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Beverage: Joltin' Joe – US Food Trends

10 September 2008
Beverage: Joltin' Joe – US Food Trends

For more than a decade, the coffee segment's growth was fueled by consumers' insatiable interest in caffeine kicks. In an altered economy, will all of those $4 cups of coffee continue to sell? Operators hedge their bets by playing both sides of the value equation.

This article first appeared in the 1 September 2008 issue of Restaurants & Institutions (R&I).

R&I is the USA's leading source of food and business-trend information and exclusive research on operators and restaurant patrons. Editorial coverage spans the entire foodservice industry, including chains, independent restaurants, hotels and institutions. Visit the R&I website to find out more about the magazine or to search its recipe database.

By Allison Perlik, Senior Editor

If Seattle-based Starbucks is the sole barometer for the brew business, signs point to trouble.

The coffee powerhouse and longtime segment leader is in a state of flux, saddled with store closures, layoffs and declining sales. Some observers attribute the woes to cooling interest in coffee. But numbers tell a different story about coffee consumption: Research indicates clearly that Americans aren't ready to abandon their coffee habits. Overall, coffee servings at all restaurants rose 8% for the year ending in May 2008 compared with those for the prior year, reports Port Washington, N.Y.-based The NPD Group. What's more, specialty-coffee sales grew 16%, compared with 3% for regular brews. Even Starbucks, despite its heavily chronicled challenges, saw net revenues increase 9% to $2.6 billion for the second quarter in 2008.

Taken together, these details suggest a split personality for the coffee market: As some cash-strapped consumers trade to drip coffee from espresso-based drinks or, more drastically, brew more of their coffee at home, plenty more cherish higher-ticket lattes, cappuccinos and sweet, whipped-cream-topped concoctions as luxuries they can still afford.

Some operators, whether their traditional market position has been one of value or of exclusivity and quality, are aiming to keep customers of both mindsets coming through their doors. The strategy? Playing both sides of the business equation. For Starbucks, that means emphasizing affordable, everyday indulgences such as Pike Place Roast coffee alongside pricier blended drinks; for Oklahoma City-based Sonic Corp., it means introducing premium choices such as lattes and a new line of Java Chillers (flavored blends of vanilla soft-serve and espresso).

"I don't see Americans giving up coffee," says Jahn Kirchoff, owner of Miami-based Deli Lane Café, a three-unit breakfast spot and deli where sales of standard drip coffees are up slightly compared with those of more-expensive cappuccinos and mochas. "If they did go for higher-ticket coffee drinks, instead of buying four of those in a week and three regular cups, they might just get the specialty one once or twice. But they're still going to get their coffee in some form."

Let's Make a Deal

Premium choices at Deli Lane, which sells 200 to 300 cups of coffee on a typical weekday and 1,000 at its weekend brunches, include typical milk-based drinks as well as the Deli-cino, an espresso-and-frozen-yogurt blend with whipped cream and cinnamon for $3.95.

Customers looking to save a couple of bucks can buy drip coffee ($1.85 for small, $2.40 for large) or go for a more-unique option, the Colada, a 6-ounce serving of sweetened espresso that comes with six 1-ounce paper shot cups for sharing at $1.75. Some consumers also are trading down on size rather than on drinks, Kirchoff says.

Mike McFall, president of Lansing, Mich.-based chain Biggby Coffee, says that although the company hasn't added new value-focused offerings, more customers are taking advantage of existing deals. Participation is up 10.7% over last year in a frequency program whereby guests buy any 12 drinks and receive the 13th one free, and redemption of coupons offering $1 off drinks or buy-one-get-one-free deals has grown 10.1%.

For time- and savings-minded guests, Biggby also offers drip coffee on the honor system. Customers grab and fill their own cups and then drop $1.50 to $2 (depending on the unit's location) in a designated box.

Typical Biggby customers are driven by quality more than cost, McFall says, so the company continues to roll out higher-end drinks and specials created to capture this segment's interest. This fall, for example, a proprietary marshmallow-flavored sauce will debut in a new line of hot and cold drinks such as chocolate-marshmallow lattes.

"What we've found is that our product is not a luxury people are willing to give up," says McFall. "When people get worried and start to be driven by fear, our product actually brings comfort." He adds, "We're having relatively flat same-store sales growth right now, but compared to our peers in other industries, that's pretty solid."

No Place Like Home?

That has been the trend at Orlando-based Barnie's Coffee & Tea Co., where CEO Phil Jones says bulk coffee sales have increased 15% to 20% and now account for about one-third of the 44-unit chain's sales.

Nearly 50 coffee varieties, most priced around $11.99 per pound, are available at Barnie's in bulk (whole-bean or ground), categorized by country of origin, blend, flavor and caffeine status. All can be brewed in stores as well.

On the premium side, Barnie's also introduces several signature coffees throughout the year, spotlighting limited crops or rare countries of origin. Currently stores are offering specialty peaberry coffee from the GalÁ¡pagos Islands (whereas most coffee cherries yield two beans, some produce only one, and these round "peaberries" are known for producing brighter, lighter-bodied coffees).

"Micro lots from small farms [and] small growing areas intrigue people," Jones says. "The most-popular wines these days tend to be from very exclusive, small estates, and it's the same thing in the coffee world."

Hot Coffees

Phil Jones, CEO of Orlando-based Barnie's Coffee & Tea Co., shares which coffee trends are catching consumers' interest.

  • Paying attention to countries of origin: Columbian, Costa Rican, Guatemalan, Kenyan, Ethiopian and Indonesian are among popular varieties.
  • Less-aggressive roasts: Barnie's is shifting away from dark roasts toward full city, a medium grade of roasting.
  • Micro lots: Rare, limited and speciality coffees grown on small farms.
  • Fair-trade/shade-grown/certified-organic: These varieties now account for as much as 10% of Barnie's specialty-coffee sales.

Which Cities Cash in Most on Coffee?

These 10 U.S. metropolitan areas spend the most money on coffee, according to Asterop Inc., a San Francisco-based business-intelligence and data-modeling company. The list was compiled based mainly on analysis of the U.S. Bureau of Labor Statistics' annual Consumer Expenditure Survey panel, which provides detailed data on consumption of products and services at the household level.

  1. Oxnard-Thousand Oaks-Ventura, Calif.
  2. Riverside, Calif.
  3. San Jose, Calif.
  4. Anchorage, Alaska
  5. Bridgeport-Stamford, Conn.
  6. Laredo, Texas
  7. Washington, D.C.
  8. Visalia, Calif.
  9. Provo Orem, Utah
  10. Poughkeepsie, N.Y.
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