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Talkin’ bout our generation

From the November 2018 issue.

New market research reveals what beverages are trending, which markets are on the rise, and what customers really want.

Most 18-year-olds want independence, young love, and adventure. By 38, a house, children, and an exceptional bottle of wine for the weekend might suffice, but just as wants and needs evolve with age, so too do our coffee drinking habits.

Jan Anderson, CEO of Premium Quality Consulting (PQC), has explored the change in habits over the generations. There’s the Baby Boomers from the Woodstock and the Vietnam War era; Gen X who can recall the Berlin Wall fall, end of the Cold War and HIV/aids epidemic; Millennials of the Y2K and Barack Obama era; and the unofficially named Gen Z of the #metoo and LGBTQI rights movements.

“By 2030, all Baby Boomers will be of retirement age, over half the workforce will be Millennial and Gen Z (according to US Bureau of Labor Statistics), and Gen X will be in charge. If we look down the road a little farther, the new generation, the one following Gen Z, will add 76 million young people (according to 2016 US Census estimates),” Anderson says. “While you may not be thinking much about the coffee interests of these younger generations now, you should pay attention, because if you plan to be in business in 12 years, your consumer is going to change. As an industry, we don’t want to be surprised.”

Over the past 25 years, Anderson says coffee has gone from being primarily a functional beverage to a decidedly experiential one, and the journey isn’t over.

“Coffee is a powerful cultural force. People identify strongly with their coffee and what they like changes over time. Every generation has new ideas, new interests and beliefs, and these are expressed in their fashion, literature, art, food and, of course, in their coffee. Each generation will leave its mark.”

Looking at the broad generational coffee drinking trends, Anderson says PQC’s research of North American coffee brands shows that the second wave of coffee is a product of the Baby Boomers, the third wave is primarily a product of Gen X, and the “tidal wave,” a period of rapid growth of US coffee brands beginning around 2007, is the Millennial reinterpretation of third wave coffee, even more focused, pure, transparent, sustainably-conscious coffee.

But what about the pragmatic and socially responsible Gen Z?  How will Gen Z change coffee? What will their drink of choice become? Well, that’s the question.

Latte love in Canada
What we do know for the time being, however, is that the latte is the most popular coffee in Canada, according to the Specialty Coffee Association (SCA) and point-of-sale software Square 2018 Canada Coffee Report.

“Year after year, when we look into coffee data from Square seller transactions, the latte consistently ranks number one in popularity,” Sara Vera, Data Analyst, Square says.

The beverage was found to be particularly popular in the provinces of Alberta, Saskatchewan, Quebec, and Nova Scotia.

The data is based on millions of anonymised Square transactions from thousands of coffee shops across Canada from June 2017 to June 2018.

The americano or long black was identified as the drink of choice in British Columbia, Manitoba, and Ontario, while drip coffee was the preference in the provinces of Newfoundland and Labrador.

The report also found the Australian flat white and cortado are quickly gaining popularity, with sales increasing 81 and 97 per cent respectively.

“In the past year, the cortado and flat white have taken Canadian coffee shops by storm as the fastest-growing coffee beverages,” the report says in a statement. “For international coffee drinkers, these menu items are old news. But here in the true north, we’re just catching on to these low-milk coffee concoctions.”

Cold brew is also gaining momentum, with sales outpacing iced coffee by 85 per cent throughout the summer.

Almond milk remains Canadian’s preferred dairy alternative with soy milk a close second. Both alternative milk sales have remained steady in the past year.

American cold brew dream
Over in the neighbouring United States, the 2018 US Square Coffee Report on independent shop data also found the latte to be America’s drink of choice, with more than 67 million lattes sold in the past year.

But it was the noticeable spike in cold brew sales that have drawn attention. In 2015 Americans were found to drink 19 per cent more iced coffee than cold brew. Today, cold brew orders are 42 per cent higher than iced coffee orders. By summer of 2017, cold brew orders outpaced iced coffee by 28 per cent, and the trend is set to continue.

“While the reasons for its rise are open to speculation, it’s clear that ‘cold brew coffee’ as a beverage concept continues to grow,” SCA Chief Research Officer Peter Guiliano says. “Google searches for cold brew overtook iced coffee in the summer of 2016, and in the Square research data, sales of cold brew outpaced iced coffee at the same time.”

As such, Guiliano says a number of studies connecting age demographic with preference indicate younger coffee drinkers are attracted to more “complex, handcrafted beverages”. For example, a 2016 study done by S&D coffee and Datassential show that Millennials gravitate towards ‘more sophisticated’ brewing methods.

Advance Australia’s milk-based flair
In the latte-influencing land Down Under, the beverage continues to rule customer drinking habits. The Australian born coffee house McCafé has watched the milk-based drink dominate the country’s beverage menu since the first McCafé chain opened its doors in Melbourne in 1993 before going global across all McDonald’s markets including Italy, Japan, and the United States. McCafé coffee is now included in one in 10 of all McDonald’s orders.

The country has a strong penchant for independent coffee shops but National McCafé Manager Brian Dessaix says it is this discerning market that has helped fine-tune the McCafé product offering. “Through sensory research, restaurant trials and alignment/aspirations of the specialty coffee culture in Australia, we understand our customers’ expectations and are forever striving to deliver an enhanced experience,” Dessaix says.

