CAFFEINE OVERLOAD. agree that coffee from gourmet coffee shops is too expensive,

American Demographics, April 1, 2002

Byline: KATARZYNA DAWIDOWSKA

Gourmet coffee shops are literally taking over the world. Starbucks, for one, announced in January that it expects to have 10,000 stores open worldwide by the end of 2005, up from more than 5,000 today. But in today's tight-fisted economy, it is unclear how long people will be willing to buy fancy java drinks at $4 a cup.

Almost 3 in 4 coffee shop patrons (72 percent) agree that coffee from such establishments is too expensive, according to a report released in January by London-based research firm Mintel International Group. The report suggests that the industry is maturing, and coffee shops like Starbucks and Gloria Jean's may need to expand their target demographics and better understand the "purchase motivators" of away-from-home coffee drinkers in order to fuel growth in the coming years.

The report, entitled "The U.S. Coffee Shop Market," includes findings from a nationally representative telephone survey of 1,016 adults age 18 and over, conducted Oct. 19-23, 2001 by International Communications Research (ICR).

Not surprisingly, today's most devoted coffee shop patrons are 18- to 34-year-olds and those with annual incomes over $75,000. Forty-two percent of 18- to 34-year-olds and 46 percent of those who earn more than $75,000 say that when they drink coffee away from home, they head straight for Starbucks-like shops, compared with just 32 percent of all away-from-home coffee drinkers. The younger folks are attracted to the coffee-bar atmosphere, music selections and what tends to be a younger customer base, according to the report, while the wealthy simply want the best. Forty-two percent of adults in the highest income bracket agree that coffee shops sell better coffee than other places, compared with 34 percent of the total adult population.

But these demographics make up just a sliver of the potential coffee shop consumer market. Almost 7 in 10 Americans (66 percent) drink coffee away from home at least occasionally, according to Mintel's survey, while only a third frequent gourmet java shops. The report does not suggest that the coffee shops' young, wealthy core consumer group is going to jump ship anytime soon, but instead implies that to grow business, coffee shops may want to cater to other demographics or socioeconomic groups.

While coffee drinkers are often cast as young, stylish, on-the-go professionals right off the set of Friends, the reality is that most people who drink coffee outside the home are older. Seventy-five percent of Americans between the ages of 55 and 64 drink coffee out, compared with 47 percent of 18- to 24-year-olds. Considering that this age group is the fastest growing segment, thanks to Boomers, some coffee shops may want to reconsider their target market, according to Mintel.

Coffee shops may also want to entice the more frugal consumer by offering discounts, suggests the report. Over half of people who drink coffee away from home say they like the variety of coffee offered at gourmet stores. That may be why Dunkin' Donuts is making moves to capture some of this market by offering flavored coffees, mochas and cappuccinos at lower prices.

For more information, call (312) 932-0469 or visit www.mintel.com.

Forty-two percent of Americans living in the West say that when they drink coffee away from home, they head for a coffee shop, compared with just 27 percent of Southerners.

    WHERE DO YOU GO OUT FOR COFFEE?
 MIDWEST
 NORTHEAST
 SOUTH WEST

     A diner or sit-down restaurant
 55%
 42%
 46%
 47%

     A coffee shop like Starbucks or Gloria Jean's
 34%
 28%
 27%
 42%

   A convenience store
 26%
 28%
 28%
 24%

   A bagel or donut shop
 18%
 41%
 21%
 14%

   A fast-food chain
 23%
 12%
 22%
 17%

   At work
 14%
 8%
 11%
 14%

   Source: Mintel/ICR