Bob Fish found out soon after he cofounded the Lansing, Mich.-based Biggby Coffee that the business depends on takeout. The image of the coffee shop customer just hanging out all day is more of a stereotype than reality.
“The whole idea of hanging out in a coffee shop is a little mythical,” he said on a recent episode of the Restaurant Business podcast “A Deeper Dive. “As a coffee shop owner and operator we love those people that hang out.
“But if we had to survive from a revenue perspective on people that nursed a 16-ounce cold brew for 2.5 hours, we would all be broke.”
But now coffee shops are beginning to reflect that reality. Drive-thrus have become remarkably popular since the outset of the pandemic, both at existing megachains like Starbucks and Dunkin’ but also in the fast rise at regional upstart chains like Dutch Bros and Biggby.
And customers have been more than receptive. In 2020, the sector struggled in part because of weak breakfast business and a lack of commuters that had hampered much of the chain’s traffic. That year, fast-food coffee concepts’ system sales averaged a 7.7% decline, according to data from Restaurant Business sister company Technomic.
But they’ve come roaring back. According to the data firm Placer.ai, traffic to coffee chains quickly recovered and surged as 2021 went on. In December, for instance, visits to coffee restaurants increased 7.5%. By comparison, traffic at all restaurants declined 1.8%. Traffic to coffee shops exceeded 7% in each of the last three months of the year.
“Coffee is back,” RJ Hottovy, head of analytical research at Placer, said on an upcoming episode of A Deeper Dive. “I think it’s strong.”
The coffee market comes back
Traffic at coffee chains surged back last year as drive-thrus as customers opted for their drinks at different times of day.
Source: Placer.ai
And exactly how customers are using coffee shops has changed. According to Placer, Starbucks’ median length of stay decreased from 34 minutes in the first quarter of 2020 to 26 minutes in the second quarter. The average length of stay for all coffee shops the company analyzed has remained well below pre-pandemic levels, reflecting an increase in demand for convenience and fewer customers sticking around. Customers are also going to get their coffee at different times of day, visiting in the late morning or in the afternoon.
Coffee chains are hardly the only ones dealing with a consumer that is ordering more takeout right now. Drive-thrus have become popular. More and different types of chains are developing drive-thrus. Companies that have long had them are experimenting with multiple lanes and artificial intelligence.
What’s more, to Bob Fish’s point, convenience has long been an important element in the business of coffee restaurants. Starbucks, which pioneered the concept of the “Third Place,” also is one of the most aggressive developers of loyalty programs and mobile order and pay, both of which help the chain get customers in and out of their shops in a hurry.
But Starbucks has only stepped up its focus on the on-the-go customer. Last year, more than 70% of the chain’s business came through drive-thru or mobile order, company executives said in October. That’s up 15% from pre-pandemic levels.
The company began shifting more of its development away from shopping malls and toward suburbs where drive-thrus are more popular. It also closed some urban restaurants and instead opened more takeout-only locations.
Rival Dunkin’, meanwhile, managed to withstand the pandemic more easily in part because of the success of its drive-thrus. That has likewise helped the chain gain some momentum in western states, where the brand has focused much of its development attention in recent years. According to Placer, visits to Dunkin locations rose nearly 29% on a two-year basis in the fourth quarter.
Yet maybe the biggest indication of the shift in the coffee market comes in the rapidly growing popularity of drive-thru only locations. Existing chains like Caribou began developing the idea before the pandemic and have been focusing more on building those types of locations since. Caribou has 17 of its drive-thru-only “Cabin” prototype.
“They want their ‘bou on the go,” Caribou CEO John Butcher said last year of the chain’s customers. “They want to be in and out with a smile. The cabin was designed specifically to fit those needs.”
Dutch Bros, based in Grants Pass, Ore., has soared in recent years and kept growing during the pandemic. It is already the nation’s third-largest coffee chain—though it remains far behind leaders Dunkin’ and Starbucks. Same-store sales rose 8.4% for the full year in 2021 and 10.3% on a two-year basis. It is now pushing eastward, into markets like Texas and Southern California. It is also moving into Tennessee, with plans to open in Nashville.
“The amount of geography we’ve opened in just the past three years is pretty mind-blowing,” CEO Joth Ricci said. He noted that for much of its history the brand was concentrated in 27 states. But it has since expanded to Texas, Oklahoma, Utah and New Mexico.
As for Biggby, it has major growth plans of its own. The franchise concept has been growing with more drive-thru locations. The 281-unit chain has more than 150 locations under development and expects to open another 80 this year. Same-store sales rose 20% last year, Fish said.
The company, apparently, is doing just fine getting those takeout customers. “It’s the in-out traffic that is sort of making the cheese,” Fish said. “Whether that’s with drive-thru or pedestrian traffic, that’s what we need to hit on to make the right numbers.”