IBISWorld Industry Report 72221bCA Coffee & …Coffee+... Coffee & Snack Shops in Canada October...

WWW.IBISWORLD.CA Coffee & Snack Shops in Canada October 2014 1

IBISWorld Industry Report 72221bCACoffee & Snack Shops in CanadaOctober 2014 Andy Brennan

Brewed awakening: Consumer spending will boost sales, but competition remains a challenge

2 About this Industry2 Industry Definition

2 Main Activities

2 Similar Industries

3 Additional Resources

4 Industry at a Glance

5 Industry Performance5 Executive Summary

5 Key External Drivers

7 Current Performance

9 Industry Outlook

11 Industry Life Cycle

13 Products & Markets13 Supply Chain

13 Products & Services

14 Demand Determinants

15 Major Markets

16 International Trade

17 Business Locations

19 Competitive Landscape19 Market Share Concentration

19 Key Success Factors

19 Cost Structure Benchmarks

21 Basis of Competition

22 Barriers to Entry

23 Industry Globalization

24 Major Companies24 Tim Hortons Inc.

25 Starbucks Coffee Company

27 Operating Conditions27 Capital Intensity

28 Technology & Systems

29 Revenue Volatility

29 Regulation & Policy

30 Industry Assistance

31 Key Statistics31 Industry Data

31 Annual Change

31 Key Ratios

32 Jargon & Glossary

www.ibisworld.ca | 1-800-330-3772 | [email protected]


This industry prepares or serves specialty snacks and nonalcoholic beverages, including ice cream,

frozen yogurt, cookies, donuts, bagels, coffee, juices, smoothies or sodas.

The primary activities of this industry are

Operating coffee shops

Operating snack shops

Operating ice cream and soft-serve shops

Operating frozen yogurt shops

Operating donut shops

Operating bagel shops

Operating juice and smoothie shops

Operating cupcake shops

Operating cookie shops

44529CA Specialty Food Stores in CanadaThis industry primarily retails confectionery goods and nuts not packaged for immediate consumption.

72211CA Full-Service Restaurants in CanadaThis industry primarily engages in full-waiter service and serves food to patrons who pay after eating.

72232CA Caterers in CanadaThis industry includes companies that provide individual event-based foodservices.

72233CA Street Vendors in CanadaThis industry primarily sells snacks and nonalcoholic beverages from vehicles.

72241CA Bars & Nightclubs in CanadaThis industry primarily prepares and serves alcoholic beverages.

72221aCA Fast Food Restaurants in CanadaThis industry primarily provides food to patrons who pay before eating. Generally, there is limited or no waiter service involved.

Industry Definition

Main Activities

Similar Industries

About this Industry

The major products and services in this industry are

Coffee beverages

Food

Other beverages

Other


About this Industry

For additional information on this industry

www.coffeeassoc.com Coffee Association of Canada

www.restaurantscanada.org Restaurants Canada

www.statcan.gc.ca Statistics Canada

Additional Resources

IBISWorld writes over 400 Canadian industry reports to help you make better business decisions, faster. To see all reports, go to www.ibisworld.ca


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Consumer spending

SOURCE: IBISWORLD

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2006 08 10 12 14 16 18Year

Revenue Employment

Revenue vs. employment growth

Products and services segmentation (2014)

51%Coffee beverages

34%Food

12%Other beverages

3%Other

SOURCE: IBISWORLD

Key Statistics Snapshot

Industry at a GlanceCoffee & Snack Shops in 2014

Industry Structure Life Cycle Stage Mature

Revenue Volatility Low

Capital Intensity Low

Industry Assistance Low

Concentration Level High

Regulation Level Medium

Technology Change Low

Barriers to Entry Low

Industry Globalization Low

Competition Level High

Revenue

$9.2bnProfit

$597.3mWages

$2.6bnBusinesses

657

Annual Growth 14-19

2.9%Annual Growth 09-14

4.3%

Key External DriversConsumer spendingConsumer Confidence IndexConsumer price index for foodAdult obesity rate

Market ShareTim Hortons Inc. 69.9%Starbucks Coffee Company 15.2%

p. 24

p. 5

FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 31


Key External Drivers Consumer spendingFood-service establishments are sensitive to changes in consumer spending due to the discretionary nature of the industry’s products. When personal consumption expenditure is high, consumers will be more likely to spend money on eating out at fast-food restaurants. Consumer spending is expected to increase in 2015, providing a potential opportunity for the industry.

Consumer Confidence IndexChanges in consumer confidence have a significant effect on household

expenditure on discretionary items, including the amount spent on foodservices. When customers are optimistic about the economy, they spend more on these items. Consumer confidence is expected to increase in 2015; however, the inherent volatility of the index remains a threat to the industry.

Consumer price index for foodThe consumer price index for food is a proxy for input costs for coffee and snack shops. Food prices have increased over

Executive Summary

The Coffee and Snack Shops industry has grown strongly over the past five years, driven by the country’s two biggest coffee chains, Tim Hortons and Starbucks. The industry is highly concentrated, with these two companies alone holding an estimated market share of 85.1%, meaning the industry’s overall performance is heavily reliant on the major chains. Consumer spending in Canada, which has grown 2.5% per year on average over the five-year period, has supported the industry’s growth, as

consumers have been more willing to splurge on small luxuries like coffee and donuts since the recession. Busier lifestyles, which leave less time for preparing meals or beverages at home, have also helped the industry as coffee and snack shops have placed a greater emphasis on convenience. As a result of these positive trends, industry revenue is anticipated to grow 4.3% per year on average over the five years to 2014 to reach $9.2 billion, including a 2.1% increase in 2014.

