Researchers say a spike in consumption by Generation Z and Millennials is due to innovation and artisanal quality.
By Anne-Marie Hardie
To say that the US coffee landscape has shifted is putting it lightly. The preferences of two successive generations of coffee drinkers have led to a complete overhaul evidenced by the variety of choices on the nation’s menu boards.
In 2004, the National Coffee Association (NCA) excitedly reported that the specialty coffee industry had reinvigorated sales, expanding rapidly from 9% of the coffee market in 2000 to more than 16% in four years. Little did the industry know, that this was just the beginning of a new coffee era. Between 2008 and 2016, past-day consumption of gourmet coffee beverage rose from 13% to 36% among 18- to 24-year-olds, and from 19% to 41% for those aged 25-39. The percentage of American’s drinking coffee on a daily basis is now at 62%, and today more than half (59%) of all cups of coffee consumed in the past day were gourmet, according to NCA.
This year’s National Coffee Drinking Trends (NCDT) survey indicates “the most robust increase occurred among 13- to 18-year-olds, whose daily consumption rose to 37% in 2017 from 31% in 2016, capping a 14-point increase over 2014’s 23%.”
The percentage of 18- to 24-year-olds drinking coffee daily increased to 50% and the 25-39 age bracket increased from 60% to 63%.
Estimated at 131,000 outlets, the US coffee shop market showed significant growth in 2016 according to Allegra Project Coffee USA’s 2017 Report, with the number of outlets in the branded coffee shop chain segment increasing by 3.1% on a 7.4% increase in revenue to reach $41 billion. Allegra Insights estimates the market will reach $85 billion by 2025.
Millennials are the primary driver for sales of out-of-home coffee. They actively seek beverages customized to make them uniquely their own. At the same time, this value oriented, somewhat jaded generation seeks brands that not only feature the products they like but embody their values. These consumers wield great influence – sufficient to shift the type coffee served by virtually every retail foodservice segment.
“Millennials are a very fluid society, coffee bars have become an integral part of their life,” said Jeffrey Young, managing director, Allegra Strategies.” Coffee has become part of their culture; it is the glue that helps keep everything together.”
Recognizing both the influence and spending power of this generation, almost every sector that serves coffee has expanded their platform to include beverages that would appeal to this discerning consumer. McDonald’s is now serving espresso-based beverages, Dunkin Donuts offers cold brew, Tim Hortons has their dark roast, and even convenience stores and gas stations are trying to take a piece of the specialty coffee pie. “The goal is towards a quality, fresh cup of coffee with some of the East coast convenience stores having a full coffee counter, including a barista,” said Brant Curtis, director of communication and innovation, Wilbur Curtis Company Inc, “And there are a few people, us included, who are working on dispensing cold brew through a tap system.” With the rise of an espresso-based coffee culture and increased consumer expectations for quality and experience, higher quality coffee standards are moving across the entire food industry.
“Everyone has raised the bar in coffee,” said Gary Senez, senior vp, Canterbury Coffee. “Consequently, that puts pressure on the rest of the full-service restaurants and other QSRs to quickly follow suit. Consumers are demanding these new beverages. At one time, lattes and cappuccinos were exclusive to Starbucks and other high end coffee shops, now it is more mainstream and expected almost everywhere.”
This inclusion of quality beverages across the entire food service spectrum is in part due to the culinary movement. “There has been a fascinating development happening with the culinary movement, that continues to shift the way we drink our coffee,” said Young. “Whether it’s chocolate, wine, bread, or coffee, consumers are conscious about what they are putting in their body, and are actively seeking products that are better quality.” It is human nature, shared Young, that once we have had a taste of better coffee, then we tend not to go backwards.
Expanding coffee culture
For many individuals, their first specialty coffee experience was at Starbucks. Starbucks paved the way as a friendly gathering place for social interaction. As the company’s offerings and coffee expertise became more refined coffee drinkers became more discerning. Competing chains help define coffee culture among cities and even neighborhoods. Young entrepreneurs noticed that there was a gap at the top end of the premium segment.
