpage/

5 FoodProductionDaily.com - http://www.foodproductiondaily.com/news/ng.asp?id=68484-coffee-agriculture-exports

6 U.S. Department of Agriculture - http://www.fas.usda.gov/psdonline/circulars/tropical.pdf

7 NACS Online - http://www.nacsonline.com/NACS/News/FactSheets/Pages/Coffee.aspx
 
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Co-Editors: Judy Johnson, Gloria Allen, Jarrett Byrom
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This U.S. Small Business Administration (SBA) Grant is funded by the SBA and the University of Texas at San Antonio. SBA’s funding is not an endorsement of any products, opinions, or services. All SBA funded programs are extended to the public on a nondiscriminatory basis.