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 31, 2005

Opinions expressed by Entrepreneur contributors are their own.

Did you grab a cup of java this morning to enjoy while checking your e-mail? Like technology, specialty coffee is continuing in its skyrocketing appeal and availability. According to the National Coffee Association USA (NCAUSA), 49 percent of Americans age 18 or older drink some type of coffee beverage daily, and many of them are waiting in lines at specialty coffee retailers to get their fix. The cafe segment of the specialty coffee market--including cafes, kiosks, carts and coffee bean roaster/retailers--reached $8.47 billion in 2003 and continues to grow. And it's become clear that, even in a world where Starbucks has been crowned the unofficial figurehead of specialty coffee, franchises are reaching for a piece of the bean.

The coffeehouse scene exploded about a decade ago, and became the destination de rigueur for social interaction. Marty and Louise Cox enjoyed hanging out at their local Long Beach, California, coffeehouse enough that they shucked their corporate jobs in 1995 and opened their own java spot, It's a Grind. Starbucks' popularity was growing at the time, but the husband and wife weren't concerned. "There's plenty of room," said Marty, who added their neighborhood welcomed the alternative. Marty says they try to be the neighborhood favorite, are active in the community 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 50 locations and spread beyond its West Coast roots eastward to New Jersey. Starbucks has also grown tremendously during that same period, but the Coxes don't plan on slowing down their plans to expand to 250 stores by 2007. "It's not realistic to compete with Starbucks--we just really want to focus on being a great coffeehouse," Marty says. "The consumer base has grown to appreciate good quality coffee. It's like fine wine--when you've had it, you don't go back to drinking cheap wine."

In terms of the growth rate of coffeehouses, the specialty coffee market will never return to the heyday of the '90s, where the number doubled every two years, "but it's still going at a good clip," says Mike Ferguson, chief communications officer for the Specialty Coffee Association of America (SCAA). And while it seems larger coffeehouse chains (those with 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 57 percent. The remaining 3 percent consists of microchains (four to nine units). While Ferguson can't say there's been a huge explosion in coffeehouse franchising, the sheer size of the industry has allowed for more opportunities to those simply wanting to make a lifestyle business change, or savvy businesspeople who can't resist the profitable possibilities.

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

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

Shaw concurs, pointing out the multitudes of burger locations across the country that have done fine despite so much competition. "People tend to drink coffee every day, whereas they eat hamburgers maybe once a week," she observes. She views popular ice coffee beverages as a continuing trend, and she's seen many chains testing or adding items such as sandwiches, salads and soups. Ferguson also believes specialty coffee consumption will move toward the homes, where high quality whole beans will become an important aspect, prompting retailers to begin roasting their own coffee onsite. "This is the way for retailers to differentiate themselves from the competition, to have a wider variety of freshly roasted coffee," says Ferguson, who estimates between 1,800 and 2,000 roaster retailers already exist, but will soon grow in numbers. With specialty coffee's continuing growth and diversity, neighborhoods will soon literally be able to wake up and smell the coffee.

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