The industry has benefited from greater spending by consumers in the breakfast daypart over the past five years. The breakfast segment has been a bright spot in an otherwise slow-growing foodservices sector in the five years since the recession. However, coffee and snack shop operators have been forced to contend with increased competition from fast-food operators like McDonalds, which recognize that serving specialty coffee during breakfast is a key way of drawing customers through the door. For this reason, the major coffee chains have added a greater variety of food items to their menus, such as breakfast sandwiches and fruit and granola cups.

Coffee and snack shops operators will continue to offer more nontraditional, high-margin menu items like iced coffee drinks, breakfast items and wraps over the next five years. Both Tim Hortons and Starbucks plan on rolling out hundreds of new stores in Canada over the next five years to further assert their dominance over independent operators. However, the industry will contend with a mature market, meaning growth rates going forward will likely be slower than the past five years. Industry revenue is forecast to grow at an annualized rate of 2.9% over the next five years to reach $10.6 billion by 2019.

Industry PerformanceExecutive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage

Revenue is expected to rise, but the industry will contend with a mature market


Industry Performance

Key External Driverscontinued

the past five years, outpacing the overall rate of consumer prices, due to rising farming and transportation costs. The consumer price index for food is expected to increase in 2015.

Adult obesity rateCanada has one of the world’s highest obesity rates according to the Organisation for Economic Co-operation and Development (OECD) and the

percentage of the adult population that are obese or overweight is expected to continue to increase in 2015, as consumers’ diets continue to get progressively poorer. Still, consumers are also becoming increasingly aware of issues related to weight and obesity, fatty-food intake and food-safety issues. This factor particularly affects operators that have a large proportion of fatty or unhealthy products.

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2107 09 11 13 15 17 19Year

Consumer Confidence Index

SOURCE: IBISWORLD

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Highly concentrated industry

The Coffee and Snack Shops industry is unique in Canada for the dominance of one single chain: Tim Hortons. Tim Hortons holds a market share estimated to be 69.9% in 2014, making this industry one of the most highly concentrated of any industry in the economy. For this reason, the performance of the broader industry correlates strongly with that of Tim Hortons. Over the past five years, Tim Hortons has grown at a steady rate, driven by new store openings and a higher average check amount per customer.

However, the chain has experienced a slowdown compared with the 1990s and early 2000s as the domestic market has become saturated with coffee shops and other food-services companies serving coffee. Meanwhile, Starbucks, with 1,300 locations in Canada, also has a significant market share and has been the fastest growing chain over the past five years in terms of new stores. However, the US-based chain’s growth has been restricted to some degree due to the patriotic loyalty many Canadians feel for Tim Hortons.

Expedited service To cater to increased consumer demand for quick service, Tim Hortons has introduced a number of initiatives to expedite services. The chain has introduced double lanes at many of its drive-thru locations, as well as express beverage lanes inside restaurants and more mobile payment capabilities. These initiatives have been taken as a way to appease consumers that have less available time due to busier lifestyles and longer work hours. This trend is especially apparent among high-income,

white-collar workers who can afford to pay for premium coffee. This means that coffee and snack shops have benefited from the blurrier boundaries between traditional meals and snacks.

The Coffee and Snack Shops industry has outperformed its closest competitors in the food-services sector over the past five years as coffee continues to be a vital part of the daily routine of many Canadians. According to the Canadian Coffee Association, 65.0% of Canadian adults drink coffee on a daily basis and the average Canadian coffee drinker consumes an average of 2.6 cups of coffee each day. While the penetration rate of bottled water and juices has

fallen over the past five years, coffee’s penetration rate has remained steady. The majority of coffee consumption still occurs inside the home, however, rising household income has allowed more consumers to enjoy coffee prepared by cafes and coffee shops over the past five years. Industry revenue is expected to grow 4.3% per year on average over the five years to 2014. In 2014, industry revenue is anticipated to grow 2.1% to reach $9.2 billion.

Current Performance

The industry has catered to expedited services to appease consumers with busier lifestyles



Wages and profit The average industry profit margin has improved over the past five years; however, coffee and snack shops have still been subject to slim profit margins, with the average industry profit margin estimated to represent 6.5% of revenue in 2014. Despite some consumer segments taking to higher-margin specialty coffee, most customers have retained a preference for lower-priced items since the recession, which has restricted the ability of operators to raise their prices. High product turnover has therefore been critical to

the success of operators, meaning coffee chains have offered various promotions to increase customer foot traffic. Despite some technological breakthroughs by the major chains that have lowered labour costs, the industry remains labour intensive. Labour is required throughout every aspect of the supply chain, from front-of-house service, to preparing and cooking food, to cleaning. Total industry wages are expected to climb 4.0% per year on average to reach $2.6 billion over the five years to 2014.

One of the fastest growing segments of the industry over the past five years has been independent coffee shops targeting coffee connoisseurs with high-quality espresso, as well as siphoned and filtered coffee beverages. This trend, which has been termed ‘third wave’ or ‘specialty’ coffee, considers coffee an artisanal product, rather than a commodity, where the origin of the coffee bean is important, much like wine. This trend mirrors that of other countries, such as Australia, the United Kingdom and Scandinavia, where ordering a cup of coffee has become an experience in and of itself among many demographics. The Canadian market has buttressed the United States where there are many prominent third wave coffee exponents, such as Stumptown Coffee Roasters in Portland, Intelligentsia Coffee in Chicago and Blue Bottle Coffee

in San Francisco. Specialty coffee remains small in comparison to the total industry, in part due to the higher price point that third wave coffee commands, however, the segment has grown quickly over the past five years and has had a large influence on the major coffee chains. These trends have helped many independent operators establish themselves over the past five years, leading to growth in the number of industry establishments at a rate of 4.6% per year on average to 7,285 businesses.

