Limited-service restaurants leading coffee market

The experience of drinking coffee is just as addicting as the caffeine it delivers, evident by the industry’s steady growth. Coffee-café segment sales hit $23.4 billion in 2014, up 7.5 percent from 2013, according to Technomic. Those sales increases make sense, according to The NPD Group’s “CREST: YE March 2015,” which reported that coffee servings were up 2 percent in commercial foodservice outlets between March 2014 and March of this year. Nearly all of that growth has come from hot specialty coffee, which include espresso, cappuccino and lattes, said Warren Solochek, The NPD Group.

“Hot brewed coffee servings have shown no growth over the past five years,” Solochek said. “Iced brewed coffee and frozen/slushy coffee have had strong servings growth over the past few years.”

NPD found that nearly all growth came from limited-service restaurants.

“Full service share of coffee servings has declined over time,” Solochek said. “Much of coffee purchasing is a ‘grab n go’ situation, thus the strength of QSR.”

Chains vs independents

While there has been steady coffee growth across both chains as well as independent units in the past few years, when it comes to brewed coffee, NPD found that chains captured almost three-quarters of all servings. That was even higher for specialty coffee; chains captured more than 90 percent of those servings.

Starbucks remains the leader in specialty coffee servings, Solochek said, while brewed coffee servings are more dispersed between the top chains.

Who is buying coffee?

Consumers of all ages are drinking coffee these days, according to Statista.com, which reported that 19 percent of Americans drink at least two cups a day, and the American worker spends more than $21 per week on coffee. Age helps determine what type of coffee they’ll order, however. Millennials gravitate toward hot specialty coffee, while brewed coffee skews more towards older consumers, according to NPD.

“Thus, as outlets begin to serve specialty coffee, there is a greater appeal to millennials,” Solochek said.

Technomic found that many consumers will pay more for coffee options described as “fresh,” “made from scratch,” “local,” “artisan,” etc.

 The future of coffee on the menu

The coffeehouse industry should hit $31 billion by the end of this year, according to Statista.com, and are now competing with QSRs and fast casuals in a variety of dayparts, not just breakfast. They offer everything from baked goods, sandwiches, salads and other snack items. Take Starbucks, for example. Although its coffee sales made up more than half of the coffee-café segment’s $12.7 billion last year, it’s also taking market share from fast casuals and other limited service restaurants. Starbucks isn’t only about coffee; it has launched a variety of food items and is even testing an express unitto lull customers away from standard fast food.

While Starbucks is busy competing with restaurants, those same brands are also competing with Starbucks and other coffee cafes by offering their own coffee products. KFC, Taco Bell and Burger King, for example, have added specialty coffee options that go beyond standard brews.

“Existing restaurants are adding specialty coffee to their menus, but the bar has been set fairly high by the largest chains, as it relates to perceived quality, available variety and value,” Solochek said.

That being said, it’s no surprise that specialty coffee as a percent of all coffee servings remains low for the outlets that have more recently added specialty coffee to their menu.

“This is not to say specialty coffee servings won’t grow over time, but, the expectation is that the growth will be slow,” Solochek said.

 The growth of specialty coffee as a whole, however, will definitely continue for several more years.

“There may be growth in brewed coffee as well because more chains are upgrading the varieties of coffee they serve, but the growth rate is not expected to be similar to that of specialty coffee,” Solochek said.