“We are now in our fifth wave of coffee,” said Young. “There is a lot more money that has come into the artisan segment which has helped to develop a new era of chains.”
Millennials actively seek local roasters and demand single origin beans with a compelling back story. Consumers want traceability in their products and are swayed by claims of socially and environmentally sustainable sourcing. Artisanal coffee shops responded by expanding direct trade, building local roasteries, and sharing the story of the farmer with their clientele.
As a result, even quick service restaurants feature more choices, customizable options, and single-origin blends. “People are passionate about their coffee and both full- and quick-service restaurants, need to understand how to brew their coffee,” said Senez. “Customers are much more discerning than they were 20 years ago, and they won’t tolerate bad tasting products.” Some high scale restaurants, says Senez, are using the French press or Chemex table side to elevate the coffee experience for their guests.
“There is a new focus on the customizable, coffee-shop experience,” said Kyra Auffermann, NCA’s manager, communication and content. “Consumers want more than a cup of coffee – they want to feel good about how they’re spending their money. Consumers are more educated about coffee than ever before, creating a new market for innovative companies – from new brewing gadgets to delivery methods,” she said.
Boutique retailers such a La Colombe, Blue Bottle, and Bluestone Lane are expanding nationally. “There is a fashion, almost cult side of coffee, and the more affluent Millennials, will be continuing to gravitate towards the more artisan venues,” said Young. “It is a bit of deja vu really; we are going to continue to see more of these specialized shops shifting the coffee landscape.”
At the same time, the acquisitions of several coffee chains, including Stumptown, Caribou Coffee, Intelligentsia, and Peet’s Tea & Coffee by JAB Holdings signals a new level of competition for the industry. To remain relevant, big players like Starbucks must continually evolve, evident in the company’s investment in their reserve range and the launch of 25,500 square foot public roasteries and tasting rooms.
The dramatic transformation has led gas stations, convenience outlets, and even supermarkets to chase a slice of the market. Fresh-brewed, quality coffee is a bare minimum. Consumers no longer settle for a regular cup of Joe — they want a customizable coffee experience. To remain competitive, coffee specialists must offer an exceptional experience something that balances art and science.
Move Over Millennials
Pragmatic, global, and socially connected (92% have a digital footprint), Generation Z already impacts the beverage industry. These individuals grew up with the internet, climate change, recession, and terrorism, making them both more realistic and entrepreneurial than their millennial counterparts. Born between 1994 and 2010, these individuals are juicing, sipping smoothies, and always have a glass or bottle of water close at hand.
The generation makes up 25.9% of the US population and contributes $44 billion to the economy. By 2020 these post-millennials will account for one-third of the population. They were deeply influenced by the recession of 2008 valuing experiences over material goods and showing signs of frugality. They work independently with 72% of teens reporting they want to someday start a business.
Marcie Merriman, executive director of growth strategy at Ernst & Young says Gen Z “expects businesses, brands and, retailers to be loyal to them. If they don’t feel appreciated, they’re going to move on. It’s not about them being loyal to the business.”
Generation Zs are focused on wellness, and there is already evidence of their influence in the hot beverage marketplace. They actively seek non-dairy products, turning away from soy towards less controversial beverages such as coconut or almond milk. They drink matcha lattes, turmeric lattes, and enjoy non-traditional beverages like kombucha.
Informed and engaged, social media savvy Gen Z reads labels looking for products with fewer ingredients. Water is currently their beverage of choice, but tea and coffee, aren’t far behind. What they stay far away from is anything containing artificial including sweeteners, flavoring, excess caffeine, and preservatives. Their top pick-me-up drink is coffee, with tea a close second, reports Food Business News.
Like their millennial counterparts, Generation Z wants products that respond to their values. They are brand influencers while at the same time, they strive to stand out as individuals. They are looking for coffee companies that can respond to their unique needs. They are passionate, practical, and embrace diversity, and will naturally gravitate towards companies that reflect these values. As the oldest members of Generation Z graduate from college, their entry into the coffee market presents a great opportunity for those paying attention.