Third wave coffee The trend of third wave coffee has helped independent shops to become more established



Profitability Industry profitability is expected to improve slightly over the next five years as sales volumes increase and consumers begin to indulge in high-priced premium items. Larger operators are implementing a number of initiatives to boost profit, such as using technology to reduce wage costs. For this reason industry wages are anticipated to grow at a slightly slower rate than revenue over the five years to 2019, by 2.8% per year on average to

$3.0 billion. Operators will also attempt to boost profit margins by enticing customers to spend on higher-margin products when in store. This strategy emulates Starbucks, which has been successful at expanding beverage options to include more coffee-based drinks and smoothies. Many independent operators will be constrained in their ability to raise prices due to intense competition throughout the industry.

The Coffee and Snack Shops industry is expected to continue growing over the five years to 2019, albeit at a slightly slower rate than the previous five years. The macroeconomic fundamentals that drive the industry’s growth are all expected to perform well. Consumer spending is projected to rise 2.4% per year on average and household income will continue to climb. This will encourage consumers to spend on food and beverages outside the home more often. However, the industry is mature and faces significant challenges. Growth has tapped out to some degree in Canada, as the market has been saturated with coffee and snack shops. There are opportunities for growth in some segments, especially those providing healthy menus and gourmet products

that cannot be recreated at home as easily. Industry revenue is anticipated to grow 2.9% per year on average over the five years to 2019 to total $10.6 billion.

Industry Outlook

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Industry revenue

SOURCE: IBISWORLD

With over two-thirds of the industry’s market share, Tim Hortons performance will continue to dictate the broader industry. Tim Hortons’ management perceives 4,100 restaurants as the current ceiling in Canada for its network, and the chain plans to open about 500 restaurants between 2014 and 2019. The company also plans to grow by improving the guest experience and by providing fast, accurate and friendly service. Additionally, the chain plans to connect

and transact with customers in new and innovative ways through technology. Tim Hortons will encourage guests to trade up to premium options that attract higher revenue and profit margins. As opportunities become available for traditional restaurants, the company will roll out smaller store formats in different locations such as offices, sporting venues and healthcare locations. These new locations will likely attract lower spending per location.

New avenues for growth



Fierce competition is expected between the major chains and independent establishments over the next five years. This competition will increase as the market becomes saturated and operators attempt to appeal to a wider audience. The continued expansion of Starbucks in Canada, which positions itself between Tim Hortons and independent coffee shops in terms of quality and price, is likely to present strong challenges to its competitors. Starbucks will continue to aggressively target younger demographics, with the hope that they can convert these consumers for life. Ultimately, Starbucks’ performance will depend on how successfully it can convert patriotic Tim Hortons drinkers to its global brand of coffee. A more localised approach may be necessary, putting Starbucks in direct

competition with Second Cup and small local operators that promote their independence as a competitive advantage. White-collar workers, especially those in high-income, inner-city locations, are the most likely to gravitate to independent coffee shops serving more expensive specialty coffee. These high-income urbanites will be the major driver of the third-wave trend that has taken the global coffee industry by storm over the past five years. Overall, the number of industry establishments is expected to rise 2.9% per year on average to 8,388 locations between 2014 and 2019.

Competition to intensify Competition will rise as

operators attempt to appeal to a wider audience


Industry PerformanceThe industry is growing at a slightly faster rate than the Canadian economyThe industry has become saturated as a greater number of food services operators offer coffeeTechnological change is unlikely to assist the industry enter a new life cycle

Life Cycle Stage

SOURCE: WWW.IBISWORLD.COM

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DeclineShrinking economicimportance

Quality GrowthHigh growth in economic importance; weaker companies close down; developed technology and markets

MaturityCompany consolidation;level of economic importance stable

Quantity GrowthMany new companies; minor growth in economic importance; substantial technology change

Key Features of a Mature Industry

Revenue grows at same pace as economyCompany numbers stabilize; M&A stageEstablished technology & processesTotal market acceptance of product & brandRationalization of low margin products & brands

Specialty Food Stores Coffee & Tea ProductionFull-Service RestaurantsDairy Wholesaling

Fast Food Restaurants

Coffee & Snack Shops



Industry Life Cycle The Coffee and Snack Shops industry is in the mature phase of its lifecycle. Industry revenue has grown consistently during the past decade and has outpaced the broader food-service sector. Coffee has a very high penetration rate in Canada, which has held firm over the past decade as the penetration rate of some other beverage types, like soda and juice, has fallen. However, in many regions the industry has become saturated as a greater number of food-services operators offer coffee to attract customers. Tim Hortons’ official strategy in Canada is to defend, rather than robustly expand its dominant market position, recognizing that growth of the brewed coffee segment has flattened. The chain, which commands nearly 70.0% of the industry’s market share, is relying on guest loyalty, its superior network of stores and a strong brand in Canada to grow sales. In the 10 years to 2019, industry value added (IVA), which measures an industry’s contribution to GDP, is projected to grow at an annual rate of 3.5% per year. During the same period, GDP is estimated to grow at an annualized rate of 2.3%, meaning the

industry is growing at a slightly faster rate than the overall economy.

