Canada’s foodservice coffee wars continue to deliver victory for caffeine-craving consumers. And, competition has remained hot over the past 18 months, with the biggest chains rolling out new espresso beverages and/or complementary snacks in quick succession.
The coffee business in Canada is as dynamic as its customers. In fact, 62 per cent of consumers surveyed for Technomic’s “2013 Canadian Bakery & Coffee Café Consumer Trend Report” said they visit coffee cafés — defined as limited-service coffee-focused chains — at least weekly, and 12 per cent said they visit daily. Moreover, 34 per cent of coffee-café customers say their visits have increased in the past year. And, the sales numbers for Canada’s coffee segment are striking: in Canada, coffee cafés alone accounted for more than $7 billion in sales in 2011, or about 28 per cent of total industry sales, according to Technomic’s “2012 Top 200 Canadian Chains Report.”
Restaurant chains’ efforts to capture more traffic and sales within this enthusiastic market were broad and varied in 2012 and into 2013. Chain execs have sought to appeal to consumers with indulgent new tastes — such as a range of sweet, dessert-inspired espresso beverages — while promoting good corporate citizenship and responsible coffee sourcing. Of course, targeting consumers where it matters most — their wallet — continues to be crucial. McDonald’s and Tim Hortons pegged $1 as the sweet spot for several of its beverage promotions; both chains, in fact, are courting summer beverage seekers by offering a small iced coffee for $1. And, McDonald’s is expanding that deal by offering a medium for the same price; Tim Hortons extends the $1 promo pricing to iced lattes. Both are featuring other cold beverages at the $1 price point, too.
Overall, continued operator innovation — in product, convenience and the overall experience — is essential in maintaining customer loyalty and growing sales.
Premium players
Perhaps the biggest news story in Canada’s coffee wars in 2012 was McDonald’s nationwide rollout of its McCafé brand. First introduced in some Canadian McDonald’s stores in November 2011, the line of premium-positioned espresso-based beverages made with 100-per-cent arabica beans, sought to steal business, not just from premium-espresso leader Starbucks, but also from Tim Hortons, Canadians’ top restaurant destination for coffee.
In April 2012, Tim Hortons returned McDonald’s premium-espresso volley, launching a line of iced lattes, also made with espresso from 100-per-cent arabica beans, plus fresh two-per-cent milk. Consumers looking for a more basic cup of java also had expanded choices by the end of 2012. In November, following Tim Hortons’ success with its packaged coffee, McDonald’s began selling McCafé Premium Roast take-home coffee at participating Canadian stores.
The chain introduced the coffee, sold in a 340g bag, for $6.99.
What consumers crave
Whether buying coffee to make at home or grabbing it on the go, convenience is key. More than seven in 10 coffee and bakery café customers listed convenience of location as a top reason why they choose one store over another. In another indicator of the importance of convenience, 58 per cent of Canadian coffee-café orders are for takeout, according to Technomic’s “2013 Canadian Bakery & Coffee Café Consumer Trend Report” and 33 per cent are made at a drive-thru window. And, among consumers who say they are visiting coffee cafés more often, 58 per cent say they’re doing so because the concepts are conveniently located.
Looking for new ways to offer convenience to guests, chain execs are turning to mobile payments and free Wi-Fi service. Tim Hortons announced in November that it would begin accepting mobile payments using select smartphones; McDonald’s trialed the same
service in Toronto. And, last year, Tim Hortons started rolling out free Wi-Fi to its stores and introduced the mobile application, TimmyRun, which is designed to track group orders. Starbucks, too, has updated its iOS and Android apps, giving its loyalty club members easier mobile access to its MyStarbucks Rewards information.
Big moves for big chains
But, in-store news aside, this summer, all eyes are on Tim Hortons as former Nestlé executive Marc Caira takes the company’s reins from Paul House, who has worked at the chain for 28 years. In an article on Maclean’s website, Canadian Business writer James Cowan noted that Caira will likely have a short time to address one of the company’s most pressing concerns: U.S. expansion. Nearly at a saturation point in terms of Canadian units, Tim Hortons has struggled to build its business south of the border, Cowan wrote. The chain closed three dozen U.S. units in 2010, and U.S. same-store sales dropped 0.5 per cent in the first quarter, compared with a decline of 0.3 per cent at domestic stores. Starbucks, on the other hand, looks to gain a markedly larger presence in Canada, with plans to open more than 150 new locations — more than 100 of which will be located inside Target stores.
The game is heating up, and coffee remains one of the most interesting foodservice segments to watch.