With the development of a new blend in 2018, Director of Marketing at McDonald Australia Jo Feeney says McCafé coffee is capturing the country’s attention and achieving a high growth rate as a result.

“McCafé is transforming the way quality is delivered in Australia on a large scale through unrivalled convenience and fantastic, consistent quality coffee,” Feeney says.

In Australia’s McCafé Silver Roast Report from 1994 to 2018, milk-based coffee drinks still dominate the Aussie market, with the latte soaring in popularity nationally, increasing by 21 per cent. The milk-based beverage accounts for 38 per cent of orders in Victoria, while the humble flat white, which peaked in popularity in 2012, makes up 32 per cent of coffees served in Western Australia compared to just one in 10 orders in Victoria.

In 2017, the cappuccino, or “cap” as Aussies call it, represented two-fifths of barista-made coffees served at McCafé.

“The cappuccino has been a longstanding favourite since McCafé opened its doors back in Melbourne 25 years ago. In 2017, the ‘cap’ accounted for nearly half of coffees we served in our restaurants and via our drive-thrus, while the latte and flat white accounted for just 27 per cent and 19 per cent, respectively,” Feeney days.

The McCafé findings also show that its iced latte offering jumped from 1 per cent of orders in 2012 to six per cent in 2017. The cold coffee beverage was most popular in the northern state of Queensland, where black coffee choices (espresso and long black) are also served more than in other states.

Rise of the chain in the Middle East
While milk-based coffee drinks are dominating global market demand, it’s the growth of specialty coffee, price consciousness, and branded chain concepts considered the most important consumer trend affecting Middle East markets at present, according to Allegra World Coffee Portal (WCP).

New research into the Middle East’s emerging branded coffee shop sector, cited in Allegra’s The Project Café Middle East 2019 report, recorded 9084 coffee chain outlets in 2018, with Starbucks, Dunkin’, and Costa the leading coffee shop brands.

The comprehensive report released in October 2018 comprises more than 200 surveys and 100 consultations with industry insiders, decision makers, and key staff on market share of the top branded chains provides insight across 12 key countries, including Iran, Saudi Arabia, the United Arab Emirates (UAE), Israel, Egypt, and Oman.

“The Middle East represents one of the world’s modern coffee culture hotspots, with high growth prospects for major chains across many markets and burgeoning opportunities on the horizon for the specialty coffee sector,” Allegra Group CEO and Founder Jeffrey Young says.

Significant outlet growth is forecast over the next five years as aspirational western café concepts become more popular and premiumisation gains momentum.

Israel was found to have a healthy but highly fragmented coffee shop market comprising more than 1000 domestic chain outlets. International brands have, however, fared less well, with major chains like Starbucks and Dunkin’ Donuts so far unsuccessful in attempts to gain a foothold in the country. Nevertheless, the report said Israeli consumers are highly receptive to new café concepts, with Allegra forecasting sustained branded coffee shop outlet growth over the next five years.

Young says industry leaders are positive about trading conditions, but operators must navigate a range of economic and political challenges across the region to ensure success.

Where branded chains are flourishing, especially in Saudi Arabia, Allegra says the UAE has experienced huge growth in both domestic and foreign-invested specialty coffee shop chains.

“There is an observable rise in the number of independent specialty coffee operators, and an increased consumer interest in the characteristics and taste profile of coffee, leading to more discerning and demanding palates,” Young says.

In particular, industry leaders reported a surge in third wave café concepts in Kuwait, with well-travelled and highly educated consumers rapidly adopting artisan coffee products, such as single origin and cold brew. Even amid the growing popularity of specialty coffee, industry leaders interviewed for the study cited convenience as the number one factor behind coffee shop success – ahead of coffee quality and service.

Dubai remains the country’s focal point for Middle Eastern café innovation. The UAE’s largest and most populous city has also capitalised on consumer appetite for premium coffee shop experiences, with a clear majority of UAE industry leaders surveyed by Allegra stating there is still plenty of growth potential in the city’s branded coffee shop market.

Saudi Arabia and Kuwait were also identified as key growth markets, while the desire to socialise was considered the most important consumer trend in Turkey.

Looking beyond
If we looked into a crystal ball in order to predict the world’s future coffee drinking trends and innovations, what would we see? What will be the drink of choice for Gen Z? And what role will technology play?
Gen Z may not remember a time before social media or smart phones. We already know that these technologies plays a role in their coffee experience, and how trends spread. What will be interesting to see, Anderson says, is how technology evolves throughout the coffee supply chain.

“Will social media allow consumers to make direct purchases from their favourite farms? Will drones deliver our espresso-based drinks as we hike Mt. Cook in New Zealand, or will teleportation finally allow us to ‘beam up’ our coffee?” Anderson asks.

“Big retailers must be ready to reassess their marketing strategies to accommodate the changing interests of young coffee drinkers. We already know that Millennials and Gen Z drink significantly more espresso-based coffee than other brewing methods, and that their ‘love’ of coffee is expressed through their demand for quality, innovation, and experience. But how will the next generation embrace coffee? Only time will tell.”

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