The rate of technological change within the industry is moderate, but the rapid increase in internet penetration and smartphone usage over the past five years has presented savvy coffee and snack shop operators with the opportunity to engage with customers on a number of new levels. Many small coffee and snack shop operators have used online advertising, informative and interactive company websites and social media such as Twitter and Facebook to increase their brand recognition and revenue. This technology assists smaller industry players to connect with their customer base and compete with the bigger chains that have a much bigger marketing budget. Large chains, such as Tim Hortons and Starbucks, are using technology to boost profit margins, improve service levels and to help minimize labour costs, reducing food waste, improving business processes. For example, new systems and technology such as electronic ordering systems linking the front counter with the kitchen as orders are taken, are designed to ensure quality service and reduce customer-waiting time.

This industry is Mature


Products & Services Coffee beveragesCoffee is by far the largest product segment in the industry and industry operators produce a wide range of coffee products that are differentiated by strength, style, type of beans and type of milk. Traditionally the industry served mainly brewed coffee at a low price point and this is still the industry’s main earner. Tim Hortons’ household blend coffee typically sells for between $1.50 and $2.00 per 10oz cup. However, over the past five years, higher priced forms of coffee such as espresso, siphoned and filtered coffee beverages, which typically retail for more than $3.00 per cup, growing as a share of the coffee segment. The type of beans used has become a significant point of differentiation among smaller niche shops, with rarer blends, fair trade coffee and organic beans becoming more popular. This trend has supported premium pricing across the segment and given rise to a greater number of independent operators. The number and form of iced coffee beverages has also grown over the past five years as

brewing and serving techniques have improved and have given rise to forms such as cold brewed coffee which do not compromise the taste. Iced coffee sales are largely seasonal, with demand much higher in warmer seasons.

Other beveragesIndustry operators sell a range of hot and cold beverages besides coffee. Cold beverages include products such as milkshakes and iced teas. Coffee and snack shops also tend to sell bottled water, juices and a limited selection of carbonated drinks. Hot beverages include products such as tea, hot chocolates and chai lattes. These products provide an alternative to highly caffeinated drinks. A coffee shop may offer several types of tea and chai. As with cold beverages, demand for this segment is seasonal. In warmer seasons, demand for hot beverages decreases compared with colder seasons. This segment has declined as a share of industry revenue over the past five years, as growth in coffee and food items has outpaced other forms of beverages.

Products & MarketsSupply Chain | Products & Services | Demand Determinants Major Markets | International Trade | Business Locations

KEY BUYING INDUSTRIES

9901CA Consumers in Canada Households are the key driver of demand for this industry’s products.

KEY SELLING INDUSTRIES

31192CA Coffee & Tea Production in Canada This industry supplies coffee and tea to operators.

41312CA Dairy Wholesaling in Canada This industry supplies dairy products to operators.

41314CA Fish & Seafood Wholesaling in Canada This industry supplies seafood to operators.

41315CA Fruit & Vegetable Wholesaling in Canada This industry supplies fruit and vegetables to operators.

41316CA Beef & Pork Wholesaling in Canada This industry supplies meat products to operators.

41319CA Frozen Food Wholesaling in Canada This industry supplies frozen foods to operators.

Supply Chain


Products & Markets

DemandDeterminants

Demand for coffee and snack shops is determined by a number of factors including household income, consumer confidence, attitudes to health and propensity to eat out, rather than at home.

Income and expenditureThis industry is sensitive to factors that affect the growth in household disposable income because disposable income is

required to finance restaurant and dining expenditures. Household disposable income growth is affected by changes in labour market growth (i.e. employment rates), in tax and interest rates, high and increasing gas prices, and changes in consumer confidence. The industry’s performance is reliant on growing household income, high consumer confidence and a robust economy. For

Products & Servicescontinued

FoodThe food segment includes snack items such as donuts, cookies, pastries, cookies, cakes, bagels and muffins, yogurt and ice-cream as well as full-meal food options like sandwiches, wraps, salads and fruit. The industry competes on the basis of speed of service, therefore, items that require more preparation time are not commonly found in coffee and snack shops. While sandwiches, salads and other lunch items do not sell in as large volumes as other products, they tend to be more expensive, which raises the amount of revenue they generate. Additionally, these items are positioned as complements to the coffee and consumers rarely buy them without a beverage. The food segment has

increased as a share of industry revenue over the past five years as coffee and snack shop owners have sought to promote the sale of higher margin food products. In this way, the industry now competes directly with fast food and other restaurant operators that specialize in food.

Other revenue streamsIndustry operators also sell a range of retail items such as packaged coffee, coffee pods, drink ware, equipment, and other accessories. This segment has increased only slightly as a proportion of total industry sales over the past five years as coffee and snack shop operators have become savvier at marketing ancillary products and offering in store promotions.

Products and services segmentation (2014)

Total $9.2bn

51%Coffee beverages

34%Food

12%Other beverages

3%Other

SOURCE: IBISWORLD


Products & Markets

Major Markets The major markets for the Coffee and Snack Shops industry can be segmented based on a number of factors including income, age, geographic location and family structure. Given the discretionary nature of the industry, an indication of major markets can be inferred on the basis of annual expenditure on food and beverages from restaurants. According to Statistics Canada, the average household spent 3.5% of their annual food budget on restaurant snacks and beverages in 2012 (latest available data). This figure has climbed slightly over the past five years, but still lags behind restaurant spending by consumers in the United States.

