Foodservice: Coffee Climbs Upward

Made-to-order drinks are driving sales growth

As foodservice coffee sales continue to climb upward, one big trend stands out to Samuel Nahmias: made to order.

During a recent webinar hosted by the National Coffee Association, Nahmias, principal and COO of StudyLogic, Cedarhurst, N.Y., advised the convenience-store channel to pay close attention to made-to-order (MTO) coffee beverages moving forward.

“Many c-stores now have trained personnel,” he said, “real baristas who can make you the same espresso you can get at a cafe. That’s what’s going to be driving growth.”

Overall, MTO coffee has grown to an 11% share of total cups of coffee consumed in the United States. Nahmias measures both by cups and by sales, but because coffee is a commodity with volatile prices, he believes cups are a more accurate growth metric.

In the past 12 years, the restaurant coffee industry (which includes c-stores) grew 135% in sales and 80% in cups, significantly outpacing total beverage growth. It’s projected to grow through 2016 as well. Much of that growth was in coffee shops—at the expense of quick-service chains. Meanwhile, in 2013, c-stores experienced their first full year of growth in a long time, going from 19.2% to 21.4% share of the restaurant coffee industry.

As convenience retailers try to claim a portion of that growth for themselves, they would do well to explore specialty drinks such as those made by a barista. And if millennials are target customers, flavor-infused options tend to drive sales, too.

“Especially during the holiday season, your pumpkin spice lattes and gingerbread brewed coffee can mean success for sales,” said Nahmias.

Older generations tend to like more traditional options, but they increasingly care about the quality of the basic coffee they’re drinking. The growth of specialty beverages dipped in 2008 due to the economic downturn, and as a result, the hot-brewed-coffee category grew. “The hot-brewed category has continued to grow after the recession, because the quality of hot-brewed became better,” Nahmias said.

The most dramatic trend in coffee is growth in the at-work segment. People are drinking more coffee on the job than ever before, and the segment is projected to continue to grow 5% to 7% more this year. As a result, single-serve coffee in a pod, capsule or stick is growing as well.

It’s important for convenience retailers to recognize that customers’ tastes have become more discerning. Unlike quick-service chains, c-stores have been slow to adopt blended or frozen coffee drinks. “C-stores are starting to offer more espresso, but not iced espresso. They have almost no share of that or blended/frozen coffee,” Nahmias said.

Ready-to-drink coffee beverages—those that come bottled and sit in the cold vault—are now a typical part of the convenience landscape and are also growing at a slight pace. But again, said Nahmias, it’s really MTO coffee that should be “getting your attention.”