Coffee Economic Forecast

Eighty percent of Americans drink coffee – 53% every day vs. 49% in 2004 – reports the National Coffee Association (Petrecca, 2005). Americans are in the grips of a coffee craze. Conventional wisdom would say it takes about five years for trends to hit the sleepy Midwest, which would make this the peak of the coffee craze that has slipped into even the smallest of Midwestern towns. The timing for tapping into this boom business is prime as the local market is not yet saturated with gourmet vendors. However, the competition from fast-food and gas stations could prove a significant obstacle, until one considers the other major utility consumers receive from frequenting a coffee shop: atmosphere. In this, smaller coffee shops have an edge. In this regard, the shop must focus on strategies to increase their reputation as a place to “hang out”.

Underscoring this, regular-coffee dollar sales are expected to grow 7% annually for the next three years, while specialty drinks – lattes and cappuccinos – are pegged to grow 15% annually (Petrecca, 2005). The forecasting indicates a need for intensive branding open as an avenue for increasing profits, as well as differentiating themselves from both the fast food and the other coffee shop. It also presents a clear picture that pricing is not the strategy to pay closes attention to as consumers are expected to purchase more coffee. It may even be beneficial for profits that the shop increase prices slightly. The shop must focus on events that will promote the atmosphere and comfort of the location as well as peripheral services offered: computers to rent, free wireless internet, a free book collection and available games.

The forecast from the Congressional Budget Office (CBO, below) shows the Real GDP is anticipated to fall. This can signal a drop in inflation, which could leave more money for consumers, however, a drop in GDP can also signal a drop in employment. However, the numbers from the CBO don’t reflect this possible trend, but rather anticipate unemployment to hold steady as interest rates rise. Traditionally coffee shops fare moderately well in hard economic times as they tend to be a less pricey alternative to going out than a dinner or movie might be and in good economic times coffee shops traditionally do very well as people tend to not worry over a couple extra dollars spent in the morning on coffee. The numbers from the government census bureau show a drop in overall retail sales, but the coffee industry does not necessarily follow this form.

Starbucks, the US’s largest coffee chain, showed a significant increase in sales in September in spite of a spate of natural disasters that have sent shocks through the coffee-producing-world and increased prices (Lawrence, 2005). The two recent hurricanes in the southern United States has disrupted coffee shipments as New Orleans, devastated by Hurricane Katrina, is the second largest coffee port in the United States, however some of the coffee-growing regions are anticipating excellent harvests which may counter-balance higher shipping costs to keep coffee prices fairly level.

However, a challenge may come from the area fast-food restaurants as they move to introduce gourmet coffee and espresso drinks into their menus (Petrecca, 2005). They idea is to compete with convenience coffee rather than coffee house beverages, however, in a small town, that could impact sales somewhat. Again, the ideal way to combat this will be to focus on promoting the trendy atmosphere and the comfort for people who want to ‘hang out.’

References
BLS Releases 2002 – 2012 employment projections. News Bureau of Labor Statistics. Retrieved September 10, 2005, from https://www.bls.gov/news.release

Lawrence, Dune (2005, September). Dow Average Rises as GE Lifts Profit Forecast, Oil Price Drops. Retrieved October 8, 2005, from http://www.bloomberg.com/apps/news?pid=10000103&sid=a1vfL4GPsCJc&refer=us

http://www.census.gov/svsd/www/fullpub.pdf.

Petrecca, Laura (2005, October). Fast-food restaurants spruce up coffee. Retrieved October 8, 2005 from http://www.usatoday.com/money/industries/food/2005-10-06-coffee-wars-usat_x.htm

Randall, K. (2005, June 6). US: Slowest job growth in two years fuels concerns on economy. Retrieved September 29, 2005, from http://www.wsws.org/articles /2005/jun2005

https://www.investopedia.com/university/releases/retailsales.asp