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VIEWPOINT: Growth opportunites by NPD's Dominic Allport

08/08/2018
VIEWPOINT: Growth opportunites by NPD's Dominic Allport

NPD's Dominic Allport looks at how coffee shops continue to grow in a crowded market.

NPD’s CREST panel data shows us that Britain’s coffee shops have grown visits 10x faster than the wider out-of-home (OOH) market in the two years to May 2018; proof if it were needed of coffee shops’ winning ways.

But don’t let yourself get complacent. Coffee shops account for less than 20% of all OOH coffee servings, due to many other types of OOH operators being aware that having a credible coffee offer is extremely effective at driving frequency of visit and growing different dayparts. With industry sectors such as burger chains and pubs growing coffee servings faster than coffee shops, competition will remain tough as coffee’s crowded gold rush continues.

Growth opportunities

In response to this competition, a coffee shop operator has several immediate levers to pull on. They can offer new coffee blends, raise the quality of product and service, focus on value, or even launch a loyalty scheme.  Another option is to diversify the types of products sold to customers; perhaps look to offer more food or specialty tea options, for example.

Another possible growth opportunity lies in the fact that while 30% of all daily out of home coffee drinking occasions take place between 5pm and midnight; the equivalent coffee shop figure is just 7%. This means that coffee shops currently punch well below their weight during this time of day; a less than ideal situation when you consider the need to make business assets work hard 24 hours a day.

Dinner is clearly the key day-part during 5pm and midnight, and it offers coffee shop operators plenty of opportunity for the future. Coffee shops currently have less than a 1% share of all OOH dinner visits, compared to a 6% share overall. In addition, dinner is normally when consumers per capita spend is at its highest.

Diversify

One potential way to achieve dinner growth is to follow the fifth wave trend and combine technology (such as an app offering loyalty) with a high-end experience. Consumers looking for something different could be offered a curated and memorable food and drink experience for which they may well be happy to pay a premium. Another option is to consider diversifying into alcohol (think craft beers, premium mixers and negronis), alongside an enhanced food menu.

Yet this kind of focus on dinner may not be viable for every coffee shop operator. There may not be the consumer demand to justify a focus on this daypart. Instead, actively targeting the overnight or ‘early bird’ crowd with something simpler could be a better path to growth.  

Overnight and early mornings

The potential of the midnight to 7am trading period is supported by evidence from NPD’s CREST panel which shows that while the overall OOH foodservice industry grew by 43 million additional visits in the two years ending May 2018, 83% of this overall growth was achieved during the hours of midnight and 7am.

And, while London with its diverse 24-hour economy currently leads growth during this part of the day, other major cities are likely to follow suit. This means that the strong pace of growth is set to continue, with overnight and early morning visits set to hit 300m per year by 2020.

Consumers that visit the OOH market during the overnight and early morning period describe themselves as being time pressured, on the go, and show a higher-than-average interest in deals and promotions. And by offering speed, strong product quality and a friendly experience here is a group of consumers that could be regularly visiting your premises in the near future.

  • Dominic Allport is Insights Director at the NPD Group and has over 20 years research experience, with a particular focus on retail, foodservice and FMCG. He has provided consumer insight, competitor intelligence and strategic recommendations to many leading retailers, manufacturers and financial institutions in the UK and abroad.

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