Coffee Shops Thriving During 'Lunchflation'

There is a new trend emerging in coffee retail circles called “lunchflation,” which is a nod to the growing number of people that now view coffee as a treat, while cutting back on eating lunch out.

It’s something that retailers can take advantage of, mostly based on store location and certainly time of day, Darren Wood, principal, The Providence Group, tells GlobeSt.com.

Over the last five decades, America’s coffee culture has matured, and a new version of a coffee destination is emerging that broadens the time of day when the product is purchased, the product that’s being sold, and it is reflective of new foot traffic patterns, he said.

“This time shift and expanding menu can appeal to both those who need a jolt of caffeine to get going in the morning, as well as younger adults seeking a fun fruity beverage or high-energy cold drink in the afternoon,” Wood said.

The market is fragmented, and today’s coffee retailer is less concerned about selling coffee in the morning and more about being aligned with foot traffic trends.

“That coffee retailers prefer to be as close to Chick-fil-A as they can reveals a great deal about when they believe their peak hours are now and where the best foot traffic counts are,” he said.

“The new coffee retailer’s prime time leans closer to afternoons when kids get out of school or the early evening.”

A portion of coffee foot traffic is driven by a need to grab a cup of coffee to get started in the morning or as an afternoon boost. However, researchers say location intelligence indicates midday visits at a number of national coffee retailers is increasing.

Between Q1 2019 and Q1 2023, almost all coffee chains analyzed, including Starbucks, Dunkin’, Tim Hortons, Peet’s Coffee, and Caribou Coffee (and excluding Dutch Bros) experienced an increase in visits between 11 am and 2 pm, reports Placer.ai.

“That growth is likely anchored in the fact that people want a midday pick-me-up or remote workers are finding a spot to get into a more creative mode,” Wood said.

Looking at the shift in coffee visits between 2019 and 2023 may explain some of coffee’s outperformance of the wider dining industry, according to Placer.ai.

“The shift in visit times presents an excellent opportunity for coffee chains to expand their lunch offerings,” the retail data firm said.

“With the growth in late morning and early afternoon visits, these brands can tap into the market of customers looking for a convenient and comfortable place to grab a bite alongside their coffee or tea.”

Certainly, Christine Mastandrea, chief operating officer of Whitestone REIT, tells GlobeSt.com, with the shift to work-from-home allowing people to seek out communal experiences and expanded offerings that come with modern coffee retailers.”

Between Q1 2022 and Q1 2023, weekday visits to coffee shops increased across all four major chains, Placer.ai discovered.

Dutch Bros – the one chain that hasn’t seen an increased share of midday visits – saw the most significant shift in its visitation patterns, with weekday visits to the Oregon-based brand growing from 59.3% in Q1 2022 to 61.8% in Q1 2023. Starbucks took second place, followed by Tim Hortons and Dunkin’.

Diving more into the numbers, the baseline change in coffee and overall dining visits since January 2020 shows that coffee’s COVID recovery regularly outperformed that of the overall dining industry, according to Placer.ai.

It also found that since January 2022, monthly year-over-three-year (Yo3Y) visit gaps in the coffee space were consistently narrower than Yo3Y visit gaps for the wider dining category.