Gen Z have the highest spending power, and the coffee industry is banking on it

Gen Z girl with coffee
  • The Economist recently touted Gen Z as being “unprecedentedly rich”
  • Globally, Gen Z hold an estimated $360 billion in disposable income
  • To leverage this successfully, the coffee industry will need to cater to emerging consumer trends

WITH THE highest spending power among generational groups, Gen Z are poised to shape the future of industries across the board, with the specialty coffee sector being a prime focus for their consumption habits.

Recent analyses, including insights from The Economist, have highlighted that Gen Z have a higher income than its predecessors, the baby boomers and millennials. 

The article reports that a typical 25-year-old Gen Z-er (or Zoomer) has an annual household income of over $40,000, more than 50% above baby-boomers at the same age. While factoring in inflation and current cost of living might make these numbers less sensational, they still demonstrate that Gen Z holds considerable economic power.  

According to Bloomberg, those born between 1997 and 2012 comprise around 30% of the global population and hold an estimated $360 billion in disposable income. As they gradually enter the workforce, their influence is increasing in tandem, along with their purchasing power and willingness to spend.

“Many Gen Z-ers were raised in dual-income households,” says William Dunaway, Managing Director of Walter Matter Inc. “This could mean that their families had more disposable income, potentially leading to less financial strain and more comfortable living conditions.”

“Some parents might also compensate for their absence due to work commitments, by giving their children more gifts and financial support. This could foster a habit of spending freely or having high expectations for material goods.”

This overall shift in spending dynamics can also be attributed to a more digital-native upbringing, a focus on customised experiences and a greater emphasis on social and environmental causes. 

Gen Z’s spending logic revolves around authenticity, sustainability, and personalisation, driving their choices in products and services – different from millennial consumer characteristics, which the third wave catered to.

The third wave of coffee banked on millennials   

The specialty coffee movement, also known as the third wave of coffee, gained momentum in the early 2000s, coinciding with the coming-of-age of millennials. 

This generation played a pivotal role in shaping the coffee industry by embracing artisanal coffee, single-origin beans, and new brewing methods. Coffee shops became not just places to grab a caffeine fix but hubs for social interaction, work, and cultural experiences. 

Millennials in what we refer to as “traditional consumer countries” shaped the early specialty coffee segment, as marketers and companies modelled their commercial strategies and products on their preferences and projected spending habits.

Consumers born between 1981 and 1996 were on the cusp of coming into their buying power when the third wave of coffee kicked in. They were also the first generation to have specialty coffee available at scale, thanks to Boomers laying the foundations and Generation X scaling it up.

Millennials place a high importance on individuality, innovation, excellence and the third space. Under their reign, specialty coffee blossomed into what we know as the third wave: Microlots, outstanding coffees, innovative processing and brewing methods, and minimalist coffee shop spaces. 

A high emphasis on scores and ratings and a culture of competitions and awards meant that even ultra specialty, 90+ point coffees with unusual flavour profiles could still do well in this niche market – partly because then, they were still relatively affordable.

“It was awesome because it was cheap,” says William. “Now I will not spend the $50 or $60 per kilo of coffee for what was then considered an average coffee. Millennial spending will stay within the $25 to $35 per kilo of coffee.”

This attitude to quality and spending, combined with millennials going through their third economic recession points to a dwindling spending power. Coffee industry leaders are turning their attention to Gen Z as a more bankable consumer demographic.

Chamberlain Coffee RTD coffee

Gen Z want to make specialty coffee fun and accessible, and brands need to listen 

Apart from having a higher spending power, data from a recent National Coffee Data Trends report shows that 46% of Gen Z respondents reported drinking coffee in the past day. 

As they enter the same age range where millennials drove the specialty coffee boom, the industry is taking note of their distinct preferences and behaviours. 

Where third-wave coffee culture took a serious approach to coffee that sometimes felt exclusionary, Gen Z coffee drinkers take a more light-hearted approach and want an emphasis on fun. Bright and irreverent packaging, indulgent dessert-like flavours, and quirky messaging are the new marketing hooks. They want great coffee, but without the snobbery.

This means ready-to-drink coffees with a range of flavours, and fun, aesthetically pleasing branding – Emma Chamberlain’s coffee brand is a perfect example, as is the boom in RTD coffee sales

“Demand will come for nice but not outstanding coffee, SHB and Excelsos (typically 80-83 point coffees),” says William. “The ‘unicorn coffees’ (88+) are trending downwards – at least in Europe and the US.” 

The Gen Z demographic is also willing to spend more on products that align with their values, making them a prime target for the coffee industry’s next wave of offerings.

Drizly’s 2023 Consumer Trend Report shows that 31% of Gen Z respondents noted that a lack of transparency in ingredients would stop them from purchasing a product. 

“Transparent supply chains will be demanded by developed markets like the US or Europe,” says William. “The trend will be nice coffee with a face. Mayorga Coffee is doing this really successfully, for example.”

Finally, after the millennial age of individualism and thirst for excellence, Gen Z is taking ownership of specialty coffee in a very different way. It’s a more democratic movement that prizes community engagement and consumer involvement.

Supporting local initiatives and fostering community connections will become very important – albeit online. Gen Z consumers will want to be a part of product development and marketing, and brands will need to listen to stay relevant.

Cxffee Black and Dark Matter Coffee are two examples of specialty coffee brands who are doing that, using a community engagement approach that resonates with young consumers.

Gen Z’s ascendance as the powerhouse consumer group is propelling the coffee industry towards a new era of sustainability, tailored experiences, and more accessible specialty coffee focused on community. 

By understanding and adapting to the evolving preferences of this generation, coffee businesses can position themselves at the forefront of a market defined by authenticity, accessible quality, and purpose-driven consumption.

Coffee Intelligence

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