Why the Coffee Segment Is So Hot Right Now

Coffee shops, particularly drive-thru-only coffee shops, are rapidly expanding across the U.S., with approximately 20 coffee chains in Technomic’s Top 500 adding nearly 1,400 cumulative locations last year. Six coffee chains added more than 50 units, including Dutch Bros Coffee, 7 Brew Drive Thru Coffee, Scooter’s Coffee, and Biggby Coffee. This explosion is not new, but has been percolating for decades.

The surge in coffee shops can be attributed to the pandemic’s massive pivot to off-premises business, with more Americans working from home and digital tools driving an explosion in delivery, take out, and drive-through services. This shift in consumer behavior has turned 7 Brew into a rocket-ship success story, closing 2022 with 40 locations and 2023 with 180 locations. It has already crossed the 200-store mark in 2024 and anticipates opening the same number of units this year as in 2023, which would nearly double its physical footprint by the end of the year.

Starting as a coffee stand in Rogers, Ark., 7 Brew now focuses its growth on small-footprint, drive-thru-only shops, similar to Dutch Bros, The Human Bean, Scooter’s, and many other competitors in the category. By limiting growth to small boxes that can neatly fit within a parking lot of a supermarket or big-box retailer and directing traffic through one or two drive-thru lanes with easy egress and ingress, coffee brands have access to potential real estate in every community in America, through which they can speedily serve customers.

Robert Byrne, senior director of consumer research for Technomic, said this new wave contrasts with what Starbucks has done for coffee since the early ’80s. Drive-thru coffee chains have staked a claim in convenience and value, as they can benefit from the drive-thru connection people make with foodservice and ensure their speed of service is never going to suffer.

In conclusion, the coffee industry is experiencing a significant growth wave due to the pandemic, digital tools, and evolving consumer behaviors. Drive-thru coffee chains are leveraging this trend to expand their presence and cater to the growing demand for convenience and value in the U.S.

The rise in specialty beverages, particularly caffeinated ones, has been a significant factor in the growth of coffee’s renaissance. In 2023, afternoon snacking grew by a full percentage point as consumers sought affordable indulgences to break up their day. Coffee chains have diversified their beverage offerings, offering energy drinks, teas, lemonades, boba, sparkling waters, smoothies, and more.

The Human Bean, a 25-year-old concept, emphasizes its 20,000 flavor combinations, including signature Originals like Cinnamon Roll, German Chocolate, and Sweet & Salty. Customers can also customize their order from roughly 70 SKUs, including syrups and sauces. Employees are trained to engage with guests to help them find a flavor that suits their needs.

While 7 Brew’s unit expansion is red-hot, the menu offers another lever for revenue growth. Miller Regan believes that there is a lot they can do with the menu in and of itself that creates a secondary opportunity. They believe they feel very good about all the other players in the industry and validate being in the space.

The quality of the coffee bean remains king for some in their menu innovation. The Human Bean sources “thoughtfully and seasonally” and participates in the Farm Friendly Direct Program, which ensures farmers are paid a premium that is invested in farm and community projects. The importance of the base quality coffee and espresso beans is critical, and everything kind of flourishes from that point.

Biggby is on a mission to source 100% of its coffee beans “farm direct.” Cofounder Bob Fish and his wife, Michelle, have personally overseen this program and travel around the world visiting coffee farms to assess the quality of their operation. Over the past five years, Biggby has transitioned 50% of its beans to farm-direct and hopes to get to 100% in the next five years. Rita Bettino, Biggby’s CMO, said that when producers have three things: care about the environment, care about their people, and are invested in their communities, then they will buy their coffee from them.

In conclusion, the rise in specialty beverages and the growing interest in coffee has contributed to the growth of coffee chains and coffee concepts.

The coffee industry is experiencing rapid growth, with fast-growing coffee concepts emphasizing culture and hospitality. Drive-thru operations often prioritize convenience over hospitable experiences, but Dutch Bros, for example, makes its “broistas” the star of its operation, training employees to engage with customers and make their days better. The company’s growth plan is based on when employees are ready to open new markets, with employees who start as broistas having an opportunity to move up to shift leader, shop lead, shop manager, regional shop manager, and finally regional operator.

The coffee category has limitless potential, as it is consumed widely, with a recent National Coffee Association survey reporting that 67% of U.S. adults had coffee in the past day, a 37% increase since 2004. The Human Bean, Scooter’s, Biggby, and other rising coffee chains have been taking advantage of this trend. Dutch Bros, for example, grew unit counts by 23.8% in 2023, reaching 831 total locations and crossing $1.4 billion in sales. Scooter’s grew its unit counts by 35.1% to 750, while The Human Bean grew by 15.2% to 167 locations, and Biggby expanded by 15.3% to 385 units.

The coffee category is also capitalizing on massive franchise interest from operators who are eager to add a specialty beverage brand to their portfolio. Dutch Bros encapsulates much of the category’s momentum, with 35% of its locations having been open less than two years. While much of its footprint is concentrated in western states, Dutch Bros is marching eastward and will enter Florida this year, with the ultimate goal of having 4,000 locations. 7 Brew is likewise racing across the states, fueled by a recent investment from Blackstone.

The connection these coffee concepts are establishing with American consumers is hard to understate. Dutch Bros recently said that about 65% of its transactions are now generated through its app-based loyalty program, while 7 Brew has said that over 90% of its sales include its loyalty program, which only requires the guest’s phone number and offers a free beverage after 10 orders. As this connection with Americans deepens and operators and investors race to capitalize on momentum, it becomes crystal clear that the coffee category will be buzzing as long as there are available parking lots and beverage drinkers in the U.S.

In summary, the coffee industry is experiencing rapid growth due to the increasing popularity of coffee and the growing need for personal interaction and customer experience. The coffee category is poised to continue to thrive as long as there are available parking lots and beverage drinkers in the U.S., with the coffee industry continuing to evolve and attract more customers.

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