Specialty Beverage Market Options for Food Service

Millennials Continue to Drive Demand/Growth for Specialty Coffee Market

It’s no secret that younger consumers are the main force behind the latest increases in daily consumption of espresso-based beverages – their numbers have nearly tripled since 2008, according to NCA’s 2016 NCA National Coffee Drinking Trends (NCDT). The study calls the increase a promising category shift, supported by younger consumer tastes, that outpaces flat overall consumption.

Millennials are adopting specialty coffee consumption habits started in the 1970’s by Starbucks, creating an anywhere/anytime market demand, expanding beyond the commercial food service industry to include convenience stores, hotels, restaurant chains, office coffee, and even vendors such as auto dealerships. Providing a quality cup of coffee is a win-win for operators – the customer is happy and it’s a known industry fact that profit margins are high.

So how did we get here? Following the specialty coffee phenomenon, technology advancements in the late 1980’s and early 1990’s resulted in exponential market growth, penetrating the entire commercial food service industry. During this period, all vendors were expected to provide specialty coffee (often from premium roaster) as a right of entry. This trend continued to drive adoption into other channels.

The early 2000’s marked the synergy of technology advancements and consumer adoption to expand beyond the commercial foodservice industry. Companies such as Concordia Coffee Company introduced next generation, automated espresso machines, spurring new markets for coffee vendors and employee organizations. Similar to all first-generation models, the machines were a bit large and complex.

During the last 16 years, Concordia and other leading industry equipment manufacturers have focused on making the machines more compact, convenient, and affordable. Michael Szyliowicz is founder and principal of SolaBev and a longtime industry influencer. He believes the current trend is not just about availability for consumers. The key is providing a quality cup of coffee coupled with ease of preparation and access for both consumers and vendors. Szyliowicz thinks the real winners could ultimately be the roasters who can leverage demand to tap into targets markets such as office environments, hotels and food service/QSR. “Traditionally it’s been hard for roasters to control quality once it leaves their hands- think of the old coffee pots at auto dealerships – the cups often had the roaster’s name on them. These machines represent a method for quality control within the context of convenience. Often times even a restaurant can’t make a great cup of coffee.” He expects to see a continuation of consolidation among specialty coffee roasters as more adopt machines to help protect market share. “Leaders understand how this can result in more sales to customers, whether bean or capsules.”

Ken Shea is Vice President of Office Coffee Services at G & J Marketing and Sales. He says the demand for specialty coffee is great news for the coffee service industry. Shea notes that for years, poor quality office coffee resulted in a lot fewer new coffee drinkers. The dawn of Starbucks and coffee shops has created a rapidly growing segment of new coffee drinkers. Fast forward to today, he believes that with a more educated consumer in the workplace, driven in large part by millennials, what has been a steady growth curve is now starting to accelerate. Shea warns of the potential consequences for offices that aren’t providing specialty brewed coffee. “Non-specialty coffee can result in lost production. Employees will leave and get a cup at their favorite coffee shop. Millennials in the workforce are demanding a variety of upscale beverages to choose from. Poor coffee can even affect employee turnover. Quality coffee can be analogous to a mini 401k to help keep morale and production high.” Shea also expects the current specialty coffee trends to continue over the next 2-5 years.

Even with demand rising and the availability of user-friendly machines, many operators and decision makers still face several challenges to provide specialty coffee. Single-serve capsule machines range in price from $50 dollars to under $2,000 dollars. Higher-end commercial machines (equipment, shipping, installation) are more in the range of $10,000 to $20,000. These units typically incorporate freshly ground beans, real milk, and commercial components to deliver a true café quality experience. There are additional costs for service and maintenance. One of the biggest challenges can be what one industry executive refers to as the fear of the unknown. Many businesses receive customer requests for specialty coffee, prompting owners to examine adding items to their menu. Despite all of the potential upside, owners can be intimidated by startup costs and the amount of drinks needed to attain profits.

At least one manufacturer believes the next industry innovation should be focused on helping to make specialty coffee machines more affordable. Concordia Coffee Company recently announced their Plan Zero program. It’s designed for customers to pay a fixed monthly payment to cover installation, maintenance and repairs. Vice President John LaNier says it was important for the company to continue to help grow the market through financial collaboration with customers. Concordia offers a line of beverage systems under the brand names Ascent, Integra and Xpress.

Other leading manufacturers and equipment include Franke Coffee Systems A200 and Foam Master 850, and Schaerer USA’s Ambiente PS and Coffee Art Plus.

According to the NCDT study, even older millennials are contributing to the continuing spike in specialty coffee. The 25-39 group are the most likely group to drink gourmet coffee beverages weekly, along with specific options including cappuccino, latte, café mocha, espresso, macchiato, flat white, and cold-brew coffee.

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