The fight for specialty coffee is more than “big vs small”

  • Starbucks’ revenue has increased by over 140% during the last ten years
  • In comparison, 62% of specialty coffee shops fail within the first five years
  • The gap between small and large coffee brands has led to an “us vs them” mentality

SPECIALTY COFFEE brands often position themselves as the distinct, boutique alternative to large, mainstream coffee chains.

While larger brands have focused on capturing market share and reaching as many customers as possible, third wave coffee focused on quality and experience above all else.

Over the years, the specialty coffee sector has increased its market share, but still remains a minuscule segment of the wider coffee market — which is why it maintains its identity as a dedicated underdog. The battle between “big” and “small” lives on, and perhaps with good reason.

Brands like Starbucks have seen revenue increases of over 140% over the last ten years, driven largely by rapid growth in the late 1990s and early 2000s. Comparatively, the specialty coffee sector is predicted to grow annually by around 11 to 12% until 2030, despite exponential growth during the last two decades.

With up to 62% of specialty coffee shops failing within the first five years of opening, it’s no wonder they feel challenged by larger brands. Small and independent coffee shops operate on narrower profit margins than large companies, whose global reach and budgets far exceed those in the specialty sector. 

The “David vs Goliath” argument allows some brands to stay competitive and define themselves in opposition to larger companies. However, for others, doubling down on the underdog identity drives a wedge between specialty coffee brands and the rest of the industry.

As the global coffee market continues to grow, the binary identities of “big” and “small” may begin to lose their relevance, and the persisting argument that specialty coffee is challenged by larger companies may be distracting us from broader and more pressing threats.

specialty coffee is under threat from more than just big brands

It’s no longer “big v small” 

In some senses, the relationship between small specialty coffee brands and larger companies could be viewed as symbiotic. As each sector develops new products and adds value to the market, they enable and support each other’s overall growth.

For instance, many large businesses focused on at-home consumption during and after the Covid-19 pandemic. This put smaller coffee brands in a position to capitalise on growth opportunities elsewhere.

Additionally, large brands may not necessarily take customers away from specialty brands; instead, they can introduce new customers to coffee, who may later learn more about coffee, and graduate from chains like Starbucks towards specialty coffee. 

“I think it’s important to acknowledge that we wouldn’t be having this discussion about specialty coffee without how Starbucks prepared the market for the reception and appreciation of specialty coffee versus commodity coffee,” says Jeffrey Chean, co-owner of Groundwork Coffee.

Others argue that, while large brands initially laid the groundwork for the growth of specialty coffee, the situation has shifted since then – specialty coffee has established its own independence and can stand on its own two feet at this point.

“I believe this argument, that Starbucks and other similar chains are creating a gateway for people to discover specialty coffee, is not totally accurate in 2023,” says Andrea Otte, Head of Coffee at Caravan Coffee Roasters.

“We have to remember that specialty as a movement has been around since the early 2000s  and has received an outsized amount of media attention for the size of the market it represents.”

Nevertheless, the “us vs them” mentality persists – but it could be time for that to change.

The growth and evolution of the coffee industry has meant that it must compete with products not traditionally considered its competition.

wider beverage segments threaten specialty coffee

New threats

As the sector diversifies and new products enter the market, coffee is increasingly finding itself competing with other industries such as soda, energy drinks, and tea.

For example, the growing popularity of tea among young consumers threatens the central position of coffee in third spaces. The global tea market is expected to grow by almost 6% in the next five years.

Additionally, new segments within the coffee sector, such as RTD cans and cold brew, have appeared and are challenging emerging competitors by catering to the convenience-driven preferences of consumers. These products are gaining dominance in spaces that were traditionally occupied by non-coffee beverages.

As such, the global coffee industry is expanding and adapting to convenience-oriented consumers, which in turn is leading to increased competition in the wider marketplace. 

And the competition is becoming fierce. Alternative caffeinated drinks are gaining significant traction, and threaten to capture consumer segments traditionally considered safe for coffee. The global energy drink market is projected to grow annually by over 8%, reaching a value nearly three times greater than the specialty coffee industry.

Factors such as convenience and the limited availability of quality coffee options has previously driven the popularity of non-coffee alternatives in certain locations.

“I think in some contexts – the service station, or other areas where the coffee options are scarce or terrible – many coffee drinkers will switch to another option, given the circumstance,” Andrea says.

Many of these products leverage the presence of caffeine as a selling point – therefore challenging the unique market appeal of coffee.

However, the growing presence and increasing quality of RTD coffee in locations such as service stations is beginning to compete with non-coffee segments. Some also believe that consumers have graduated from seeking out energy boosts and are more concerned with flavour. 

“I think consumers like the flavour of coffee – and tea, too,” says Jeff. “I am not sure their beverage choices are strictly based on caffeine content or energy drinks.”

Amid the challenges to stay relevant and meet changing consumer demands, the rivalry between big and small coffee brands has evolved into a larger, more intricate landscape. The global coffee industry is expanding and adjusting to convenience-oriented consumers – arguably opening it up to wider competition.