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Your morning fix is fueling Chicago’s coffee boom

You can’t pry the lattes out of Chicagoans’ winter-worn fingers, and those coffee sales are driving growth in an otherwise stagnant restaurant industry.

Growth in customer visits at coffee chains like Starbucks and Peet’s — as well as coffee-inspired visits to quick-service restaurants like McDonald’s — are making up for sluggishness elsewhere in the restaurant industry, according to research firm NPD. Analysts credit the growth in coffee sales to a rash of deals that are bringing more customers in the door, and to loyalty programs that keep them coming back.

“I’ve seen restaurants come to a grinding halt at this time of year. That’s not the case with coffee,” said Tim Coonan, the founder of Big Shoulders Coffee and a former chef.

But why is coffee making such a difference in the restaurant industry? Coffee builds a habit. When customers find a coffee drink they enjoy, they’re far more likely to come back every day — or at least several times per week — than they are for, say, a great burger, NPD analyst Bonnie Riggs said.

Coffee’s popularity has attracted a rash of investment in recent years, from European conglomerates to Chicago billionaires. Luxembourg’s JAB Holding has built up a coffee and cafe empire and now owns Panera Bread and Krispy Kreme, and has a majority stake in chains including Caribou Coffee and Peet’s Coffee. Peet’s later acquired Stumptown Coffee Roasters of Portland, Ore., and Chicago-based Intelligentsia Coffee &Tea. Byron Trott’s Chicago-based BDT Capital Partners was a minority investor in all the JAB deals, and also contributed to previous JAB transactions like the purchase of Mondelez International’s former coffee business and Sara Lee’s coffee spinoff. Coffee tends to produce higher profit margins than other food and drink businesses.

And coffee chains are expanding to capture the growth. Chain coffee shops increased their locations by 6 percent from 2016 to 2017, according to NPD. In all, the U.S. has almost 3,000 more coffee shops than it did five years ago. In Chicago, that includes smaller chains like Stumptown and Joe &the Juice. Stumptown opened its first Chicago location in December in the West Loop’s Ace Hotel, and Copenhagen-based Joe &the Juice opened its first Chicago location on the Near North Side on Wednesday.

Kasper Garnell, head of branding and communication at Joe &the Juice, said the company has “high expectations” for the new Chicago store, which he says will mark the company’s largest market debut in the next six to 12 months. The company has signed leases for its first three locations in the city, and is possibly on the hunt for more, he said.

Big Shoulders will open a location at State and Chestnut streets later this month, Coonan said, and recently opened another inside Linea apartments in the Loop. Another location is in works to open this spring, which would bring the chain’s total to five locations. It first opened in the West Town neighborhood about six years ago.

“I’ve got to tell you, I don’t think it’s going to slow down,” Coonan said of the broader coffee market. “I was nervous a couple years ago.”

Coonan said part of his confidence is tied to the growing desire by landlords to bring coffee retailers into buildings as an amenity for tenants.

Mallory Pilcher, Stumptown’s marketing director, said she feels there’s still a lot of room for coffee growth across the U.S. “So many parts of the country are just getting turned on to high quality, sustainably sourced, hand-crafted coffee,” she said. “Cafe concepts are evolving and menu options are expanding.”

Pilcher said the brand plans to roll out a loyalty program in the future to reward its regulars.

At larger sister brand Peet’s Coffee, which has a dozen Chicago locations, nearly a third of transactions earn loyalty points, and CEO Dave Burwick said the chain is working on “significant enhancements” to its app this year, including testing mobile ordering.

For Starbucks, mobile enhancements such as the ability to redeem rewards have helped drive loyalty and app use.

Sebastian Cheron, 28, of Los Angeles, recently stopped into a Starbucks on Michigan Avenue to try a Caramel Brulee latte, a holiday limited time offer, using a coupon for a free birthday drink. Cheron said he usually brews his coffee at home but the free coffee coupon, which he pulled up on his Starbucks mobile app, drew him in to warm up on a dreary day of sightseeing.

The rise of mobile ordering also is helping drive quick, habitual coffee purchases, Riggs said, because it makes people less cognizant of what they’re paying than when they hand over cold hard cash. The use of mobile ordering raises the chances that customers will opt to make multiple visits and spend more when they do, she said.

The proof is in the foam: Specialty drinks like lattes, which tend to be the most expensive, are posting the strongest growth in the coffee beverage category, Riggs said. And although the coffee market is crowded, with everyone from Starbucks and Dunkin’ Donuts to smaller chains like Intelligentsia competing for consumers’ dollars, Riggs said coffee sellers are finding ways to expand the market instead of fighting over the same group of java-loving customers.That’s helped by a focus on breakfast, which has seen growth while lunch and dinner slow, and afternoon snack time, when more people are justifying a cappuccino when they take a break from work, Riggs said.

McDonald’s, for which breakfast and snack purchases have been big drivers of growth in recent years, has also made big strides to revamp its McCafe line of beverages and make coffee drinks and related bakery items a focus of its in-store redesigns. It cut prices on drinks, including coffee and soda, which executives said were key to improving customer traffic after years of declines. The world’s largest burger chain in September added a caramel macchiato, Americano and cappuccino to its line of lattes and mochas.

Promotions and menu expansions, especially those that are only available for a limited time, are key to this new jolt of traffic, Riggs said.

Customer visits to quick-service burger and gourmet coffee chains spurred by deals rose by 7 percent in the third quarter of 2017 compared with a year earlier, according to NPD, which called it the “strongest (traffic) seen in quite some time.” Customer visits not driven by promotions rose 4 percent. The burger and coffee categories together account for less than one-tenth of the total food service industry, but their growth was so strong they pulled the whole industry into positive territory, NPD said. It was the first time the sector recorded overall growth in a year and a half.

For Starbucks, it’s no longer just the pumpkin spice latte that can bring an expected uptick in foot traffic, but one-time offers like the much-buzzed-about Unicorn Frappuccino, as well as the expansion of spring and holiday drinks.

And as much as some may roll their eyes over the pumpkin spice latte craze, Starbucks and other chains are developing more drinks available for a limited time to give latte lovers a “sense of urgency” to try new flavors.

“People say they’re so sick of the pumpkin spice latte, but when fall comes they can’t wait for it to get here,” Riggs said.

By Samantha Bomkamp, Chicago Tribune


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