Viewpoint: Cyril Lavenant of NPD evaluates the coffee shop market
Viewpoint: Market research and consumer trends expert Cyril Lavenant, NPD Group’s director of foodservice UK and France, examines the threat of coffee shop saturation and evaluates what methods operators can use to survive.
Look up and down a typical British high street and you’d be forgiven for thinking we’ve gone slighly ga-ga over coffee. After all, many of us will be able to identify local coffee shops that have opened in the past year or two. Is the market getting saturated? At NPD, our position is that if we are not yet at saturation point it could easily happen soon.
Oddly enough, the British coffee market was 7% smaller last year (2017) than it was in 2008, although it has recovered since 2012. What’s going on is that there has been a strong decline in the non-commercial sector (vending machines and canteens). The more familiar ‘commercial’ side of coffee that we know so well on the high street and in pubs has been unable to take up the slack. But that doesn’t mean those other types of outlet are doing badly. Quite the opposite. Quick-service restaurants (QSR) and pubs are increasingly winning our patronage; together they now represent 57% of all coffee servings in Britain versus 42% in 2008.
One big trend in recent years has been the shift from traditional coffee to speciality coffee, meaning the market has experienced sharp ‘premiumisation’. In 2008, the market was split equally – 50/50 – between premium and traditional. A decade later, specialty coffee now represents more than 80% of coffee servings in Britain.
So why the danger of saturation? There are several reasons – the expansion of chains, the new independents, the reduction in high street footfall as more of us shop online, and a slowdown in snacking.
Not only are existing chains expanding, but we are seeing completely new chains enter the marketplace. Independents are also a force to be reckoned with. Many people think that opening a coffee shop is easy but ask any industry insider and they’ll tell you this is not the case. It is extremely difficult to be successful in such a competitive environment. The independents that capitalise successfully on the trend of getting back to ‘local’ might fare better. When a consumer finds a great ‘local’ coffee shop with a strong sense of identity or personality, they tend to stick to it. In contrast, the chains have adopted a similar look and feel, which makes it difficult for people to differentiate between them.
The danger of saturation is also the result of declining high street footfall in the UK, which is down by -17% since 2008 according to retail market research specialist Springboard. The huge growth of online shopping means there are fewer people in the street that foodservice operators can convert into consumers.
We have also seen a clear slowdown in foodservice market growth since the Brexit referendum. As part of that, consumers are also snacking less – and snacking is the main occasion for coffee purchases (although breakfast and lunch, two further important occasions for coffee, are still seeing some positive trends).
We will at some point reach a stage where some coffee shops need to close - and sadly it will probably be independents who will be hit first. But the big chains will not be immune and that explains why many chains are increasing the importance of food to avoid relying too heavily on coffee.
Is there a way of reducing the risk of having to close down? Any way of ensuring you thrive in the face of the saturation threat? Yes – offer quality products and a quality experience and ensure customers feel they are getting value for money.
Historically, coffee shops refused to offer meal deals, unlike most of the quick-service outlets. Instead, coffee shops have been keen on loyalty schemes, but only 5% of coffee shop visits involve a customer making use of such a scheme. This rather low level of participation is not engaging a high enough proportion of customers to have a strong impact. So there’s a strong case for suggesting that coffee shops must rethink their loyalty schemes to make them more appealing and create stronger consumer loyalty.
But is ‘loyalty’ the right way to go? Yes – the numbers back it up. Ask customers what makes them return to a foodservice outlet and one of the key motivators is great ‘value for money’. But coffee shops see 20% of their visits rating badly on value for money. This is a very high score. Even worse, only 30% of consumers who rate their visit ‘fair’ or ‘poor’ on value for money say they will make a return visit within the next 30 days. The message to coffee shop operators is clear: if you want more of a customer’s business, give them great value for money. Attractive loyalty schemes can play an important part in persuading customers that your outlet is the best choice they can make.