IncomeHouseholds tend to spend less of their overall income, but more of their food budgets, on restaurant snacks and beverages as their incomes rise. An estimated 34.5% of industry demand comes from consumers in the nation’s highest income quintile. High income, well-off households spend more of their food budgets at restaurants, according to Statistics Canada. On the other hand, those in the lowest income quintiles often need to make significant sacrifices in order to afford meals away from home. The three middle-income quintiles represent about 55.0% of industry demand, which

DemandDeterminantscontinued

example, lower consumer confidence, weak levels of disposable income and rising unemployment tightened household budgets, encourage people to save more and spend less by cooking at home rather than eating out.

DemographicsThe changing age structure of the population influences industry demand. Two broad demographic trends have encouraged industry growth in the past decade. First, the baby-boomer generation has access to higher disposable incomes than previous generations, meaning they are more likely to spend on eating out. Additionally, when compared with previous generations, young adults aged between 18 and 30 years old are delaying marriage and having children later; this allows them to spend a greater proportion of their income on eating out. In fact, young adults in this age bracket spend more of their food budget on eating out than any other age group.

Health consciousnessRising health consciousness has a direct effect on industry operators as Canadian

consumers become increasingly concerned about fat content, fried foods and salt content, especially when dining out. As such, rising concerns over the nutritional value of fast food meals are likely to influence demand for certain foods on menus, thus encouraging industry players to alter their product mix. Rising health consciousness is also expected to affect the overall performance of industry players by rewarding operators who expand their menu choices to include a range of healthy meal options among other more indulgent food items.

ConvenienceConvenience, value for money and time are other important demand determinants. Recent social trends such as busier lifestyles, heavier workloads and longer working hours, have helped boost demand for restaurant services and convenience food, as time-poor consumers look to cut down on cooking times and make better use of their spare time. Moreover, restaurants have become more of a place for family get-togethers, special occasions, and social meetings for both cash-rich and time-poor consumers.


Products & Markets

International Trade As a retail industry, the Coffee and Snack Shops industry is not technically engaged in importing or exporting products, so international trade is not relevant to the industry. However, a number of industry players have overseas operations and earn a significant portion of their revenue

from abroad. Given the mature stage of this industry’s life cycle in the domestic market, and changes in customer profiles and tastes, many major operators are seeking to increase their growth in revenue and earnings through further global expansion.

Major Marketscontinued

illustrates how important the middle-class consumer is to the industry’s performance. While these consumers do not typically spend big on luxury food or coffee items, they contribute to steady demand for midrange restaurants.

Household structureOne-person male households spend the largest percentage of their incomes in restaurants and other food service establishments, spending about 40.0% of their total weekly food expenditure in food service establishments. In comparison, couples with children and couples aged 65 years and over spend less than 30.0% of their weekly food budgets at restaurants and food service

establishments. This is largely due to economics, as older couples tend to survive off lower incomes and, therefore, have lower budgets for discretionary food and beverage spending. While couples with children may have relatively high incomes, they have more mouths to feed and visiting a food service establishment may be unaffordable as a result.

The distribution of the industry’s major markets has not changed dramatically over time as spending patterns within income brackets are relatively established. Although budgets were tightened during the recession, this occurred across all demographics, so it did not influence the industry’s major markets distribution.

Major market segmentation (2014)

Total $9.2bn

34.5%Highest quintile

of incomes

23.3%Fourth quintile

of incomes

16.3%Middle quintile

of incomes

15.2%Second quintile

of incomes

10.7%Lowest quintile

of incomes

SOURCE: IBISWORLD


Products & Markets

Business Locations 2014

NORTHERN TERRITORIES0.4

BC14.0

AB12.0

SK2.8

MB3.2

QC21.1

NS3.3

PE0.5NB

2.7

NL1.5

YTNT

NU

Establishments (%)

Less than 5% 5% to less than 20% 20% to less than 40% 40% or more

SOURCE: IBISWORLD

ON38.5


Products & Markets

Business Locations As a service-based retail industry, operators are dispersed largely in line with population and income distribution. Ontario and Quebec have the largest share of industry establishments by an overwhelming margin, with 38.5% and 21.1% of establishments, respectively. These provinces are home to the country’s two largest metropolitan areas, Toronto and Montreal, as well as cities such as Ottawa, Quebec and Hamilton. Coffee and snack shops tend to be more common in large urban areas where household income is higher and people converge to do business. Outlying areas such as New Brunswick, Newfoundland and Prince Edward Island have a negligible share of the industry’s establishments, all close to or below 1.0% of the country’s total.

Coffee and snack shops are located in a variety of locations. Some operators attempt to situate themselves in high profile areas with a high rate of foot or automobile traffic, however, these locations come with high rent costs. For this reason, coffee shop operators are increasingly situating themselves in alternative spaces, such as office buildings,

apartment buildings, gyms, airports and retail shopping strips.

The current distribution is not expected to change significantly over the next five years, as IBISWorld does not expect any substantial demographic changes or population shifts during the period, and the same fundamentals remain at play.

