What's Hot: Specialty Coffee

Piping hot or ice blended, the specialty coffee market has opportunities spilling out of its golden cup.

By April Y. Pennington • May 5, 2006 Originally published Jun 6, 2005

Opinions expressed by Entrepreneur contributors are their own.

Did you grab a cup of java this morning to enjoy while checkingyour e-mail? Like technology, specialty coffee is continuing in itsskyrocketing appeal and availability. According to the NationalCoffee Association USA (NCAUSA), 49 percent of Americans age 18 orolder drink some type of coffee beverage daily, and many of themare waiting in lines at specialty coffee retailers to get theirfix. The cafe segment of the specialty coffee market--includingcafes, kiosks, carts and coffee bean roaster/retailers--reached$8.47 billion in 2003 and continues to grow. And it's becomeclear that, even in a world where Starbucks has been crowned theunofficial figurehead of specialty coffee, franchises are reachingfor a piece of the bean.

The coffeehouse scene exploded about a decade ago, and becamethe destination de rigueur for social interaction. Marty and LouiseCox enjoyed hanging out at their local Long Beach, California,coffeehouse enough that they shucked their corporate jobs in 1995and opened their own java spot, It's a Grind. Starbucks'popularity was growing at the time, but the husband and wifeweren't concerned. "There's plenty of room," saidMarty, who added their neighborhood welcomed the alternative. Martysays they try to be the neighborhood favorite, are active in thecommunity and pride themselves in remembering customers'favorite drinks and life events, such as children's births.

Franchising since 2001, It's a Grind has grown to 50locations and spread beyond its West Coast roots eastward to NewJersey. Starbucks has also grown tremendously during that sameperiod, but the Coxes don't plan on slowing down their plans toexpand to 250 stores by 2007. "It's not realistic tocompete with Starbucks--we just really want to focus on being agreat coffeehouse," Marty says. "The consumer base hasgrown to appreciate good quality coffee. It's like finewine--when you've had it, you don't go back to drinkingcheap wine."

In terms of the growth rate of coffeehouses, the specialtycoffee market will never return to the heyday of the '90s,where the number doubled every two years, "but it's stillgoing at a good clip," says Mike Ferguson, chiefcommunications officer for the Specialty Coffee Association ofAmerica (SCAA). And while it seems larger coffeehouse chains (thosewith more than 10 units) can now be spotted on every corner,Ferguson says they only represent 40 percent of the market share,while independent operators (one to three units) maintain about 57percent. The remaining 3 percent consists of microchains (four tonine units). While Ferguson can't say there's been a hugeexplosion in coffeehouse franchising, the sheer size of theindustry has allowed for more opportunities to those simply wantingto make a lifestyle business change, or savvy businesspeople whocan't resist the profitable possibilities.

Specialty coffee has been around for almost 30 years now, andeven before becoming trendy, JoAnne Shaw saw its potential. She andher husband co-founded The Coffee Beanery in 1976 and beganfranchising in 1985, witnessing specialty coffee's rise toglory and the inevitable scramble by larger forces to be part ofthe phenomenon. "Before that, it had basically been grown bysmall chains, mom-and-pop units open across the world," saysShaw. And many of those smaller chains have now grown intorespectable franchises. "The chains have grown and matured andare able to support their franchises much more significantly thanthey could when they were young and in a more immature state."With an expanding customer base that has baby boomers continuingtheir coffee drinking into their senior years and students startingtheir caffeine fixes as young as junior high, Shaw finds immenseopportunity. "It's a great time and great place to be incoffee franchising," she says.

If you think there's no room left for you to be a part ofthe specialty coffee market, think again. "We expect it tocontinue to grow," says Ferguson. "Saturation must existtheoretically; we just don't know what it looks like."

Shaw concurs, pointing out the multitudes of burger locationsacross the country that have done fine despite so much competition."People tend to drink coffee every day, whereas they eathamburgers maybe once a week," she observes. She views popularice coffee beverages as a continuing trend, and she's seen manychains testing or adding items such as sandwiches, salads andsoups. Ferguson also believes specialty coffee consumption willmove toward the homes, where high quality whole beans will becomean important aspect, prompting retailers to begin roasting theirown coffee onsite. "This is the way for retailers todifferentiate themselves from the competition, to have a widervariety of freshly roasted coffee," says Ferguson, whoestimates between 1,800 and 2,000 roaster retailers already exist,but will soon grow in numbers. With specialty coffee'scontinuing growth and diversity, neighborhoods will soon literallybe able to wake up and smell the coffee.

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