Coffee Shop Market Adjusts to Economic Environment

The coffee shop sector continues to experience dynamic growth and transformation, with major players adopting new strategies, entering new markets, and navigating changing consumer demands. Each brand offers a unique narrative—whether it’s expansion, recalibration, or market positioning—that shapes the competitive landscape.

Tenant Updates

Starbucks

Since July, 162 Starbucks properties were listed on CREXI. These locations featured an average cap rate of 5.79% and an average remaining lease term of 9.8 years. Among coffee shop brands, Starbucks has undergone the most significant changes recently, driven by the appointment of a new CEO and the implementation of a revised expansion strategy. These developments make Starbucks a key player to monitor, as they are likely to have both short and long-term implications for the commercial real estate market.

Dutch Bros

In August, Dutch Bros stock experienced a significant 20% decline following the announcement that the company would fall short of its 2024 expansion goals. Despite this setback, Dutch Bros currently leads the industry in income generated per store and commands some of the highest rents relative to its square footage.

Looking ahead, the company is likely to recalibrate its growth strategy. By 2025 and beyond, Dutch Bros could accelerate its expansion efforts, recognizing the substantial impact unmet targets have on investor confidence and market value. With a long-term goal of reaching 4,000 locations, Dutch Bros will likely need to increase the pace of store openings to remain competitive, especially as emerging rivals continue to expand aggressively in the market.

7 Brew

7 Brew, fueled by significant investment from Blackstone, is currently the fastest-growing coffee chain in the market, rapidly expanding its footprint with an aggressive drive-thru-focused model. Last week alone, the company opened nine new coffee stands, marking a record pace as it works toward its ambitious goal of 500 new locations in the coming year. This remarkable growth reflects both operational efficiency and strong market demand, positioning 7 Brew as a formidable competitor in the industry. As the brand reshapes the competitive landscape with its high-volume, streamlined approach, it exemplifies the growing importance of speed-to-scale and innovative business models in the coffee sector, making it a key player for investors and industry watchers alike.

Dunkin’

Dunkin’ has experienced relatively little change in recent months, with no significant developments or major news emerging from the brand. However, in the markets where Dunkin’ is most entrenched, smaller drive-thru coffee chains are beginning to make their mark and expand aggressively. A prominent example of this is Florida, where Dutch Bros has only recently started to establish its presence, and 7 Brew is likely to follow suit in the near future. This growing competition from newer, fast-growing brands could pose challenges for Dunkin’ as these regional players increase their footprint. Most of the Dunkin’ properties recently traded have been part of larger portfolios.

Scooter’s Coffee

Scooter’s Coffee presents an interesting case in the coffee shop industry. Once the fastest-growing chain in the nation, the company has recently slowed its expansion plans considerably. New locations have become increasingly infrequent. This slowdown in growth comes at a time when the industry is primed for expansion, particularly with Starbucks taking a step back to consolidate its locations. This shift creates a unique opportunity for brands like Scooter’s to capitalize on the changing competitive landscape, making it a trend to watch moving forward.

Caribou Coffee and The Human Bean

These two coffee chains share several similarities, particularly in their competitive franchise models. The Human Bean, for instance, has a highly selective franchise process, admitting only 2% of potential franchisees. Both brands approach expansion with a strategic mindset, carefully targeting high-potential markets for growth. Their focused approach to market selection ensures that each new location is positioned for optimal success. This reflects a commitment to long-term sustainability and brand strength.