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EstablishmentsPopulation

Distribution of establishments vs. population

SOURCE: IBISWORLD


Cost Structure Benchmarks

ProfitThe Coffee and Snack Shops industry’s profit is based on earnings before interest and taxes. Profit margins vary between players depending upon the size of the business. Larger operators, such as Tim Hortons and Starbucks, benefit from economies of scale, such as the ability to negotiate favourable terms with suppliers. However, the highly competitive nature of the industry means most operators can only access slim profit margins. The types of products an operator sells also

influences profit margins. For example, Starbucks has added a number of complementary food items to its menu in an attempt to access higher profit margins. IBISWorld estimates that in 2014, the average industry operator will obtain profit equivalent to 6.5% of revenue.

PurchasesTypically, the largest cost for industry operators is the purchases of food and beverages sold in shops. Food and beverages are usually purchased from wholesalers,

Key Success Factors Having a clear market positionHaving a clear market position against competitors in the limited-service industry and other food-service operators is a necessity.

Effective cost controlsCost controls with minimal waste are important in this low-margin industry, particularly related to food inputs.

Ability to franchise operationsFranchising is now a significant component of this industry, and it

can provide significant support to owners.

Access to multiskilled and flexible workforceBusinesses need to have access to a good supply of skilled, seasonal workers to meet peak demand periods.

Product is sold at high profile outletsIt is important to have high-profile locations for stores, with easy access, parking and drive-through services for customer convenience and service.

Market Share Concentration

IBISWorld estimates that in 2014, the top four players in this industry account for about 89.0% of the available market share, providing this industry with a high level of concentration. Although there are a large number of independently owned coffee and snack shops, the industry is now dominated by chains, with Tim Hortons and Starbucks the biggest operators by a large margin. Tim Hortons is synonymous with coffee in Canada and has become somewhat of a cultural fixture. The company’s marketing emphasizes its place as a national icon. Tim Hortons has a higher

share of its chosen industry than almost any company in the country.

The industry’s concentration has increased over the past five years because of the rapid expansion of the major chains, to the point where the major chains are reaching the limits of their growth in Canada. For this reason, Starbucks and Tim Hortons have started to place a higher priority on self-service kiosks and other non-traditional distribution models where existing full-service locations are at full capacity. Also, Tim Hortons is increasingly looking overseas for growth due to the saturated domestic market.

Competitive LandscapeMarket Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalization

Level Concentration in this industry is High

IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:


Competitive Landscape

Cost Structure Benchmarkscontinued

particularly from operators that can guarantee prompt delivery and the high quality. Fluctuations in the cost of food can significantly impact industry revenue and profit. In the short term, many of these cost increases cannot be passed on to the consumer or client; therefore, menus, portion sizes and other food service inputs must be monitored. Food prices have increased over the past five years, outpacing the overall rate of consumer prices, due to rising farming and transportation costs. The industry must also monitor wastage as the oversupply of meals or excess ingredients that cannot be used, negatively impact industry operators. IBISWorld estimates purchases will account for 38.1% of an average operator’s revenue in 2014, which is slightly higher than in 2009.

WagesWages are high due to the labour-intensive nature of food preparation,

cooking, serving and cleaning up. The industry is service-orientated; therefore, personal interaction is important and cannot be substituted. Additionally, there are only limited opportunities for technology and machinery to increase productivity and reduce labour costs. Over the past five years wages have declined slightly, from 29.0% of revenue in 2009 to 28.6% of revenue in 2014. During the five years to 2014, labour costs have decreased as a percentage of revenue due to the spike in wages that occurred during the recession as operators struggled to cut labour at in line with declines in revenue.

DepreciationDepreciation accounts for a small proportion of industry revenue. Once a venue is set up, limited capital expenses are required for ongoing operation. Typical capital expenditure for a

Sector vs. Industry Costs

■ Profi t■ Wages■ Purchases■ Depreciation■ Marketing■ Rent & Utilities■ Other

Average Costs of all Industries in sector (2012)

Industry Costs (2014)

0

20

40

60

Perc

enta

ge o

f rev

enue

80

1007.6

40.5

7.93.43.4

17.9

19.3

6.5

10.9

10.92.82.2

38.1

28.6

SOURCE: IBISWORLD



Basis of Competition Internal competitionThere is significant price-based competition within this industry, with different operators placing themselves at slightly different price points. For example, those that serve high quality espresso beverages charge more than operators that serve mainly brewed coffee. Coffee, snack and other quick-service establishments also compete on the basis of location, food quality and consistency, style and presentation, food range, variety and service.

Coffee and snack shops are involved in marketing the customer experience and, therefore, it is important that operators understand the positioning of their store in the marketplace, the clientele the operator is trying to attract. Most importantly, the coffee or snack shop must consistently deliver on customers’ product expectations.

Establishments located in the same, general geographic area or in food courts at malls and airports must also compete with each other. Food courts and other dining hubs have become increasingly popular in recent years. The nutritional value of the food sold in these areas has become increasingly important to customers.

External competitionExternal competition arises from the broader food service sector. This includes fast-food restaurants, and independent and chain full-service restaurants that offer dining and take-out services. These restaurants can sometimes provide a more friendly dining experience, as guests are able to directly interact with the owners or the chef. Other competition is derived from consumers deciding to cook more in-home meals, which occurs particularly during difficult economic times.

Cost Structure Benchmarkscontinued

restaurant includes fitting out the establishment, such as installing a commercial kitchen and providing tables, chairs, crockery and cutlery. Over the past decade, depreciation has fluctuated as a proportion of industry revenue and is expected to account for 2.2% of revenue in 2014. Operators are investing in capital improvements again following a lull after the recession.

