Our popular Coffee Shop report has been updated with 2012 figures (here is our original Coffee Shop Research Report). Learn about the coffee shop business and how to open your own coffee shop. Don’t forget you can receive free or low-cost training and free professional business advice, from your local Small Business Development Center!
Coffee Shop Business Overview & Trends 2012
SIC Code: 5812, NAICS Code: 72221
There were about 20,000 coffee shop businesses in the U.S. with combined revenues of $10 billion in 2011, according to First Research.
- Local mom-and-pop coffee shops, compete with established national brands like Starbucks, Seattle’s Best (owned by Starbucks), Caribou, and Peet’s Coffee: 70 percent of sales are generated from the top 50 coffee shop operators.
- The international business is an increasingly important part of the business for these chains. For example, Starbucks reported having 5,500 coffee shop locations (mostly licensed) outside the U.S. in 2010.
- Many coffee shop operators choose the franchise route. You can read our page about franchising to learn how to get started.
- Gross margin for a coffee shop is about 85%, with operating income averaging 2.5% of net sales.
- The labor intensive nature of the coffee shop business places a premium on friendly, high energy teams which generate about $50,000 in annual revenue per worker.1
Coffee Drinker Statistics, 2012
- According to the latest National Coffee Drinking Study from the National Coffee Association, 40% of 18-24 year olds are drinking coffee each day — this is a sharp rise from the 31% of this age group who said they enjoyed a daily dose of java during 2010. This increase brought the consumption of coffee among this age group back to its 2009 level.
- In the same National Coffee Drinking Study, 54% of adults age 25-39 reported drinking coffee each day, another significant increase from the 44% who reported drinking coffee daily during 2010.
- Why the strong increase is less clear: 29% of the 18-39 age group said they felt better about their financial situation (only 12% of those 40+ felt similarly positive), but no other group shared the same concern. Overall, 46% of coffee drinkers surveyed characterized their financial situation as “The Same” when compared to 2010.
- The study also found that over 75% of U.S. adults drink coffee, and 58% reported drinking coffee daily.
- Coffee drinkers still outnumber tea drinkers in the U.S.: 183 million coffee drinkers to 173.5 million tea drinkers. In 2012, combined sales of coffee and tea at restaurant and drinking places is estimated to total $18.7 billion, according to David Sprinkle, publisher of Packaged Facts.This February 2012 report also notes strong increases in demand for specialty coffee drinks (cappuccinos, lattes, Americanos and Macchiatos), with Macchiatos surging in popularity (as measured by market penetration) by 50% since 2007 (from Datassential MenuTrends Direct data).
Coffee Shop Customer Profile
Coffee shops are frequented by both the young and old, which makes understanding your local market demographics all the more important. Consider some additional interesting facts from the National Coffee Drinking Study:
- Most adult coffee drinkers said their lifelong habit began during their teenage years. In fact, 54% said they began drinking coffee between 13 and 19. Another 22% reported their coffee cravings started between the ages of 20 and 24. This means that 76% of adult coffee drinkers began drinking coffee by the time they were 24. So, despite the large amount of marketing and advertising directed at the younger age groups, savvy coffee shop owners will not forget to cater some of their offerings to the adult and senior market.
- Not surprisingly, coffee shop owners can find regular (weekly or more) customers in the younger age groups, particularly those in high school, college and the newly employed (first job).
- According to the study, parents are another important demographic segment to coffee shop owners, particularly older parents rather than those with young children still at home.
Coffee Shop Product Trends, 2012
- Sales of coffee dominate sales of hot beverages, making up 83.3% of the total hot beverage market in the U.S. Coffee consumption is expected to increase through 2015 at an average annual rate of 2.7%, while tea consumption is expected to increase through 2015 at an average annual rate of 3.1%. Positive expectations for continued growth in coffee sales, despite its “mature” product position in the market, are due to the innovations in premium coffee products (pods, single-serving instants, etc.)2
- Despite the economic woes, 37% of total coffee consumed was classified as “Gourmet.” National Coffee Drinking Study This suggests consumers were set on drinking good coffee and visiting their local coffee shop even in the face of an uncertain economy.
- Coffee Shop owners are also having some success selling the instant serving pack, and there seems to be considerable upside potential: only 2% surveyed reporting using the packs regularly, while 10% said they buy it infrequently (Reuters).
- Packaged Facts also notes a increase in the average price of coffee by 25% since 2007, owing largely to operators having to pass on commodity price increases to consumers. This trend has eased after peaking in early 2011.
- According to Starbucks latest 10-K filing (page 4), retail sales at company-operated stores broke down as follows: beverages 75%, food 19%, whole bean and soluble coffees 4%, and coffee-making equipment and other merchandise 2%.
Coffee Shop Sales & Marketing Tips
Coffee shop customers, by nature, are looking for something special — that’s why they are willing to pay so much for a cup of coffee! Many customers of the big national chains, while satisfied with their daily coffee would be intrigued to find a local coffee that is different. So, when you are considering whether to start or open a coffee shop, here are some suggestions that might help your business stand apart from the traditional coffee shop scene:
- Offer unique products (specialized roasts, local ingredients, locally themed or named drinks, custom drinks by your ‘star’ barista, etc.)
- Try leaving out games, puzzles, mind benders and other activities that encourage customers to linger over their coffee
- Host or sponsor local events (entertainment, readings, book clubs, etc.)
- Use technology to creatively compete in marketing with the big chains — services like FourSquare, Yelp, and Google Places can increase your visibility in your local market.
- Deliver amazing service from knowledgeable baristas — spend lots of time training your staff and consider using online services like the American Coffee & Barista School
- Develop fun and interesting customer loyalty programs (consider going beyond the “buy 10, get 1 free” approach: create unique levels or ranks with different benefits, link offerings with other local merchants, etc.)
- Be sure to sell coffee-related items (and track down any co-marketing opportunities with a local community college or other student-related group in the area)
Coffee Shop Startup Costs
These statistics are from the Adams Businesses You Can Start Almanac.
- Coffee Cart: Average cost is between $20,000-$25,000.
- Kiosk: Depending on the size and your menu, average costs are between $25,000-$75,000.
- Drive-Thru: We have heard of entrepreneurs who have opened very small units for less than $35,000. A large drive-thru can cost between $80,000-$200,000.
The espresso101 website estimates the average cost of a 1,200 sq. ft. coffee bar is between $200,000 to $375,000.
Coffee Shop Articles
- National Coffee Association of USA produces an annual National Coffee Drinking Trends study.
- Strong future for coffee likely as younger generation’s consumption rebounds.
- The Guide to Starting and Running A Coffee Shop A Step by Step Business Guide
- How to Start and Run a Coffee House Business
- Specialty Coffee Association Trends Forecast for 2011 (free synopsis, fee for full report).
- Summary of National Coffee Association study on coffee drinking trends.
- Specialty Coffee Association Industry News Page
1 Coffee Shops – Quarterly Update 11/21/2011. Austin, United States, Austin: Hoovers Inc, 2011. ABI/INFORM Complete. Web. 22 Feb. 2012.
2 United States Business Forecast Report – Q2 2012. London, United Kingdom, London: Business Monitor International, 2012.ABI/INFORM Complete. 23 Feb. 2012 .
For the full text of any content in this Coffee Shop Report, the link has been provided for the report publisher, while a database article can be obtained from the local public or academic library or purchased from a document delivery service for a nominal fee.