Specialty Coffee Shops: Market Size in the U.S.

Specialty Coffee Shops: Market Size in the U.S.

By Heather Ward

Specialty coffee shops play a key role in shaping the consumer experience. It is the third place that connects the barista to the consumer, and finally, to the coffee beverage. In past SCAA research, specialty coffee consumers have consistently revealed the significance of their coffee shop experiences. They associate their coffee with social interactions, and they love the sense of belonging that comes from the barista knowing their name or remembering their favorite drink. Their relationship with coffee is deeply personal, and the human interaction that takes place in a coffee shop enhances the emotional connection and overall experience.

We know the consumer values specialty coffee shops, and that the demand is there, but what about looking at coffee shops from a business perspective? One of the most common questions I get from professionals in the coffee industry is “How many specialty coffee shops are in the U.S.?” followed by, “And what does the growth look like these historically?” Generally, questions like this come from new business owners putting together business plans for their shops, veteran business owners considering expanding their businesses, or investors looking to partner with a coffee company. People want to know if the coffee shop business shows long-term sustained growth.

In order to quantify specialty coffee shops, another question must be asked: how do we define specialty coffee shops? For the purpose of estimating market size, specialty coffee shops are defined as physical retail outlets deriving at least 40 percent of their total revenue from the sale of coffee, coffee beverages, and coffee accessories.

Based on the market size estimates of specialty coffee shops since 1991, there has been long-term sustained growth over time. However, the annual growth rate has slowed in the last five years.

First, let’s take a step back and look at the relevance of coffee in the U.S., which is becoming clearer as coffee industry studies continue. In early 2016, the National Coffee Association published a study on the economic impact of coffee in the U.S., discovering that coffee’s impact on the economy in 2015 was $225 billion, or approximately 1.6 percent of the U.S. Gross Domestic Product (GDP). The study also found that consumers spent $19.3 billion at coffee shops. As a result, it is evident that coffee plays a significant part in the U.S. economy, particularly via the coffee-shop channel.

Specialty coffee shops are ubiquitous in consumers’ lives, and there is consumer demand. SCAA’s latest consumer research study, conducted in early 2016, presented data that showed that although the majority of consumers still drink coffee at home, 94 percent of the study’s respondents also drink coffee at a coffee shop. Respondents to the survey also visited coffee shops to not only to purchase beverages, but also to purchase bags of coffee for at home consumption.

Market Size

The most recent market size data from 2007–2015 was gathered by a global market intelligence agency, Mintel. Estimations prior to 2007 were gathered by SCAA based on data from Mintel, in combination with a review of selected filings and other publicly available information.

According to Mintel research, the number of specialty coffee shops in the U.S. was estimated to be 31,490 in 2015.

There are a few ways to look at the market size data over time. Starting from a bird’s-eye-view, the landscape shows significant historical growth in the last 25 years, with a steep trend line. Refer to chart A below.

chart-a

Source: 1991-2006 estimates based on data from Mintel in combination with a review of selected filings and other publicly available information. 2007-2015 estimates based on data from Mintel.

Zooming in to the last 10 years, the trend line is not as steep. Growth is slowing, but the number of shops has increased by 10,000—almost 50 percent. Refer to chart B below.

chart-b

Source: 2005-2006 estimates based on data from Mintel in combination with a review of selected filings and other publicly available information. 2007-2015 estimates based on data from Mintel.

Taking an even closer look—from a worm’s-eye view—the year-to-year percent change springs into focus. Annual growth started in the mid 1990s at 25 percent-35 percent. Growth saw a significant decline to about five percent in 2000, but bounced back to 10 percent in 2001. There was a dip in 2007, and the number of shops declined for the first time in 2009. By 2011, the number of shops had increased two percent, and since then there has been a steady annual three-to-four percent growth rate. Refer to chart C below.

chart-c

From the bird’s-eye-view, we are able to see the overall significant growth, and from the worm’s-eye-view, we are able to see that the growth rate is slowing but sustaining.

Mintel segmented the total market into two groups: single and multiple coffee shops. In 2015, 75 percent were companies with more than one shop, and 25 percent were companies with a single shop. The share of multiple shops has increased from 73 percent in 2014, while the share of single has decreased from 27 percent.

Future of Specialty Coffee Shops

Over the last two years, SCAA has been surveying specialty coffee retailers to gauge how positive they are feeling about their business and the future of the coffee industry. There is overall positive sentiment in the segment, and respondents specifically addressed plans for expansion of retail businesses. The four iterations of the survey consistently showed over 50 percent of the respondents plan to keep the number of their retail operations the same, and about 45 percent plan to expand the number of their retail operations while only one percent plan to close stores.

This market size data has tracked the movement of specialty coffee shops over the last 25 years. It is a vital component in examining the industry landscape and shows sustained growth that will likely continue in the future.

Photo: @coffeeshopcorners

Heather WardHeather is SCAA’s research analyst and is responsible for providing leadership and vision in gathering, analyzing, and reporting coffee-related industry research. Before moving into the coffee industry, she completed her MBA at Point Loma Nazarene University in San Diego with studies focusing on the economics of coffee. She is passionate about coffee, market analysis, and helping the coffee community better understand the landscape of the industry.