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Coffee and Tea on Premise - US - July 2019

Covered in this report

This report focuses on coffee drinks (ie regular hot brewed coffee, iced coffee, specialty espresso-based drinks) and tea drinks (ie regular tea, iced tea, specialty tea drinks) found at foodservice establishments. While special attention is paid to coffee houses, coffee and tea are found at nearly all foodservice segments, thus coffee and tea found at other locations (eg QSRs, donut shops, convenience stores) are also discussed.

This year’s report has somewhat greater focus on coffee trends as opposed to tea. While the retail coffee and tea markets are discussed briefly, this Report excludes any in-depth analysis on the retail coffee and tea markets. For information on retail coffee and tea please see: • Coffee – US, July 2019Tea and RTD Tea – US, September 2018

"Major coffee shop chains and third wave coffee shops have expanded consumer awareness and demand for premium roasts and specialty beverages, which are now especially popular with younger consumers. However, they face stiff competition from fast food restaurants, donut shops, c-stores and other casual restaurants that have expanded their offerings. In this competitive landscape, growth lies with effective outreach to key, highly engaged consumer groups and with ongoing innovation in flavor, format and functionality as well as in loyalty programs, delivery services and kiosks."
- Amanda Topper, Associate Director - Foodservice

This Report looks at the following areas:

  • Competitive, crowded landscape compounded by RTDs
  • Specialty drinks, premium coffee have a pricey reputation

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Table of contents

  1. Overview

    • What you need to know
      • Definition
        • Coffee wave definitions
        • Executive Summary

          • Key takeaways
            • The issues
              • Competitive, crowded landscape compounded by RTDs
                • Figure 1: Change in incidence of coffee drinks on menus, by segment, Q1 2016-Q1 2019
              • Specialty drinks, premium coffee have a pricey reputation
                • Figure 2: Foodservice segment perceptions, too expensive, May 2019
              • The opportunities
                • Younger adults, Asian, Hispanic consumers and parents are key
                  • Figure 3: AFH coffee and tea purchases in past three months, by select demographics, May 2019
                • Innovation can differentiate and add value
                  • Figure 4: Important factors for AFH coffee purchase location, May 2019
                • Consumer interests suggest they want more, for less
                  • Figure 5: AFH coffee innovation interest, by generation, May 2019
                • What you need to know
                • The Market – What You Need to Know

                  • Other drinks – including RTD coffee/tea – compete with AFH offerings
                    • Strong economy, engagement of Gen Zers and Millennials underpin growth
                      • Opportunities for more functional, BFY products
                      • Market Perspective

                        • A range of other beverages compete with AFH tea and coffee
                          • RTD coffee and tea offer opportunities and challenges
                            • Beverage blurring brings RTDs with new flavors, added functionality
                              • Kombucha and natural energy drinks infuse tea with added benefits
                              • Market Factors

                                • California nixes “cancer warning,” upping coffee’s healthy profile
                                  • Strong economy has supported spending on AFH tea/coffee
                                    • Figure 6: Consumer Sentiment Index, January 2007-June 2019
                                  • Gen Z and Millennials are central to current and future growth
                                    • Figure 7: US population, by generation, 2014-24
                                  • Younger generations are increasingly diverse
                                    • Figure 8: Population, by race and Hispanic origin, 2014-24
                                  • Cannabis legalization and Farm Bill increase awareness of CBD-infused drinks
                                  • Key Players – What You Need to Know

                                    • C-stores expand menu offerings, iced and specialty drinks boom
                                      • Major players appeal to younger generations with innovative products and targeted marketing
                                        • More functional enhanced coffees, fast delivery and kiosks may propel further growth
                                        • What’s Working?

                                          • C-stores expanding coffee menu offerings
                                              • Figure 9: Change in incidence of coffee drinks on menus, by segment, Q1 2016-Q1 2019
                                            • Lattes and specialty espresso-based drinks on the rise
                                              • Figure 10: Change in incidence of coffee drinks on menus, Q1 2016-Q1 2019
                                            • Cold-brew, blended and frozen coffees increase on menus
                                              • Figure 11: Change in incidence of coffee drinks on menus, by preparation, Q1 2016-Q1 2019
                                            • In iced coffees, c-stores show strongest increase
                                                • Figure 12: Change in incidence of iced coffee drinks on menus, by segment, Q1 2016-Q1 2019
                                              • In iced coffee, rapid expansion of specialty and espresso-based drinks
                                                • Figure 13: Change in incidence of iced coffee drinks on menus, Q1 2016-Q1 2019
                                              • AFH market dominated by Starbucks, Dunkin’
                                                • Starbucks growth strategies create positive yields in 2019
                                                  • Specialty drinks targeting younger generations
                                                    • Revamping of Starbucks Rewards
                                                      • Expanding network of Reserve Stores to compete with third wave coffee shops
                                                        • Dunkin’ sees sales grow with strategic plan implementation
                                                          • A focus on sustainability and more eco-friendly approaches
                                                          • What’s Struggling?

