72221 bi expert risk

72221b - Coffee and Snack Shops in the US

This iExpert report presents only a fraction of the data available in IBISWorlds full-length industry reports. For full reports, visit www.ibisworld.com

Life Cycle Stage Mature Regulation Level Medium

Revenue Volatility Medium Technology Change Medium

Capital Intensity Medium Barriers to Entry Low

Industry Assistance None Industry Globalization Low

Concentration Level Medium Competition Level High

December 2012

72221b - Coffee and Snack Shops in the US

iExpert

Market Share

Starbucks Corporation 36.6%

Dunkin' Brands Inc. 24.5%

Key External Drivers

Consumer spending

Healthy eating index

Consumer sentiment index

Per capita coffee consumption

www.ibisworld.com | 1-800-330-3772 | [email protected]

72221b - Coffee and Snack Shops in the US December 2012 IBISWorld iExpert

This chart shows the size of the markets

that buy the industrys products or use its

services.

It is based on the proportion of revenue each

buying segment contributes to total industry

revenue.

This chart represents the latest cost structure

of the industry. It shows the proportion of

revenue each cost item absorbs, with the

remainder representing profit.

The comparison to all other industries in the

sector provides a benchmark that shows how

the industry differs from its peers.



After surging over the past decade, the Coffee and Snack Shops industry experienced a major slowdown in 2009 due to a struggling economy and, to a lesser extent, changing consumer tastes. Over the five years to 2012, IBISWorld estimates revenue will grow at an average annual rate of 1.2% to $27.8 billion. After revenue declined 6.6% to $25.3 billion in 2009, it resumed its upward climb in 2010 and 2011, with growth of 3.0% and 3.1%, respectively. In 2012, industry revenue is expected to continue its rebound with an increase of 3.4%. During the recession, consumers spent less on luxuries like eating out, and they purchased lower-priced items when they did spend. This caused high-priced coffee drinks and other nonessential snacks to lose the battle over people's shrinking budgets. Consumers have also become increasingly health-conscious over the five years to 2012. Many retailers, such as Jamba Juice, have responded by expanding their healthy options and, therefore, have experienced growth due to

the health benefits of their products. Still, the general trend toward healthy eating has hurt the industry's unhealthier segments, such as donut and ice cream shops. Furthermore, in response to weak market conditions, the number of establishments is expected to increase more slowly than in the past, at an annualized rate of 2.8% to 56,041. To combat slumping sales, major operators like Starbucks and Dunkin' Donuts are anticipated to expand their menus over the next five years and increase their offerings of nontraditional, high-margin menu items like iced coffee drinks, breakfast items and healthy wraps. These additions are expected to aid these companies in their turnaround. Many major chains are also investing in international growth as part of a long-term strategy. Larger players view China, in particular, as a market with huge potential for growth and long-term profitability. Over the five years to 2017, revenue is forecast to grow at an average rate of 4.0% per year to reach $33.9 billion.

THREAT Healthy eating index

The healthy eating index is expected to

decrease slowly in 2013 as consumers' diets

get progressively poorer. Still, consumers are

also becoming more aware of issues related

to weight and obesity, fatty-food intake and

food safety issues. This factor particularly

affects the often-unhealthy snack-food

industry. Despite any long-term aggregate

declines in healthy eating, consumers are

now more aware of the health issues

associated with fatty foods and are

increasingly going out of their way to avoid

them. This is a potential threat for the

industry.

OPPORTUNITY Consumer spending

Factors that influence consumer spending

also affect the industry. During the recession,

in particular, the spike in unemployment led

to declines in consumption. When consumer

spending is high, however, consumers are

more likely to spend money at snack and

coffee shops. Consumer spending is expected

to increase slowly in 2013, providing a

potential opportunity for the industry.



ISSUE

The industry is affected by factors

that influence the growth of

consumer spending. During a

recession, the spike in

unemployment generally leads to

declines in consumption. When

consumer spending is high,

consumers will be more likely to

spend money at snack and coffee

shops.

QUESTIONS

Do you monitor changes in

consumer spending? When

spending is low, do you lower your

prices in order to retain customers?

Are you prepared for an increase in

consumer spending?

ISSUE

Consumers are becoming

increasingly aware of issues related

to weight and obesity, fatty food

intake and food safety issues, which

is measured by the healthy eating

index. This factor particularly hurts

industry demand for any baked,

fried, greasy or otherwise unhealthy

food or drinks.

