A month ago, James Hoffman wrote a three-part thought piece detailing the state of speciality coffee globally using London as a case study. It’s definitely worth a read. In it, he pointed to the positive outlook in the industry and warned that the current rate of growth the market was likely set to experience a market correction. Whilst agreeing with some of the assumptions, I disagreed slightly with some of the conclusions. By popular demand from many of those in the industry, the following is a modified version of my response to Hoffman’s article.
I believe the bubble you've described is beginning to form in London. I have mentioned it briefly to a few people in the industry that there will be natural saturation point. You covered these points in the Lull and Bubble excellently. However, it may be a while before this happens and I anticipate we will see (and already have seen) a change in business models as coffee shops adapt to new trends. Of the 330 coffee shops I put on my map a year ago, I estimate only 20 - 30 have closed. There is still quite a bit of growth potential. We might see what you've described in particular areas of London first though. I can think of a few places where I believe the market is at capacity.
Growth in London
Within London, coffee shops that are opening are, as you mentioned, not innovative. Most new entries (those who are new to the industry as a whole) are, as you highlighted, those office workers/career changers who've been attracted to the growth of the industry. Usually these individuals will have an espresso blend and machine supplied from one of the main London roasteries. These rarely have filter options and the quality is largely dependent on which roastery they go with and the subsequent training they receive. The other category are those baristas who have realized after 3-4 years that the only way to progress in the industry is to open your own place.
Currently, London is set to undergo another wave of rapid expansion caused by three trends:
First, coffee shops in London that have operated for 1-2 years have been immensely successful and owners are looking to open their second or even third site. Most coffee shop owners that I know are looking to expand and/or begin roasting their own coffee.
Second, we are witnessing the growth of "independent chains." Notes/Grind/Taylor Street/Fernandez and Wells/Beany Green/Dept of Coffee all have ambitious expansion plans. Both Grind and Beany Green raised bonds of over £1m to fund new sites.
Third, big London institutions (like the National Opera, the Tate, etc.) and public institutions (churches, libraries) are retrofitting their outlets to take into account of the growth of specialty coffee. Big chains (Pret, Starbucks) are either changing their language or launching their own concept stores. There is now the direct establishment of specialty coffee stalls within offices.
All of this supports your analysis. However, something important I think you've missed out within your analysis is the consumer.
Coffee is a longstanding consumer staple. In its long history, people have always consumed coffee in one from or another. What's changed is how it's consumed (for example, the rise of instant coffee after WWII) and the environment in which its consumed (the rise of cafe culture around the world.)
What Starbucks managed to do, and the "third wave" built upon, was convincing people to pay a premium for coffee and of the difference between bad and good coffee. To the average consumer, it's an easy distinction to learn. What's more difficult to discern, for the average consumer, is the difference in taste between good and better coffee. Being critical, this is where I think the London coffee scene has not invested nearly enough into. (Michael from Assembly summarized this problem brilliantly in this comic.)
Speciality Coffee Versus Cafe Culture
To give an example, of the 400+ coffee shops that I've visited and are still trading, I estimate only around 80 offer filter coffee as an option. I think for many, filter is seen as a bit of novelty or even an annoyance- particularly during rush hour, that offers terrible financial returns. I have sat in coffee shops during rush hour and seen baristas dissuade customers from ordering filter and suggesting a long black instead. Some coffee shops with high trade have tried to circumvent this by offering batch brew instead. It’s not difficult to see why, overwhelmingly flat whites and lattes are what customers order.
I am going to go out on a limb and suggest this: specialty coffee is not growing. Coffee shop culture is growing instead. This is partially due to urban trends (Cities are growing. Suburbia is not.), the role of cafes as replacing traditional community hubs (such as the pub) and the rise of the experiential economy. There is now a research study of the University of Coventry looking at the role of coffee shops in urban environments. The role of cities has changed dramatically. Coffee shops are unwittingly part of a wider trend.
Coffee shops have already adapted their business models. Timberyard is not purely a specialty coffee shop. Timberyard is a co-working space for London's growing tech/creative sector with specialty coffee. The Grind group is a brunch/cocktail bar with specialty coffee. Beany Green is catering to the huge rush of office workers with a compelling takeaway lunch menu. Association Coffee/Workshop are catering to office workers who need high-end and affordable meeting spaces. In outer London, there is an entire new market of "play cafes" catering to the market of women with young children that serve specialty coffee.
So where can Specialty Coffee go from here?
In the past, coffee-producing countries collaborated and collectively pumped millions into advertising, research and PR to grow their customer base. They knew they all benefited from working together to increase the size of the market. If the market for specialty coffee is to become saturated, than another solution is to try and increase the market.
As you pointed out, in the UK- per capita consumption has barely grown and the UK remains one of the only countries where instant coffee is favored to fresh ground of fresh coffee beans. There is still massive scope to covert people to specialty coffee.
This was one of my first observations about the UK coffee scene. There is no collective voice that reaches out to try and engage customers. Coffee classes are ridiculously expensive (one coffee shop has an "introduction" that costs £160.) and cuppings and events that are currently being held I find inaccessible to the average consumer. Caffeine Magazine is a welcome step for the UK as is the introduction of sites like Perfect Daily Grind, but there needs to be something even a bit simpler.
I think there is room for an organisation to collectively band the independent coffee industry together through subscription/membership fees with the sole aim of promoting and training the next generation of consumers to appreciate good and better coffee. Publishing free coffee introductory guides to be stocked in independent coffee shops. Launching integrated social media campaigns (such as Kaffeine's #SaturdayCoffee), encouraging coffee shops to hold free cuppings on specific days (they really should be called coffee tasting) and free training courses. Holding events with a greater focus on consumers and a greater focus on coffee shops and coffee culture in London. Recognizing that unless more people are converted into specialty coffee, then the industry itself might become just another trend.