The coffee space outperformed the wider dining sector for much of 2021, but the Omicron surge halted the category’s foot traffic growth, and the recent economic challenges appear to be holding the category back. We dove into visits to Starbucks, Dunkin’, and Dutch Bros., as well as foot traffic to the wider coffee space, to understand how inflation and high gas prices are impacting the coffee sector’s performance.
The Big Picture
Over the past two years, the coffee category has consistently outperformed other dining categories. And while coffee’s strength relative to full-service restaurants may not come as a surprise given the dining sector’s recent difficulties – the coffee category has also consistently outperformed QSR. When comparing foot traffic to a January 2020 baseline, coffee visits outpaced QSR visits every month between July 2020 and May 2022.
In June 2022, coffee visits dropped below QSR levels for the first time all year, as a combination of inflation, high gas prices, and the rise in COVID cases kept some consumers away. But given the trends of the past two years there is every reason to believe that the June 2022 visit numbers are a reflection of the temporary challenges and not of any drop in coffee demand.
Starbucks & Dunkin’
Foot traffic trends for coffee leaders Starbucks and Dunkin’ are consistent with the visit patterns for the wider category. Year-over-year (YoY) visit numbers did not change much between March and May but took a dip in June 2022, with Starbucks and Dunkin’ seeing a YoY drop in monthly visits of 7.8% and 4.1%, respectively. Year-over-three year (Yo3Y) comparisons show that Dunkin’ maintained its June 2019 visit levels while Starbucks foot traffic fell 6.6%.
One reason why Starbucks appears to be doing better than Dunkin’ when looking at YoY numbers, but worse on a Yo3Y basis is that Dunkin’ recovered faster than Starbucks in 2021. So the Massachusetts-based coffee chain had further to fall on a YoY basis. But the Yo3Y comparison, which shows how the coffee leaders are performing relative to pre-pandemic, indicates that Dunkin’ is slightly outperforming Starbucks, which could be due to Dunkin’s slightly lower prices across the board attracting value-conscious customers.
It is also important to note that Starbucks’ Yo3Y visit gap and Starbucks’ and Dunkin’s YoY visit gaps in June 2022 are not particularly large and follow three months of both brands staying relatively close to both 2019 and 2021 levels. This could indicate that the June performance reflects consumers’ temporary adjustment to the current economic situation, and the long-term positioning of both brands remains strong.
Dutch Bros. Continues To Grow, Visits per Venue Stabilize
While Dunkin’ and Starbucks growth temporarily stalls, visits to Dutch Bros. Coffee continue to rise – in June 2022, the brand saw a 22.8% and 178.2% rise in its YoY and Yo3Y foot traffic, respectively. But the YoY visits-per-venue levels have mostly evened out, with June YoY visits per venue down 0.4%, indicating that most of the foot traffic growth is coming from Dutch Bros.’ continued expansion.
Still, the fact that the company has succeeded in opening up almost 100 locations in 2021 while maintaining steady average visits-per-venue levels is a testament to Dutch Bros.’s strength and to consumers’ interest in the brand’s products.
Dutch Bros. Trade Area Steadily Increases
Overall visits are not the only foot traffic metrics on the rise for Dutch Bros. The brand’s average trade area – how far 70% of customers are traveling to reach a Dutch Bros. location – has also steadily grown over the past four years, going from 36.9 sq. miles in Q2 2019 to 54.5 sq. miles in Q2 2022. And between Q2 2021 and Q2 2022, the brand’s trade area increased by 13.3%, even though the increase in gas prices and wane of COVID meant that consumers had fewer reasons to visit drive-thrus – and especially far from home drive-thrus – compared to 2021.
As the summer heats up, giving more consumers a reason to visit the brand’s locations for a sweet and colorful iced drink, Dutch Bros. seems well positioned to continue growing its store fleet and compete with the legacy coffee brands in this space.
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