As with many other segments, pandemic business conditions have created unique challenges for coffee- and tea-focused establishments. As Bret Yonke, senior manager, Research & Insights, Chicago-based Technomic, notes, “During the pandemic, regular hot coffee and hot tea were among the beverages that consumers were most likely to say they were purchasing less often from foodservice and drinking more often at home.”
According to the Toronto-based Coffee Association of Canada data, the number of adult coffee drinkers who were drinking coffee prepared at home increased by almost 10 per cent from 2019 to October 2020. As a result, while overall consumption remained stable, purchases from foodservice declined.
This environment has led many players in the Canadian coffee and tea segment to change the way they reach and engage their customers.
In 2020, Montreal-based DAVIDsTEA Inc. filed for bankruptcy protection and began shifting the business from a brick-and-mortar model to a digital-focused one.
“Over the past year, we have focused our efforts to find new ways to engage with tea lovers and to replicate our in-store tea discovery experience across multiple digital platforms,” Sarah Segal, Chief Executive Officer and Chief Brand Officer shared during the company’s Q1 2021 report. “We have now laid the foundation to scale and expand our business in a borderless environment both in North America and around the world, and we are excited about the future.”
Over the past year, Starbucks has continued to act on its Americas Trade Area Transformation strategy, which includes strategic store closures and an increased focus on convenience formats and services such as drive-thru, Starbucks Pickup locations, Starbucks Delivers and curbside pickup. “In just nine months, we have already completed 70 per cent of the strategic store closures, clearing the way for the development of new, innovative and more efficient retail-store formats over time,” Starbucks president and CEO Kevin Johnson said in April. “It’s no secret that consumer behaviours were disrupted as a result of the pandemic. We recognized [these] shifts early and our understanding of those behaviours will guide our strategy well beyond the pandemic, as we believe many of [them] are here to stay.”
Digital engagement has also been a key focus for the brand and a key driver of recovery. In fact, during the company’s Q2 2021 earning call, Johnson identified expanding digital customer engagement as the most significant factor in driving traffic growth for the quarter.
In May, the brand also announced a significant expansion of its Mobile Order Curbside Pickup and Starbucks Delivers services in Canada, which included availability at 77 and 52 additional locations respectively.
Overall, digital strategies have proved paramount for recovery of the segment’s biggest players. Earlier this year, José Cil, Chief Executive Officer of Restaurant Brands International Inc., pointed to the company’s investment in “digital initiatives, such as loyalty programs and our branded apps,” as the driver of more than 30 per cent of Tim Hortons’ sales in Canada during Q1 2021. This, he added, represents “almost twice the levels for the same period last year and the largest quarter yet for digital sales for any of our brands in Canada and the U.S.”
On the menu
With consumers sticking close to home through the pandemic, many sought online inspiration for ways to shake us their daily routine. Showcasing content highlighting how to make elevated and unique coffee creations at home became commonplace. In this environment, Dalgona coffee — a whipped coffee originating in Korea — went viral. And, since this trend emerged in 2020, many Dalgona variation recipes — including Dalgona coffee cocktails — have emerged.
Looking ahead, experts at Technomic see additional global inspiration making its way into the coffee market. In the U.S., Lizzy Freier, senior Research manager, Menu, Technomic notes, “Spanish, Turkish and Vietnamese coffees are on the horizon.”
For Canada, Katie Belflower, associate editor, Technomic, points specifically to Vietnamese- and Thai-inspired coffees as emerging styles. As examples, she notes Edmonton-based Bangkok Kitchen’s Blended Thai Style Coffee ($5.50) and the iced Vietnamese Coffee offered at Montreal’s Sandwicherie Sue ($5.50).
This phenomenon has only served to continue shifts within the Canadian coffee market — many of which are driven by the younger demographic. According to Allegra World Coffee Portal Ltd.’s Project Café Canada 2021 study, younger consumers (those under 35) are driving the popularization of espresso-based beverages. The study found that 59 per cent of this cohort believes barista-prepared beverages “add value to their purchase.”
The same study also highlighted younger consumers as key drivers for the growth of plant-based alternative milks. And, Belflower suggest, sweeteners may be the next ingredient to get the alternative treatment. She notes operators are “utilizing sweeteners such as honey, coconut sugar or agave in coffees for a less-processed option. Honey may be a bit more mainstream, as Starbucks Canada has a Honey Oat Latte, but Gypsy Trunk in Langley, B.C. is an independent offering coconut sugar and agave in coffee.”
Iced drinks have not lost momentum. In fact, A&W Food Services of Canada Inc. has dedicated a significant portion of its new A&W Brew Bar beverage menu to iced drinks, including cold brew, blended Frozen Cold Brew drinks and the A&W Root Beer Mocha Shake. “When we were building our menu…we looked at our guests and heard that they were asking for that mix of the frozen blended and hot and cold espresso,” shares Julia Cutt, director, Brand Communications & Digital Marketing, A&W Food Services of Canada Inc.
“When we look at the market, we keep seeing — especially from the younger demographic — desire for choice and having lots of different options. That’s part of the reason we’re starting off with quite a large menu,” Cutt adds. And desire for variety and choice will likely fuel continued innovation in the iced-coffee category to satisfy consumer demand for variety and choice.
For example, Starbucks has seen continued success with its iced-coffee offerings, with the introduction of new alternative milks only serving to strengthen the category. “Cold beverages delivered resounding year-over-year growth in Q2, led by cold espresso, Starbucks refreshers and cold brew,” Johnson shared in April. “We have seen an overwhelmingly positive response to oat milk, with the iced brown-sugar oat-milk shaken espresso far exceeding expectations to date. This has helped us push year-over-year growth of 53 per cent in non-dairy beverage sales — a testament to the relevance of our sustainability agenda.”
While many have gravitated to indulgent offerings through the pandemic, interest in ‘wellness’ beverages hasn’t taken a back seat entirely. In fact, one of the trends identified in McCormick’s Flavor Forecast 21st Edition was the re-emergence of mindful consumption and intentional ingredients.
Teas and herbals also play into this trend, with brightly coloured ‘wellness lattes’ featuring functional ingredients such as turmeric and spirulina maintaining a visible presence online.
However, functional and wellness beverages remain a fairly niche category within cafés and foodservice, with independents and small brands such as Toronto’s Strange Love and nutbar taking the lead.
Functional beverages have perhaps seen the most significant growth on the home-consumption front. Canadian brands Xoma Superfoods product line and The Good Shroom Co Inc. have both expanded the e-commerce distribution of their ‘mushroom-coffee’ products in the past year. And, Canadian “superfood blend” maker Blume offers a wide range of latte mixes and has been picked up by national retailers, including Indigo and Well.ca.
Looking to tea applications, tea blends formulated for cold brewing have also become popular, with brands such as DAVIDsTEA and Teapigs releasing blends as well as pitchers and bottles to brew in. The cold-brew process is a quicker to make than traditional iced tea and results in different flavour profiles than brewing with hot water. The Teapigs blog also touts cold-brew tea as a great way to encourage greater water intake by adding flavour without calories.
Technomic’s Belflower also points to tea cocktails as a category that continues to trend in Canada. For these kinds of beverages, she notes, chai tea is particularly popular, however orange pekoe and Lapsang (sometimes called smoked tea) are also being utilized. As an example, she points to Toronto-based Chotto Matte’s She’s So Smoking cocktail made with cognac, peach, ginger, lapsang, yuzu, shiso and smoke ($20).
Written by Danielle Schalk