Zacks_Analysts' Blog : Specialty Coffee Industry Defies Recession - Analyst Blog

Despite the recessionary environment, demand for specialty coffee has been rising. According to the data provided by the National Coffee Association's (NCA) 2009 National Coffee Drinking Trends market research survey, coffee consumption has remained steady at 59% so far in 2009, and the NCA also stated that the at home consumption has hit the highest levels in 2009 since 2003 increasing by 5%.

Further, Andrew Hetzel, President and Founder of Cafemakers, states that, a smaller-sized coffee with strong flavors provides more satisfaction to the consumer and therefore customers are also willing to pay more. Customers choose specialty coffee brands based on the total value proposition that includes quality, variety, convenience, and price. Therefore, companies such as Green Mountain Coffee Roasters (GMCR), Peet's Coffee & Tea (PEET), Kraft Foods (KFT), Sara Lee (SLE) and Procter & Gamble Co (PG) are always in constant look out to introduce new varieties of coffee at attractive prices. GMCR is the only roaster to offer hot cocoa, and has also a distinctive line of single-origin coffees.

The specialty coffee industry is highly competitive, and is dominated by Starbucks Corporation. The specialty coffee market generates most of its revenues from coffeehouses that currently are over 20,000 in the U.S. In addition, coffee is also sold by coffee roasters like Peet's to foodservice operators, grocery stores, direct to consumers through websites and mail order, offices and other places where coffee is consumed or purchased for home consumption.

Further, with, McDonald's (MCD) McCafé specialty beverages and PG's divestiture of its Folger Coffee division has brought in vital changes in the U.S. coffee market. MCD is also planning to introduce a cappuccino bar in many of its stores, priced below Starbucks primarily intending to expand the breakfast and afternoon day parts.