“Historically, the U.S. coffee market fairs relatively well during recessions and economic downturns,” says Brenna Butler, industry analyst for IBISWorld Inc., New York. “Consumers have definitely turned to in-home consumption coffee products during the pandemic, whether because of forced closures of local cafés or in an effort to save money. Either way, coffee consumption will likely remain strong amid the pandemic, as it is largely a part of many people’s routines.

“In fact, the pandemic has the potential to boost premium coffee trends for households that are less financially impacted and are looking to make more lasting purchases for in-home coffee consumption,” she continues. “However, the industry will likely experience losses from weakened demand from larger downstream markets, such as restaurant and hospitality establishments in 2020.”

Given these consumption venue shifts, Butler notes that the market could gain valuable sapience on in-home coffee consumption.

“The COVID-19 (coronavirus) pandemic has the potential to bring new insights to the coffee market, as consumers shift to largely consuming coffee at home,” she says. “The economic effects from the pandemic will also be something to consider as the coffee market today is filled with such variety that consumers can almost seamlessly trade up or down price tags.”

Pockets of growth

Noting that more than 50 percent of Americans regularly consume coffee, Butler says the coffee market has performed well the past few years and is likely to continue on this path. In fact, for the five-year period through 2020, coffee production is estimated to grow at an annualized rate of 1.5 percent, totaling $14.5 billion, based on IBISWorld data.

Among the coffee segments contributing to that growth, single-serve and ready-to-drink (RTD) coffees are leading the charge.

“Both have increased their share of industry revenue over the past five years, largely due to changing consumer preferences,” Butler says. “For example, according to 2020 data from the NCA’s National Coffee Drinking Trends, over 42 percent of households in 2019 owned single-cup brewer, highlighting the shift in how people consume their coffee. Consumer trends have been largely shaping the market, with health benefits and changing tastes driving most of the product innovations. The premium coffee segment has also experienced notable success, with more consumers trading up to higher priced coffee products over the past five years.”

Up until 2020, Butler notes that disposable income was on the rise per capita, resulting in more consumers trading up to premium coffee products.

“As a result, over much of the past five years, there has been a growing niche within the coffee market that revolves around artisanal, high-quality and usually ethically sourced coffee beans,” she says. “Single-origin coffee is becoming increasingly popular in the premium coffee market due to its simple and transparent supply chain.

“Premium monthly coffee subscriptions have been increasing in popularity and have the potential to capitalize on the lasting stay-at-home orders during the pandemic,” Butler continues. “The economic fallout from the pandemic will likely only slightly slow this market as households with higher incomes, which make up the largest share of the premium coffee market, are expected to be less immediately impacted by the fallout than other households.”

Matt Barry, consultant for Chicago-based Euromonitor International, notes that premiumization trends in coffee have supported the growth of sub-segments such as cold-brew coffee.

“As with many other soft drinks categories and the hot coffee category, the premiumization trend has gripped RTD coffee,” he says. “Sugar and cream are slowly being phased out in favor of cold-brew offerings. RTD coffee is becoming less of an indulgence and more of a clean-label energy beverage. The stripped-back ingredients mean that the taste and quality of the coffee itself has become one of the top priorities for newer brands and consumers.”

Barry also notes the prominence that sustainability has gained in the premium coffee market.

“Another premiumization driver are sustainability claims, as consumers are willing to pay more for a product that is organic, ethically sourced, or non-GMO,” he says. “Clean-labels and high quality will allow RTD coffee to grow in volume and also keep up in terms of value growth through higher unit prices.”

Crossing the line

Like many beverage categories, the coffee market has experienced the rise of hybrid beverages. This also is contributing to the fortification of coffee drinks with a more functional purpose.

“Coffee has the advantage of being an inherently natural product, leaving it open to other ingredient and function innovation that can further drive consumer interest,” Barry says. “Small brands have already begun moving into the space. New RTD offerings continue to blur category lines with products ranging from light sparkling coffees to coffees blended with fruit juice.

“Brands are also incorporating many emerging functionality trends such as CBD, mushrooms, and protein,” he continues. “Innovation is often most evident within rising categories, giving brands ample opportunity to stand out and continue exploring what drives consumer interest.”

IBISWorld’s Butler notes that health-conscious trends have contributed to growing demand for dairy-free RTD coffee, while keto diets have resulted in new RTD lattes that align with that lifestyle.

Another opportunity for RTD coffee could be appealing to the energy drink crowd.

“The coffee market has a growing consumer base of people looking to switch from energy drinks to coffee beverages in an effort to ditch the high-calorie and sugar content in traditional energy drinks,” Butler explains. “In response, the coffee market has seen a growing trend in espresso-based drinks and products, as an attempt to meet the demand for a strong dose of caffeine.”

But no matter what coffee’s  driving trends will be, Butler expects that RTD will continue to develop innovative products for the needs of today’s consumers.

“The RTD coffee market will likely continue on its path of innovation and development as more consumers opt for the convenience and added health benefits of this segment,” she says. “The growing population of young adults and youth will likely sustain the RTD coffee segment over the next five years, and potentially take away from other coffee segments like instant coffee. Nonetheless, it is clear the coffee market is well established in the U.S. and has grown to encompass a vast portfolio that appeals to nearly all demographics and tastes.”