Industry News | March 15, 2006

Premium Coffee Cravings Boost Coffeehouse and Donut Shop Sales

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American consumers are turning to premium coffee taste, while simultaneously turning off their home coffeepots.

A new report from Mintel shows that premium coffee is driving success for national coffeehouses, donut shops and quick-service restaurants, while causing a downturn in food, drug, and mass-merchandise (FDM) sales of coffee. Coffeehouses have more than doubled their U.S. sales in the last five years to an estimated $8.3 billion. In another five years, the market is expected to reach a staggering $18.8 billion. As a result of this growth, store-bought coffee manufacturers are feeling the negative effects in their sales.

According to the National Coffee Association (NCA), the popularity of traditional coffee, described as consumer-brewed coffee, has been declining since 2004. With one coffeehouse for nearly every 14,000 Americans, coffeehouses are moving coffee sales away from FDM retailers. Mintel's exclusive consumer research reports that 35 percent of those who visited a coffeehouse in the last week purchased coffee beans there; more than 67 percent of coffeehouse visitors listed quality at the top of the needs list.

"Consumers are moving away from traditional coffee in favor of premium specialty selections," said Billy Hulkower, analyst for Mintel. "People have developed a taste for inventive, upscale, premium-priced coffee. Starbucks and other coffeehouses have effectively attracted people to their shops, and further flavor and promotional innovations have the potential to continue negatively impacting traditional coffee sales."

Coffeehouses face potential competition from fast-food restaurants. McDonald's recently threw its hat into the premium coffee ring. Last week, the fast-food giant rolled out premium roast coffee in restaurants across the U.S. They join Dunkin' Donuts, Burger King and other food chains in capitalizing on the premium coffee success generated by Starbucks and its coffeehouse counterparts. Currently, these establishments present the biggest potential challenge to the coffeehouse market.

"People want to have convenient access to premium options," said Hulkower. "Chain restaurants that serve breakfast are trying to present a better one-stop option for their consumers. In addition to building coffee sales, newer options are accentuating their current food offerings."

Pre-packaged, ready-to-drink (RTD) coffee beverages also offer future growth competition against the coffeehouse market. Manufacturers are turning their sights to increased product innovation to try to win consumers from the coffeehouse sector. Home brewing is also aiming for coffeehouse sales with the newly launched pod brewer, providing one-cup brewing for consumers, one of the most recent innovations to make its mark in the small kitchen appliance market.