The 2018 Coffee and Tea Report


When looking for their next caffeine fix, Canadians expect more than just a good cup of coffee or tea. Today, customers are putting greater value on the overall café experience — including atmosphere, innovation, quality and variety.

“Everybody is expanding what they do, offering new dayparts, new flavours, new experiences — competition is getting much tougher,” says Stephen Gray, national Business Development Director, Canada at Florida-based Monin Gourmet Flavourings.

During a session at last year’s Canadian Coffee & Tea Show in Toronto, Gray pointed to beverage customization and limited-time offers as important differentiators — which are especially popular among millennials — with more complex and layered flavours being a key area of interest.

According to Restaurants Canada’s Foodservice Facts 2018, traditional brewed hot coffee was the most ordered beverage in Canada in 2017 (excluding tap water) — making up 37.1 per cent of all beverage orders. In fact, three of the top-five beverages on the report’s “2017 Top Beverages” list were coffee-based drinks, with hot specialty coffee and iced/frozen coffee making up 8.2 per cent and 5.3 per cent of beverage orders, respectively. Although regular drip coffee remains significantly more popular than specialty beverages, interest in diverse beverage occasions is driving a wide range of specialty offerings.

“Millennials suffer from a wonderful affliction called flavour distortion and what they like [now] is not what they want at lunchtime, is not what they want at dinner and is certainly not what they want for tomorrow,” Gray adds.

This is an important factor in the growth of iced beverages. “[We’re] seeing more emphasis on iced-espresso drinks, iced pour-overs and iced flash-brewed drinks,” says Graham Hayes, account manager, Toronto and head technician at De Mello Palheta Coffee Roasters — a Toronto based café and roaster that boasts more than 100 wholesale clients.

Hayes also notes that desire for variety and increased education levels surrounding coffee have been key drivers behind specialty roasts — including single-origin and small-lot coffees.

“People are demanding better roasted coffee,” agrees Jeremy Ho, co-founder of Calgary-based Monogram Coffee. “For far too long, the industry didn’t give credit to people’s palates…They’ve developed a better knowledge of what kind of good quality is out there and they’re demanding that from cafés.”

More than a Pick Me Up
In foodservice, as well as many other industries, there has been increasing focus on offering customers not just products but experiences. The coffee-and-tea segment is no exception — as seen in the proliferation of alternative brewing methods, as well as unique blends and small-lot offerings.

“It’s all about the experience…what we’re seeing, especially in the millennial category, is they want an experience and they’ll pay for it — so don’t be afraid to work that in your favour,” says Gray.

Starbucks is a prime example of a player that has embraced the experiential element of coffee — evident in the continued expansion of its Starbucks Reserve Bar concept. The company also took things a step further when it opened the Visitor Centre at Hacienda Alsacia — a working 600-acre coffee farm in Costa Rica that has served as a global R&D facility since 2013 — earlier this year.

“Much like the premium retail experiences we are designing around the world, the Visitor Center at Hacienda Alsacia is a fully immersive space and now, for the first time, Starbucks is connecting our customers to the entire coffee ecosystem, from seedling to the craft of brewing,” Howard Schultz, Starbucks executive chairman said in a press release.

Visitors can tour the space on their own or with a guide, discovering hands-on experiences in a coffee-seedling nursery, a greenhouse with new disease-resistant coffee varietals, coffee fields with ripe cherries at harvest, as well as a wet mill and drying patio.

Those operating on a much smaller scale, such as Monogram Coffee, are embracing this trend by creating a distinctive café experience that emphasizes quality and innovation.

As Ho explains, he and his partners, Ben Put and Justin Eyford, “came together to start Monogram because we had the belief that coffee should inspire wonder and warmth.” For the Monogram team — which operates three cafés and a roastery facility — that means pushing the envelope on its café experience, roasting style and drink offerings while still offering an approachable, service-driven and community-focused setting.

Monogram creates a unique guest experience through offerings such as a self-serve coffee bar featuring hot coffee on tap, a by-the-cup coffee list and a guest-roaster program dubbed Atlas. “We’ll have one or two guest roasters from around the world every couple of months,” explains Ho, including rare competition lots that its customers wouldn’t usually have the opportunity to taste.

Though recent years have seen the “coffee-theatre” concept — with its specialty equipment and brewing methods — have a “moment,” Ho and Hayes both note this fad is fading into the background of the café experience and becoming more of a niche offering.

“A couple of years ago, there was a focus on pour-overs and siphons — slower brewing methods,” explains Hayes. “But, recently, you don’t see any of that stuff around [Toronto]…There’s been a movement away from slow-bar methods and more towards better quality espresso and coffee.” Ho notes that the concept is still important to the segment, but “there’s less showcasing of the brewing method and more of a [focus] on the actual coffees themselves — which is a good evolution.”

However, these slow-bar brewing methods are taking off within the realm of home use. Hayes notes that, often, the customers who still order items such as pour-over coffees tend to be those who use this method at home. “They want to know how the professionals do it,” he explains.

It’s also worth noting that traditional coffee preparations — especially espresso-based beverages — have always had a certain theatrical element to them and many cafés/coffee shops are leaning into this part of the experience. “At a coffee bar, the espresso machine is very central, because it’s fun to watch,” says Hayes.

