April 2015 72221b - Coffee and Snack Shops in the US

72221b - Coffee and Snack Shops in the US iExpert

Market Share

Starbucks Corporation 35.0% Dunkin' Brands Inc. 19.8%

Key External Drivers Consumer spending Healthy eating index Consumer Confidence Index Per capita coffee consumption

Life Cycle Stage Revenue Volatility Capital Intensity Industry Assistance Concentration Level

Mature Low Medium None Medium

Regulation Level Technology Change Barriers to Entry Industry Globalization Competition Level

Medium Medium Low Low High

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72221b - Coffee and Snack Shops in the US

This chart shows the size of the markets that buy the industry’s products or use its services.

April 2015 – IBISWorld iExpert

It is based on the proportion of revenue each buying segment contributes to total industry revenue.

This chart represents the latest cost structure of the industry. It shows the proportion of revenue each cost item absorbs, with the remainder representing profit. The comparison to all other industries in the sector provides a benchmark that shows how the industry differs from its peers.

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72221b - Coffee and Snack Shops in the US

April 2015 – IBISWorld iExpert

Over the past five years, the Coffee and Snack Shops industry has been buoyed by increased consumer spending, driven by higher disposable incomes and greater confidence in the economic outlook. Demand for coffee and snack shops has increased at a faster rate than most segments of the food-service sector, as consumers increasingly seek convenience at an affordable price. The industry has been given a boost by rebounds in consumer spending and the Consumer Confidence Index over the five years to 2015, which have increased at annualized rates of 2.4% and 11.6%, respectively. In the five years to 2015, industry revenue is expected to increase an annualized 3.0% to $41.2 billion, including a 3.7% increase in 2015. The industry has had to adapt to changing consumer preferences over the past five years, especially those relating to health and diet. Consumers have become increasingly health conscious and are avoiding foods that are high in fat and salt content. Some operators have responded to this trend by expanding the number of healthy options on their menus. Many operators selling unhealthy food have lost

business to operators that promote more nutritious, wholesome options. Major operators such as Starbucks and Dunkin' Donuts are expected to expand their menus in the five years to 2020 to increase sales and profit margins. This includes expanding their offerings of nontraditional, high-margin menu items such as iced coffee drinks, breakfast items and wraps. Both Starbucks and Dunkin' Donuts plan on rolling out hundreds of new stores over the next five years, making up ground they lost during the recession. Dunkin' Donuts, which is highly concentrated in the east, is aiming to expand westward to steal market share from local competitors. The major chains are also expected to further invest in international growth as part of their longterm strategy, because many larger players view emerging economies as markets with huge potential for growth and long-term profitability. This international move is being made as the domestic industry approaches maturity. In the five years to 2020, revenue is forecast to grow at an annualized rate of 2.6%, to reach $47.0 billion.

THREAT

OPPORTUNITY

Consumers are more aware of issues related to weight and obesity, fatty-food intake and food-safety issues, which is particularly applicable to the occasionally unhealthy snack food industry. Despite long-term, aggregate declines in healthy eating, consumers are more aware of health issues associated with fatty foods and are increasingly going out of their way to avoid them. The healthy eating index is expected to increase slowly in 2015 as consumers' diets progressively improve and become a potential threat to the industry.

Factors that influence consumer spending also affect the industry. During the recession, the spike in unemployment led to consumption declines. When consumer spending is high, however, consumers are more likely to spend money at snack and coffee shops. Consumer spending is expected to increase in 2015, providing a potential opportunity for the industry.

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April 2015 – IBISWorld iExpert

72221b - Coffee and Snack Shops in the US

ISSUE Despite long-term, aggregate declines in healthy eating, consumers are more aware of health issues associated with fatty foods and are increasingly going out of their way to avoid them. The healthy eating index is expected to increase slowly in 2015 as consumers' diets progressively improve and become a potential threat to the industry.

ISSUE Coffee shops make up a large portion of industry revenue and establishments, and most other industry establishments also serve coffee. When coffee consumption increases, coffee shops and other snack shops experience revenue growth. Per capita coffee consumption is expected to increase in 2015.

QUESTIONS How has rising health consciousness influenced demand for your shops? Are you introducing healthier products into your mix? Are the majority of your products considered to be healthful?

