The number of coffee establishments in the U.S. has increased by 16% over the last year to almost 33,000. The increased supply has started to take a toll on the coffee business. With everyone from Cumberland Farms to McDonald’s making an aggressive push into the coffee business, profitability has suffered. Dunkin Donuts recently scaled back its new store plans and Starbucks has reduced is long-term profit goals. The share prices of Dunkin and Starbucks have held up relatively well in the face of increased competition, but then again neither have had to face the rumors that Amazon is entering the coffee business—at least not yet. The WSJ has more.
Consumers’ hankering for caffeine and quality coffee has fueled a big build out of cafes in the last five years, especially in dense urban areas such as New York, San Francisco and Portland, Ore. There are now nearly 33,000 coffee shops in the U.S., including those run by big chains such as Starbucks , SBUX 0.96% up 16% from five years ago, according to market research firm Mintel.
The boom in coffee shops is starting to hurt business owners. Consumers are visiting traditional coffee shops less often when there are a plethora of cheaper options. Everyone from McDonald’s Corp. MCD 0.84% to gas stations is hawking specialty coffee. Even grocery stores are expanding the space devoted to bottled and canned coffee drinks, which Mintel says poses a threat to coffee shops. Traffic growth to large coffee chains such as Starbucks is slowing, while traffic to small coffee chains and independent shops is declining, according to NPD Group Inc.
Read more here.
Jeremy Jones, CFA
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