                                                            • Third wave coffee shops face growing competition, acquisition
                                                              • Traditional teas struggle, opportunity for growth via menu innovation
                                                                • Figure 14: Change in incidence of tea drinks on menus, by segment, Q1 2016-Q1 2019
                                                              • Traditional brewed teas in particular offer little innovation
                                                                • Figure 15: Change in incidence of top 10 tea types on menus, Q1 2016-Q1 2019
                                                            • What’s Next?

                                                              • More plant-based milks, especially oat milk and, looking forward, sesame
                                                                • More functional coffees with protein, probiotics, adaptogens or CBD
                                                                  • Drive-thrus, mobile apps and delivery offer ease, convenience
                                                                    • Figure 16: McDonald’s and Uber Eats, May 2019
                                                                  • Self-serve kiosks at c-stores and high-tech mobile coffee stations
                                                                    • Mobile apps, loyalty clubs and subscription services
                                                                      • “Fourth wave” coffee shops tout high ethical values, sustainable sourcing, multicultural flavors
                                                                      • MMI Analysis of Flavor Trends

                                                                        • Coffee, chocolate, caramel and nut coffee flavors growing fastest
                                                                          • Figure 17: Change in incidence of coffee drink flavors on menus, Q1 2016-Q1 2019
                                                                        • Sweet and tropical tea flavors are on the rise
                                                                          • Figure 18: Change in incidence of tea drinks on menus, by flavor, Q1 2016-Q1 2019
                                                                      • The Consumer – What You Need to Know

                                                                        • Gen Z and Millennials as well as parents, Hispanic and Asian consumers are key to coffee market growth
                                                                          • Starbucks, Dunkin’ and McDonald’s are most-visited locations
                                                                            • Location, price and quality are top factors driving venue selection
                                                                              • Affordable drinks, program rewards and flavor variety are wanted
                                                                              • Coffee and Tea Tracker

                                                                                  • Strongest growth in AFH consumption of cold brew and specialty drinks
                                                                                    • Figure 19: Coffee/tea drinks consumed AFH, April 2017-April 2019
                                                                                  • Younger consumers drive demand for cold, iced and specialty coffees
                                                                                    • Figure 20: Coffee/tea drinks consumed AFH, by generation, April 2019
                                                                                • AFH Coffee and Tea Purchases

                                                                                  • Regular coffee is most popular, but iced, blended and cold brew growing
                                                                                    • Figure 21: AFH coffee and tea purchases in past three months, May 2019
                                                                                  • Millennials, eager for variety, enjoy the widest repertoire of drinks
                                                                                    • Figure 22: Repertoire of AFH coffee and tea purchases in past three months, by generation, May 2019
                                                                                  • Gen Z active in the coffee market through flavored cold drinks
                                                                                    • Figure 23: AFH coffee and tea purchases in past three months, by generation, May 2019
                                                                                    • Figure 24: AFH coffee and tea purchases in past three months, by generation, May 2019
                                                                                  • Parents overindex for range of coffee and tea drinks
                                                                                    • Figure 25: AFH coffee and tea purchases in past three months, by parental status, May 2019
                                                                                  • Asian and Hispanic consumers enjoy a range of specialty drinks
                                                                                    • Figure 26: AFH coffee and tea purchases in past three months, by race/Hispanic origin, May 2019
                                                                                • AFH Coffee and Tea Purchase Location

                                                                                  • Starbucks, Dunkin’ and McDonald’s top locations for AFH coffee/tea
                                                                                    • Figure 27: AFH coffee and tea purchase location in past three months, May 2019
                                                                                  • Gen Z and Millennials visit a variety of locations for AFH coffee/tea
                                                                                    • Figure 28: AFH coffee and tea purchase location in past three months, by generation, May 2019
                                                                                  • Parents frequent a wide range and number of venues for AFH coffee/tea
                                                                                    • Figure 29: AFH coffee and tea purchase location in past three months, by parental status, May 2019
                                                                                  • Race/Hispanic origin shape venue preferences for AFH coffee/tea
                                                                                    • Figure 30: AFH coffee and tea purchase location in past three months, by race/Hispanic origin, May 2019
                                                                                • Foodservice Segment Perceptions