QUESTIONS How do you monitor trends in coffee consumption? Do you try to offset low coffee consumption by offering a variety of snacks? Do you market your company as only a coffee shop? How might you change this during periods of low coffee consumption?

ISSUE Franchising in the United States and abroad is now a significant component of this industry and can assist by providing necessary support to owners.

ISSUE Having a clear market positioning against competitors in the limitedservice industry and other foodservice operators is a necessity.

ISSUE Firms need to monitor market and consumer needs, wants and desires, particularly in relation to demand for more healthful foods.

QUESTIONS Do you vary your prices depending on location? Do you monitor the prices of your competition? Is your pricing competitive?

QUESTIONS Do you undertake market research? What are the key factors for attracting customers? What steps have you taken to encourage wordof-mouth recommendations?

QUESTIONS What are the benefits of franchising your operations? How can increased spending on marketing improve your business? Do you service national clients? If not, do you have plans to enlarge your market share?

ISSUE During the recession, the spike in unemployment led to consumption declines. When consumer spending is high, however, consumers are more likely to spend money at snack and coffee shops. Consumer spending is expected to increase in 2015, providing a potential opportunity for the industry. QUESTIONS Do you monitor changes in consumer spending? When spending is low, do you lower your prices in order to retain customers? Are you prepared for an increase in consumer spending?

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April 2015 – IBISWorld iExpert

72221b - Coffee and Snack Shops in the US

Industry: Coffee and Snack Shops Sector: Accommodation and Food Services

Overall risk in the Coffee and Snack Shops industry is forecast to be LOW over 2015. The primary positive factors affecting this industry are low revenue volatility and per capita coffee consumption. Overall risk will be slightly lower than the previous year, a result of favorable movements in per capita coffee consumption as well as consumer spending. Additionally, growth risk is projected to fall.

Structural risk will be MEDIUM over the outlook period. The biggest source of difficulty within the industry is the high level of competition. Businesses competing fiercely for market share are forced to incur expenses to differentiate their offerings, keep prices low to entice demand or both. The result is a greater likelihood of declining revenue and lower profits. However, existing

Structure component

Risk component

Weight

Score

Structural risk

25%

5.16

Growth risk

25%

4.53

Sensitivity risk

50%

3.01

Overall risk

3.93

firms will benefit from increasing barriers to entry, which protect against higher competition in the long run by reducing the ability of new players to enter the marketplace. Another positive for operators is the low revenue volatility. This suggests steady demand, easing the burden of cash flow management even during broader economic downturns.

Level

Trend

Weight

Score

Barriers to Entry

Low

Increasing

13%

8.00

Competition

High

20%

9.00

Exports

Low

Steady

7%

1.00

Imports

Low

Steady

7%

2.00

Assistance

None

Steady

13%

7.00

Mature

20%

5.00

Low

20%

1.00

Life Cycle Stage Revenue Volatility Structural risk

5.16

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72221b - Coffee and Snack Shops in the US

April 2015 – IBISWorld iExpert

Growth risk is expected to be Growth component MEDIUM-LOW over the outlook 2012-14 Annualized growth period. IBISWorld forecasts that 2014-15 Forecast growth annual industry revenue will grow 2.9% Growth risk to $31.1 billion. In comparison, revenue expanded 2.1% per year between 2012 and 2014.

IBISWorld has identified and weighted the most significant external factors affecting industry performance. Sensitivity Component

Revenue

Weight

Score

2.1%

25%

4.87

2.9%

75%

4.42 4.53

These factors are scored separately, then weighted and combined to derive the sensitivity risk score. Weight

Score

Consumer spending

35%

2.14

Healthy eating index

25%

6.29

Consumer Confidence Index

20%

1.85

Per capita coffee consumption

20%

1.56

Sensitivity risk

In 2015, the average risk score for all US industries is expected to be in the MEDIUMLOW band. Furthermore, the risk score for the Accommodation and Food Services sector, which includes this industry, is at a

3.01

LOW level. Therefore, the level of risk in the Coffee and Snack Shops industry will be lower than that of the US economy and similar to the Accommodation and Food Services sector.

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