QUESTIONS

How has rising health consciousness

influenced demand for your shops?

Are you introducing healthier

products into your mix? Are the

majority of your products

considered to be healthy or

splurges?

ISSUE

The industry is affected by factors

that influence the growth in

household disposable income,

including changes to tax and interest

rates and labor market growth.

During an economic recession, the

spike in unemployment leads to

more subdued growth in household

incomes.

QUESTIONS

How heavily is your company

influenced by fluctuations in

customers' disposable income? Are

your products considered affordable

to consumers with low disposable

income? What items in your product

lineup can keep consumers coming

in when disposable income levels

drop?

ISSUE

Franchising in both the United

States and overseas is now a

significant component of this

industry and can assist by providing

necessary support to owners.

QUESTIONS

Are you part of a franchise or

looking to build a franchise? What

are the advantages and drawbacks to

franchising? Do you have the

necessary support to operate

independently?

ISSUE

Having a clear market position

against competitors in the limited

service industry and other food

service operators is a necessity.

QUESTIONS

Do you have a clear market position

against your competitors? How do

you maintain this position? How do

you retain customers? How can you

bring in more customers?

ISSUE

It is important to have high profile

locations for stores, with easy

access, parking and drive-thru

services for customer convenience

and service.

QUESTIONS

Are you located in a high profile

area? Are you located close to your

target market? Do you provide

convenient parking or drive-thru

services?



Overall risk in the Coffee and Snack Shops

industry is forecast to be MEDIUM over

2013. The primary negative factor affecting

this industry is high competition, while the

primary positive factor is healthy eating

index. Overall risk will be slightly higher

than the previous year, a result of

unfavorable movements in per capita coffee

consumption as well as consumer spending.

However, their impact will be partially offset

by a projected fall in growth risk.

Risk component Weight Score

Structural risk 25% 5.96

Growth risk 25% 4.06

Sensitivity risk 50% 5.01

Overall risk 5.01

Structural risk will be HIGH over the outlook

period. The biggest source of difficulty within

the industry is the high level of competition.

Businesses competing fiercely for market

share are forced to incur expenses to

differentiate their offerings, keep prices low

to entice demand or both. The result is a

greater likelihood of declining revenue and

lower profits. Furthermore, existing firms

face the prospect of even higher competition

given the low barriers to entry, which enable

new players to easily enter the marketplace.

A lesser threat to operators is the moderate

revenue volatility. This necessitates sensible

management of cash flows and readiness for

downturns in demand. Companies that fail

to prepare for these scenarios are susceptible

to significant losses and even bankruptcy.

Structure component Level Trend Weight Score

Barriers to Entry Low Increasing 13% 8.00

Competition High 20% 9.00

Exports Low Steady 7% 1.00

Imports Low Steady 7% 2.00

Assistance None Steady 13% 7.00

Life Cycle Stage Mature 20% 5.00

Revenue Volatility Medium 20% 5.00

Structural risk 5.96

Industry: Coffee and Snack Shops

Sector: Accommodation and Food Services



Growth risk is expected to be LOW over

the outlook period. IBISWorld forecasts

that annual industry revenue will grow

3.6% to $28.8 billion. In comparison,

revenue expanded 3.3% per year

between 2010 and 2012.

IBISWorld has identified and weighted the

most significant external factors affecting

industry performance.

These factors are scored separately, then

weighted and combined to derive the

sensitivity risk score.

Sensitivity Component Weight Score

Consumer spending 35% 3.29

Healthy eating index 25% 2.38

Consumer sentiment index 20% 8.36

Per capita coffee consumption 20% 7.97

Sensitivity risk 5.01

In 2013, the average risk score for all US

industries is expected to be in the MEDIUM-

LOW band. Furthermore, the risk score for

the Accommodation and Food Services

sector, which includes this industry, is also at

a MEDIUM-LOW level. Therefore, the level

of risk in the Coffee and Snack Shops

industry will be higher than that of the US

economy and the Accommodation and Food

Services sector.

Growth component Revenue Weight Score

2010-12 Annualized growth 3.3% 25% 4.32

2012-13 Forecast growth 3.6% 75% 3.97

Growth risk 4.06

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