                                                                                  • Coffee chains prized for quality, others for convenience and value
                                                                                    • Figure 31: Correspondence Analysis – Symmetrical map – Foodservice segment perceptions, May 2019
                                                                                    • Figure 32: Foodservice segment perceptions, May 2019
                                                                                • Premium Coffee Purchase Frequency

                                                                                  • Over half purchase premium coffee a few times a month or more
                                                                                    • Figure 33: Premium coffee purchase frequency, May 2019
                                                                                  • Millennials stand out as avid premium coffee drinkers
                                                                                    • Figure 34: Premium coffee purchase frequency, by generation, May 2019
                                                                                  • Hispanic consumers eager for premium coffee
                                                                                    • Figure 35: Premium coffee purchase frequency, by Hispanic origin, May 2019
                                                                                • Premium Coffee Associations

                                                                                  • Superior taste is key association with premium coffee
                                                                                    • Figure 36: Premium coffee associations, May 2019
                                                                                  • Target Millennial and Gen X coffee lovers
                                                                                    • Figure 37: Premium coffee associations, by generation, May 2019
                                                                                  • Coffee chains widely associated with high-quality coffee
                                                                                    • Figure 38: Foodservice segment perceptions, “high-quality coffee products,” by location, May 2019
                                                                                • AFH Coffee Attitudes

                                                                                  • One third self-identify as coffee enthusiasts
                                                                                    • Figure 39: AFH coffee attitudes, May 2019
                                                                                  • Positive attitudes from Gen Z and Millennials bolsters their engagement
                                                                                    • Figure 40: AFH coffee attitudes, by generation, May 2019
                                                                                  • Four in 10 parents identify as coffee enthusiasts
                                                                                    • Figure 41: AFH coffee attitudes, by parental status, May 2019
                                                                                  • Positive attitudes reflect and support strong Hispanic engagement
                                                                                    • Figure 42: AFH coffee attitudes, by Hispanic origin, May 2019
                                                                                • Important Factors for AFH Coffee Purchase Location

                                                                                    • Figure 43: Important factors for AFH coffee purchase location, May 2019
                                                                                  • Convenient location, quality beverages and low price optimize venue appeal
                                                                                    • Figure 44: TURF Analysis – AFH coffee venue selection, May 2019
                                                                                    • Figure 45: Table – TURF Analysis – AFH coffee venue selection, May 2019
                                                                                  • Gen Z wants quality cold drinks and values quality food, customization
                                                                                    • Figure 46: Important factors for AFH coffee purchase location, by generation, May 2019
                                                                                  • Parents weigh more factors – seeking variety, quality and good food
                                                                                    • Figure 47: Important factors for AFH coffee purchase location, by parental status, May 2019
                                                                                  • Hispanic consumers value price over location, value quality and good food
                                                                                    • Figure 48: Important factors for AFH coffee purchase location, by Hispanic origin, May 2019
                                                                                • AFH Coffee Innovation Interest

                                                                                  • Affordable drinks, program rewards and flavor variety are desired
                                                                                    • Figure 49: AFH coffee innovation interest, May 2019
                                                                                  • Gen X and Millennials call for more variety and loyalty program rewards
                                                                                    • Figure 50: AFH coffee innovation interest, by generation, May 2019
                                                                                    • Figure 51: AFH coffee innovation interest, by generation, May 2019
                                                                                  • Sustainability and subscriptions among innovations sought by Asian and Hispanic consumers
                                                                                    • Figure 52: AFH coffee innovation interest, by race and Hispanic origin, May 2019
                                                                                • Appendix – Data Sources and Abbreviations

                                                                                  • Data sources
                                                                                    • Consumer survey data
                                                                                      • Mintel Menu Insights
                                                                                        • Abbreviations and terms
                                                                                          • Abbreviations
                                                                                            • Terms
                                                                                            • Appendix – The Market

                                                                                                • Figure 53: Percent of people aged 20 or older who are overweight or obese, 2001-02 to 2015-16
                                                                                                • Figure 54: Population distribution, by age and race/Hispanic origin, 2019
                                                                                            • Appendix – The Consumer

                                                                                                • Figure 55: AFH coffee/tea purchase, by generation, March 2018
                                                                                              • TURF Methodology
                                                                                                • Correspondence Analysis – Methodology

                                                                                                Coffee and Tea on Premise - US - July 2019

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