3 insights for the international coffee shop market

Editor’s note: Elizabeth Friend is consumer food services strategy analyst at market research firm Euromonitor International, Santa Monica, Calif. This is an edited version of a post that originally appeared here under the title, “Coffee shops around the world: three key insights for 2016.”

2015 and early 2016 have been dynamic times for global specialist coffee shops, with consistently growing demand for modern café experiences driving rapid innovation and growing competition in the category all over the world. With the launch of Euromonitor’s 2016 edition of consumer food service data from 54 global markets, here are three key insights for operators looking to stay ahead of the international coffee shop market.

Coffee shops are the fastest growing restaurant category

In 2016, specialist coffee shops were the fastest growing major restaurant category in terms of global sales, increasing 9.1 percent from 2014-2015 according to Euromonitor International data. This bests the international restaurant industry as a whole, which grew at 5.7 percent, and was stronger even than global fast food, at 5.8 percent, despite historically being one of the primary drivers of chained restaurant growth worldwide.

Perhaps even more notable is the fact that this growth was consistent across all world regions, including those that are considered emerging market regions as well as those that are highly mature. Western Europe for example, despite seeing just 1.5 percent sales growth in the industry as a whole, and negative growth in some similar categories like traditional cafés, recorded 10.8 percent in specialist coffee shops driven by growing interest in chained café concepts and increasing acceptance of modern, international coffee-drinking culture as a whole.

Largest growth opportunities in Asia

While all regions will see strong growth in the category, Asia Pacific will be home to the largest sales increase in specialist coffee shops, totaling over $3.7 billion U.S. dollars in new value growth from 2016-2020. This is as compared to North America, at $3.3 billion (U.S.) in growth, as well as another $1.7 billion (U.S.) from Western Europe over the same period.

As much as $2.2 billion (U.S.) of this growth will come from China alone, where Starbucks is leading the charge for a rapidly growing, Western-style tradition of drinking premium takeaway coffee and socializing in coffee shops. Many smaller Asian markets will see impressive growth in the category as well. South Korea will contribute another $715 million (U.S.) in new specialist coffee shops growth from 2015-2020, driven in large part by local chains rather than international brands alone.

Competition is growing quickly, leading to rapid diversification

The move toward a highly diversified playing field is a global phenomenon. Though Starbucks and McCafe are some of the only chains to have achieved a truly broad presence in terms of geographic coverage, a number of international brands are now taking steps toward becoming viable multi-regional competitors. The U.K.-based Costa Coffee has made significant progress toward a presence in Eastern Europe, Asia Pacific and the Middle East, while Japanese chain Doutor Coffee has begun expanding across other Asian markets like South Korea and Taiwan. South Korean chain Caffe Bene has cast its net even wider, expanding into China and the U.S., capitalizing on its ties to Korean pop-culture entertainment and targeting markets where interest in Korean entertainment is growing.

Competitive dynamics in the coffee shop market are changing at the local level as well. In emerging markets, this has meant an increasingly large number of brands competing for share, many of which are going to creative new heights to differentiate themselves. In South Korea this has manifested in the form of a vast array of themed cafes, from mango desserts to cookie decorating or cats, whereas in Western Europe many coffee shops have been experimenting with adding alcohol offerings to bring in evening traffic. Likewise, more traditional bars/pubs have even been experimenting with adding coffee offerings and breakfast or lunch menus, resulting in a blurring of the definition lines between beverage-based concepts and even greater competition for coffee and tea occasions.

In developed markets competition has been increasing too, though in a slightly different form. In the U.S., competition has become a regional and even city-level game, with large numbers of independent, third-wave cafés and boutique chains like Blue Bottle Coffee and Intelligentsia popping up to compete with larger brands. Over the long-term, this kind of movement toward a highly diversified, highly fragmented and most of all highly competitive global coffee shop market is only expected to continue. Operators all over the world have all taken note of the rapidly growing demand in coffee shops, and everyone is looking to get in on the opportunity before it’s too late.