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In 1883 Karl Marx wrote that “Business always appears excessively sound right on the eve of a crash.”*
And so it was in January 2008.
Estimates placed the number of coffee shops at 25,000, a dramatic increase since 2002 when there were 9,470 coffee shops operating in the U.S. according to the Economic Census. The 13,000 chain shops operated with an aura of invincibility. The remaining 12,000 independents were riding a five-year crest as weekly consumption rose to a record 17 percent of the overall adult population. Employment was nearly triple the 102,024 working in 2002. Consumption of specialty coffee surged to new heights with 19 percent of adults 25-59 drinking gourmet coffee daily.
Two-thirds of American adults drank coffee at least once a week.
In the past 18 months daily coffee consumption has remained steady while one in 10 coffee shops closed. Specialty Coffee Association of America Executive Director Ric Rhinehart bases this estimate on his own thinning ranks. The much publicized retreat by Starbucks led to 900 closings. Chains and independents are suffering equally, says Rhinehart who estimates 2,500 shops have gone bust in the past 18 months.
"The recovery will be a crawl for a long time to come," says Bob Phibbs, The Retail Doctor. "Retail was overbuilt by roughly 20 percent above demand. Until that decreases to match demand, expect more stores, coffee houses to go under and a time of consolidation."
Americans do not easily surrender their coffee but they are certainly spending much less to enjoy it.
“The trend of brewing coffee at home is picking up steam,” observes SCAA General Counsel Marshall Fuss. The National Coffee Association’s 2009 Coffee Drinking Trends market-research survey indicates at-home preparation is up 5 percentage points with 83 percent of past-day coffee drinkers reporting they made coffee at home the day before. Sales at grocery bear this out with specialty brands reaching $1.4 billion of $6.3 billion in sales with growth at 12 percent compared to 3 percent for traditional coffee.
“Out-of-home coffee preparation is down 6 percentage points,” according to the NCA study. This inevitably led to the store closings.
This issue identifies TEN TRENDS in 2010 that will re-shape the industry and takes a closer look at what happened to cause these businesses to fail. Coffee House RIP is the first-person accounts of those who poured everything into a venture that spilled.
The candor in these cautionary tales can only benefit others.
“There has been a ruthless weeding out of retailers who serve brews of indifferent quality or who fail to make their customers feel welcome, observes attorney Fuss. “To survive and even thrive in this environment, shop owners will re-learn the lessons of specialty coffee pioneers Alfred Peet and the early Starbucks and put serious effort into their bean sales,” he advises.
“All the old advice still applies, but now the consequences of missteps are more severe,” says Fuss. | 
