The Good News About Recessions
Everyone is hemming and hawing about the impending recession. “Squirrel your nuts away,” some say in warning about the coming economic winter. “…don’t splurge,” said Jeff Bezos in one interview. People are taking heed individually, and businesses seem to proceed with the same caution despite continued growth. There have been whispers of hiring freezes and curbing expansions from the executive levels. One promising item I recall is that coffee thrives in times of recession.
Photo by Tyler Nix
In the last large-scale recession in 2007, tons of people were suddenly unemployed, large box stores were reducing hours, and offices started instituting “summer Fridays” and backing a four-day work week. Businesses and individuals cut costs everywhere they could, except coffee. Working in coffee in New York City, I saw it first-hand. People who had lost their jobs and didn’t know where they were going to land would grip even tighter to their daily ritual of visiting a coffee shop. It was the anchor that kept them in touch with their identity; it comforted them with an affordable, pleasurable sensory experience. Coffee shops became the place to comb the want-ads, commiserate, and strategize with others in the same predicament.
The most exciting aspect of the resilience of coffee during the Great Recession was that it was premium, Specialty coffee that experienced the most significant growth. Less premium, lower-quality coffees could have done better. It was not until after the recession that sales of Specialty coffee went from under 40% to over 60%, according to the NCA (National Coffee Association). A similar occurrence took place during the pandemic. People consumed much more coffee at home out of necessity, and when they did, they specifically wanted a higher quality experience. It seems counter-intuitive; however, it makes sense. When people are deprived of many things in their lives, they put even greater value on the things they can achieve. This is also one of the reasons I got into coffee in the first place; anyone can afford one of the best coffees in the world. Not just a good coffee but award winning coffees are only a couple of dollars more than the worst. Why wouldn’t you make the stretch when you’re stuck at home all day anyway?
This behavior has proven to be true of the coffee industry so far as we come out of the other end of a pandemic and continue in financial uncertainty brought on by the continued effects of COVID and an ongoing war in Ukraine. As a result, more people are going to coffee shops, more prominent brands continue to expand locations and markets, and more and more newcomers are entering the coffee industry and refueling the owner-operator, individual coffee shop landscape. According to Allegra Strategies, US coffee houses achieved a "robust $4.5bn sales rebound in 2022, representing 10% sales growth from the previous year." Allegra is also forecasting that branded coffee shop sales will increase from $45.8bn to $55.9bn by 2027 with an increase of 3,489 more retail outlets.
Now is an incredible opportunity for entrepreneurs to join the coffee industry and build coffee shops. There have never been more premium real estate opportunities available combined with favorable consumption.
As we dig into the New Year, I am feeling optimistic the retail food and beverage brick-and-mortar segment will continue to grow and thrive. GPG, online sales will continue to be strong however, I see a rally on the way for out-of-home consumption and continued growth in RTD.