According to the latest annual report from coffee market research group Allegra World Coffee Portal, the global pandemic has wiped out almost a quarter of the US coffee market.
They currently estimate the U.S. coffee shop segment to be valued at $36 billion, a decline of 24% over the past 12 months. That’s $11.5 billion in sales declined predominantly due to the Covid-lead disruptions to the market.
There was also a net decrease in the number of coffee shops over the past 12 months, with the market contracting by 208 shops (0.6%) to comprise 37,189 outlets, according to the research.
Combined, the two market leaders, Starbucks and Dunkin’ control 66% of the total US branded coffee shop market.
Graphic: World Coffee Portal
Allegra World Coffee Portal conducted more than 100 interviews with industry leaders, field research, desk research and 5,000+ online surveys with U.S. consumers, they found a remarkably negative sentiment among coffee shop operators regarding the current business climate.
Reflecting the huge challenges all US café businesses face, just 38% of industry leaders surveyed by World Coffee Portal believe current trading is positive, down from 65% last year.
Businesses reporting losses due to the Covid pandemic estimate the cost at approximately $32,500 per store, per month. Nevertheless, 81% of industry leaders surveyed believe there is still plenty of growth potential for branded coffee shops in the US by adapting to Covid trading innovations and changes with drive-thru, digital integration and new trading formats.
While top rent paying operators in prime city and transport hub locations endured a catastrophic drop in trade in 2020, some suburban and rural locations experienced significant upswings in sales during the pandemic as customers stayed home and shopped locally.
Whilst city store sales have declined, drive-thru’s became more popular and now accounts for 37% of all US branded café outlets. It is becoming an increasingly attractive strategy to mitigate the impact of Covid restrictions. The proportion of US consumers surveyed preferred drive-thru over entering a coffee shop has increased from 48% in 2019 to 63% in 2020.
With 6,391 sites, Dunkin’ is by far the largest drive-thru operator in the US, ahead of Starbucks’ 3,900 locations and Panera Bread’s 840.
Covid-related store closures have compelled many major US coffee chains, including Starbucks, Dunkin’ and Peet’s Coffee, as well as boutique operators to dramatically accelerate digital integrations, including mobile ordering, curbside pick-up, delivery and e-commerce platforms for retail coffee.
45% of US consumers surveyed by World Coffee Portal indicate they would regularly order drinks for delivery if the option were available. Faster delivery, lower fees and spill-proof packaging are the top three areas consumers cited for improvement.
While the pandemic has forced operators to temporarily pause some sustainability initiatives, such as the use of re-usable cups in-store, US consumers continue to embrace ethically sourced coffee. 57% of those surveyed indicate it is important for them to purchase ethically sourced beverages where possible, up from 48% in 2019.
Allegra Group Founder and CEO, Jeffrey Young
With the prospect of a vaccine rollout under the incoming Biden administration, World Coffee Portal is optimistic for a post-pandemic recovery, forecasting the branded coffee shop segment will return to pre-pandemic sales levels by 2023.
65% of US industry leaders surveyed believe coffee shop trading conditions will improve over the next 12 months.
World Coffee Portal forecasts the USA branded coffee shop segment will exceed 40,900 outlets by the end of 2025, displaying five-year growth of 2% CAGR.
The total market is projected to recover to $40bn sales over the next year and exceed $50bn by 2025 at 7% CAGR.
Allegra Group Founder and CEO, Jeffrey Young, said,
The US coffee shop market is enduring the worst trading environment in living memory, with the Covid-19 pandemic piling extraordinary pressure on hospitality businesses across the country.
However, with a changing political situation, the prospect of mass vaccinations and operators rapidly adapting with new trading formats, there is now light at the end of the tunnel after an incredibly challenging year.
Despite ongoing market turbulence, coffee shops will remain a vital part of the US economy and social framework for many years to come. We expect trading to begin stabilising from summer 2021, however it will take a number of years for operators to fully readjust to the ‘new normal’.”
