Coffee is a discretionary purchase, but one that has a place in the household budget even if real household discretionary income declines in 2023 as expected.
That’s according to IBISWorld report author Tim Calabria.
“Coffee is considered an affordable indulgence for most consumers, which insulates players from changes in discretionary incomes and consumer sentiment to some extent,” he writes in his report.
He points out however, that these factors tend to affect demand for other product segments, such as food (e.g. cakes and pastries) and other beverages (e.g. tea and juice). Consumers can easily make these products at home and that allows consumers to limit non-essential expenses.
Premium priced alternative milks boost profit margins, and require different frothing temperatures. Cold drip coffee and nitro cold brew are also increasingly popular.
Tim points out that food and other beverages tend to attract higher prices. A slowed-down demand for these items has constrained the industry’s income, he says.
“Nevertheless, industry revenue is expected to rise by 3.4 per cent in 2022-23, after many coffee shops have reopened for dine-in services.”
What do we consume?
- Hot coffee 65.5%
- Hot beverages 12.5%
- Cold drinks 10.8%
- Food 11.2%
Social concerns and sustainability issues will also influence purchases.
Read more about the coffee and cafe market – download the Summer edition of Inside Franchise Business magazine.