“Now, a lot of the cafés are designed to reduce barriers to having relationships with the baristas, instead of highlighting only the brewing method,” adds Ho. “There’s a lot of espresso-machine companies trying to produce more low-profile machines so there is greater opportunity to engage with baristas and service staff.”

Trending Tea 
Foodservice Facts 2018 also lists hot tea and iced tea among the most-ordered beverages in 2017, representing 4.8 per cent and three per cent of beverage orders, respectively. The report pointed to “specialty iced tea” — such as Thai-style and southern/sweet iced tea — as one of 10 up-an-coming trends identified by Canadian chefs.

Toronto-based Tea and Herbal Association of Canada president Shabnam Weber agrees that iced tea is a key opportunity for growth — especially given its ubiquity in the U.S. “Consumers are always looking for something new and different and, for [Canada], the iced-tea market tends to be part of that.”

Weber notes that the specialty-tea industry has changed significantly since the dawn of the new millennium — when most consumers had yet to be exposed to tea varieties beyond category stalwarts, such as English breakfast, Earl Grey, chamomile and peppermint.

“We’ve seen this transition to a far more sophisticated customer, within the industry at large and that’s going to continue,” she adds. “I don’t think we’ve reached the tipping point at all — there’s still loads of room for growth in the market.” This is especially true when considering the health-and-wellness cachet the beverage carries, positioning tea beverages as healthy alternatives to many heavily sweetened drinks.

“Looking at the industry, we’re seeing more non-coffee drinks sold at coffee shops than there are coffee drinks,” adds Gray. “We’re talking about handcrafted sodas, teas, lemonades and flavoured waters — health-conscious offerings you can use to set yourself apart from the competition.”

He also notes the growth of non-coffee beverages is largely due to the fact consumers are making purchases at cafés during all dayparts.

“As an industry, when we start to talk about [tea] in different formats, it simply increases the number of times during a day that [people are] consuming [tea],” says Weber. However, overall, she says there is still “a lot of room for growth within the foodservice sector” when it comes to tea offerings and how they are delivered/presented.

Recognizing the opportunity tea presents, Starbucks has continued to focus on beverage innovation in what it has characterized as “the growing tea and refreshment category,” releasing several new tea-based beverages in Canada within the last year. Perhaps the most unique is a pair of Cold-Foam Tea Lemonades. The cold-foam element is created by blending non-fat milk — infused with Teavana Passion Tango herbal tea — until smooth.

The brand also launched a line of Teavana Tea Lattes made with whole-leaf micro-ground tea (served hot or cold), as well as a new collection of Teavana Wellness Teas featuring fruit flavours and spices. The lineup includes an updated take on the chain’s popular honey-citrus mint-tea beverage — the Teavana Citrus Defender, which features the new Defense Wellness Tea, steamed lemonade, hot water and honey.

Mainstream Game
Although the county’s biggest players in the coffee-shop segment remain constant, according to a Maclean’s survey released in October 2017, the largest coffee chain — Tim Hortons — is no longer Canada’s favourite. Instead, McDonald’s/McCafé claimed the top spot, followed by Second Cup and Starbucks, with Tim Hortons ranking fourth overall. Recognizing the importance of atmosphere to the overall coffee-shop experience, Tim Hortons has embarked on a nationwide restaurant-revitalization program. In March, the brand unveiled its new “Welcome Image” design, intended to improve the guest experience. As part of the new image, updated restaurants will feature natural-looking exteriors, contemporary design, brand-inspired artwork and open-concept seating areas.

“The expectations of our guests are evolving and as Canada’s most iconic brand, so must we,” Tim Hortons brand president Alex Macedo said when announcing the new design. “Together with our restaurant owners, we’re focused on taking Tim Hortons to new heights.” The brand and its restaurant owners are set to invest $700 million to convert the majority of Canadian locations to the new image over the next four years.

This summer, McDonald’s Canada announced plans to open additional locations of its stand-alone McCafé concept. Spurred by the positive reception received by its original two locations — which opened in Toronto in 2015 — the company currently has two new franchised Toronto street-front locations in the works.

“The McCafé locations are a winning offering with our guests. That’s why I am thrilled that we’re doubling the number of them this year with plans to build even more down the road,” says John Betts, president and CEO of McDonald’s Canada.

The first of the new McCafé locations opened this summer, with the second set to launch before year end.

Toronto-based Second Cup kicked off the year with a commitment to eliminate artificial colours and flavours, preservatives and high-fructose corn syrup from all beverages on the company’s menu. As of May, the brand had achieved 85-per-cent compliance with its new Clean-Label standard.

This spring, the company also introduced new flavours (Salted Butterscotch and Almond Milk Mocca) to its line of Flash Cold Brew drinks, which has been identified as a key growth category for the brand. In fact, the line was identified as representing more than 20 per cent of the brand’s cold-beverage sales, in season, in the company’s Q1 2018 report.

Starbucks also grew its iced-beverage offerings, with launches including a lineup of cold-foam iced beverages. “We’re looking at cold beverages not just as an analog to hot,” says Jennica Robinson, product developer for Starbucks R&D. “We’re creating specifically for cold.”

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