Rent and utilitiesRent and utilities expenses are high for the industry because of the need for locations in high-traffic areas with high visibility. Therefore, rent and utilities

expenses are expected to equal 10.9% of an average operator’s revenue in 2014.

OtherOperators in the industry are subject to a range of other costs including professional fees, administrative costs and marketing or advertising. Franchise royalties are also a factor for operators that operate under franchise agreements. An additional marketing fee is sometimes paid to the franchiser as well. National or global chains Fast food generally spend a greater percentage of their annual revenue on marketing, advertising and promotion in comparison to full service restaurants.

Level & Trend Competition in this industry is High and the trend is Increasing



Barriers to Entry Barriers to entry are low in the Coffee and Snack Shops industry. A low level of capital is required to open a coffee or snack shop compared to other food services businesses. A new operator lower their initial capital outlays by leasing premises, equipment, furniture and fittings.

CompetitionThe industry is highly competitive and represents a barrier to entry. The size and strength of competitors vary by region, however, there are numerous competitors in nearly every geographic region of the country. The two biggest players, Tim Hortons and Starbucks each hold significant market share and dominate in some segments. Coffee and snack shops also compete against other quick service food service operators, such as McDonalds, that serve similar products. Competition from these types of establishments has intensified over the past five years as coffee has become an important battleground among food services establishments.

Coffee and snack shops also compete against alternative methods of brewed coffee for home use, for which methods have become increasingly sophisticated over the past five years. For this reason, operators have to offer a customer experience as well as a high quality product.

Franchise agreementsEntry to the industry can also occur through signing a franchise agreement, which includes outfitting and equipment, as well as training and computer systems. Franchisors also provide food and beverages and some financial and accounting functions for a proportional share of revenue from their franchisees. This lowers operational costs and can minimize some risks, especially for inexperienced persons entering the

industry. However, individual franchisees still carry much of the day-to-day operational and management risks associated with their own business.

LocationThere is significant competition among the major franchised companies to obtain suitable sites, which has increased the cost of many prime sites. However, some major franchised operators are now co-locating within an area or single building, shopping centres or malls to lower costs. While industry regulation and licencing is significant, including health and food-service regulations, liquor licencing, and general occupational health and safety issues, these regulations do not create any insurmountable barriers to enter or operate in this industry.

Barriers to successOverall, the industry’s barriers to entry are low. Meanwhile, barriers to success (i.e. the ability to stay profitable and in operation for more than a few initial years) are significantly higher. According to various sources, over half of new coffee shops change hands within three years of opening. Even among those family owned-and-operated establishments that are successful, owner burnout is high since the hours are often demanding.

Barriers to Entry checklist Level

Competition HighConcentration HighLife Cycle Stage MatureCapital Intensity LowTechnology Change LowRegulation & Policy MediumIndustry Assistance Low

SOURCE: IBISWORLD

Level & Trend Barriers to Entry in this industry are Low and Steady



Industry Globalization

The majority of nonfranchised operators are small businesses and are locally owned and operated and earn the majority of their sales domestically. However, some of the major operators have a high level of globalisation due to the mature stage of the domestic industry, leading these companies to expand internationally in order to increase revenue and earnings. The main industry operator that has a significant international presence is Tim Hortons. While Tim Hortons still earns less than 10.0% of its revenue overseas, this number is growing as opportunities in the domestic Canadian market become sparse. Tim Hortons has made a major push into the United States over the past five years, opening about 400 locations in that time.

Also, the industry has a number of international brands with operations

in Canada. The most prominent example is US-based Starbucks, which has over 1,300 locations in Canada and plans to open more. US coffee and donut giant Dunkin’ Donuts once had hundreds of Canadian locations, but now has just a small presence in Canada, mainly due to significant competition from Tim Hortons.

It is expected that the industry will be subject to an increasing level of globalisation in the coming years. IBISWorld anticipates the larger US operators will continue to enter the Canadian market and Tim Hortons will continue to seek opportunities abroad. However, there will continue to be a very strong local presence and there will even be a perceived competitive advantage to being a local operator sourcing local products.

Level & Trend Globalization in this industry is Low and the trend is Steady


Player Performance Tim Hortons Inc. is synonymous with coffee in Canada. The Canadian-based fast casual restaurant was founded in 1964 in Hamilton, Ontario and has grown to be the largest food-service operator in Canada after surpassing McDonald’s in the early 2000s. Tim Hortons caters to a broad range of consumer tastes, with a menu that includes premium-blend coffee, espresso-based hot and cold specialty drinks such as lattes, cappuccinos and espresso shots, teas, cold beverages, fruit smoothies and a growing range of food options such as soups, sandwiches, wraps, yogurt and baked goods.

Tim Hortons owns and operates only a small number of company restaurants, preferring to franchise the majority of its locations. The chain operates both full-service restaurants, as well as self-serve kiosks, that offer a limited product offering and operates in offices, hospitals, colleges, airports and

convenience stores. The company’s strategy is to use self-service kiosks where existing full-service locations are at full capacity. The company has a vertically integrated supply chain and supplies paper, dry goods, frozen baked goods and refrigerated products to a majority of its stores.

