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Coffee: Can 2023's Winners Sustain Their Momentum?

RJ Hottovy
Dec 16, 2023
Coffee: Can 2023's Winners Sustain Their Momentum?

With 2023 almost in the books, we thought we’d take a step back and revisit the restaurant category. Many of the themes we’ve been discussing across the retail sector this year applied to restaurants, where value was important (a theme we saw across food retail in general) but menu and marketing innovation (including McDonald’s successful run of promotions playing on consumer nostalgia) and experiential concepts (including eatertainment) outperformed their peers. 

At a category level, 2023 belonged to the coffee category. Ranked by year-over-year visitation trends, the coffee category led the broader restaurant industry for much of the year (below). This was driven by a number of factors, including year-over-year increases in return-to-office trends across most markets in the U.S. (as we discussed last week), the continued push into suburban markets by Starbucks and others (and continued momentum of the late morning and afternoon dayparts for coffee consumers), and new unit openings for fast-growing coffee chains like Dutch Bros, 7 Brew Coffee,  and Philz Coffee (as well as several under-the-radar chains that Placer’s blog team recently analyzed). 

Value remains top-of-mind for coffee consumers as well, as we’ve seen with Starbucks' recent promotional strategies. On the heels of Black Friday, Starbucks offered Yay Day on Thursday, Nov 30th, giving 50% off one drink to Starbucks Rewards members.  Making the holidays even merrier, the company then proceeded to extend the promotion to all Thursdays in December, getting everyone to cheer “ThursYay.”  From the looks of it, this promotion is proving popular.  Within the past 10 weeks, YayDay and the first ThursYay of Dec are #1 and #3, respectively, in visits during comparable time periods.

What can we expect from the coffee category in 2024? While the category will face difficult comparisons, we expect visitation trends to remain strong on a relative basis due to the continued return-to-work, innovation, promotional strategies, and unit expansion plans. Migration should also play a role, as many of the markets in the South and Southeast U.S. being targeted by growth chains are underpenetrated when looking at coffee visits as a percentage of dining visits (something we've also seen in McDonald's upcoming U.S. expansion plans).

Specialization and innovation could also play a role in the success of the coffee category in 2023. We’ve been receiving a lot of questions on McDonald’s new CosMc concept this week, and as others have speculated, we believe this brand will allow the company to better focus on beverage innovation and not just an extension of the McDonald's brand (which may have been the case when the company opened standalone locations under the McCafe banner). 

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RJ Hottovy

Head of Analytical Research, Placer.ai

R.J. Hottovy, CFA has covered the restaurant, retail, and e-commerce sectors for 20 years as an equity analyst and strategist for Morningstar, William Blair & Co., and Deutsche Bank. R.J. also brings a wealth of experience with early-stage investments as a committee member for the IrishAngels / Vitalize venture capital group. Over the past three years, he advised over 50 food service companies on more than $200 million in early-stage capital raises and M&A transactions.

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