Financial performanceTim Hortons has performed in line with the industry over the past five years. Growth between 2009 and 2014 slowed compared with the high growth the company experienced during the early 2000s as the chain has become highly saturated. The company is also under attack in its homeland, with renewed competition from rivals like McDonalds and Starbucks, which are increasingly targeting consumers in the breakfast segment. Still, Tim Hortons added more than 700 locations between 2009 and 2014 and the company’s total network

Major CompaniesTim Hortons Inc. | Starbucks Coffee Company | Other Companies

14.9%Other

Tim Hortons Inc. 69.9%

Starbucks Coffee Company 15.2%

SOURCE: IBISWORLD

Major players(Market share)

Tim Hortons Inc. (Canadian industry-specifi c) – fi nancial performance

YearRevenue

($ million) (% change)Employees

(units) (% change)

2009 4,905.5 N/C 3,015 N/C

2010 5,207.9 6.2 3,148 4.4

2011 5,592.2 7.4 3,295 4.7

2012 5,937.2 6.2 3,436 4.3

2013 6,183.0 4.1 3,588 4.4

2014* 6,424.1 3.9 3,721 3.7

*Estimates; Employees=LocationsSOURCE: ANNUAL REPORT AND IBISWORLD

Tim Hortons Inc. Market share: 69.9%


Major Companies

Player Performance Starbucks Corporation commenced operations in Seattle, WA in 1971 as a specialty fresh-ground coffee retailer and coffee-shop operator. The company sells coffee, pastries, coffee accessories and, more recently, breakfast options and sandwiches. Starbucks operates about 20,000 stores around the globe, making it the biggest coffee chain in the world. Starbucks’ business model relies on a mixture of company-operated, which represent about 52.0% of the company’s locations, and licenced stores, which are operated by external franchisees that pay an annual royalty and licence fee to Starbucks.

Starbucks stores vary in size and format, and are typically situated in high-traffic, high-visibility locations. Store settings include downtown or suburban retail centres, university campuses, office buildings and off-highway locations. Starbucks has also started offering drive-thru locations to further leverage the chain’s convenience

factor. In Canada, the company operates over 1,300 locations. The company opened about 300 locations in Canada between 2009 and 2014, with college campuses being a major focus of growth.

The Starbucks brand was built on coffee, and the company still offers a broad range of regular and decaffeinated coffee beverages, along with espresso drinks. The company has also expanded into a number of product lines, and now serves a large assortment of food items, fresh juice and packaged goods. In the five years to 2014, Starbucks has sought to further diversify its product offerings with a number of multimillion-dollar strategic acquisitions. In November 2011, Starbucks acquired Evolution Fresh, a natural fruit and vegetable juice maker. A year later, in November 2012, the company acquired Teavana. Most recently, in June 2013, Starbucks purchased bakery chain La Boulange with the aim of integrating the company’s baked goods into its menu.

Player Performancecontinued

sales (which includes revenue earned by both franchises and company-operated locations) is anticipated to hit $6.4 billion in 2014, representing annualized growth of 5.5% over the past five years. The

company will increasingly rely on product innovation, new technologies and upselling to increase the average customer’s spending per visit for growth, rather than simply building new locations.

Starbucks Corporation (Canada industry-specifi c) – fi nancial performance*

YearRevenue

($ million) (% change)Employees

(units) (% change)

2009 691.0 N/C 1,037 N/C

2010 766.8 11.0 1,073 3.5

2011 881.5 15.0 1,120 4.4

2012 1,020.4 15.8 1,174 4.8

2013 1,272.2 24.7 1,337 13.9

2014 1,399.4 10.0 1,478 10.5

*Estimates; Employees=LocationsSOURCE: ANNUAL REPORT AND IBISWORLD

Starbucks Coffee Company Market share: 15.2%


Major Companies

Other Companies Second Cup Estimated market share: 2.1%Second Cup is a specialty coffee cafe operator and franchisor and has over 350 cafes operating under its brand in Canada. The chain was established in 1975 in Toronto and has since grown to be one of Canada’s largest locally owned food and beverage chains. Second Cup has only limited international locations, but now has a store in Islamabad, Pakistan, where it hopes to open another 20 locations over the next five years. Second Cup operates a similar model to Starbucks, serving a menu of coffee and espresso drinks, as well as smoothies, fresh juices, backed goods, pre-made sandwiches and salads. The company places a high priority on serving organic or fair-trade coffee, emphasizing this as a point of differentiation over Tim Hortons. Like Starbucks, Second Cup invests heavily in its interior furnishings, such as comfortable lounge chairs, to entice customers to spend more time at the location. Second Cup’s system sales have been flat over the past five years as the company has underperformed in the industry. The chain has been negatively affected by the recent aggressive expansion by Starbucks into Canada. System sales, incorporating revenue earned at both company-operated stores are expected to reach $193.5 million in 2014. Over the same period, the number of Second Cup cafes has increased by

only about 10 locations, which pales into insignificance compared to major rivals Starbucks and Tim Hortons.

Country Style Food Services Inc. Estimated market share: 1.8%Country Style Food Services Inc. is a fast-casual chain of coffee shops that operates primarily in Ontario. The chain has a mix of traditional locations and nontraditional locations that are embedded in other stores such as gas stations, convenience stores and movie theatres. The company once specialized in selling donuts, but now earns the majority of its revenue through coffee sales and also serves a broader, more upmarket, range of food such as sandwiches and English muffin breakfast sandwiches. System wide sales are estimated to hit $170.0 million in 2014.

Dunkin’ Donuts Estimated market share: Less than 1.0%US-based Dunkin’ Donuts once had significant operations in Canada. In Quebec, Dunkin’ had more than 200 locations. However, the chain now has only a few locations in Canada after losing the battle with local operator Tim Hortons throughout the 2000s. Only one Canadian Dunkin’ Donuts store has the facilities to make donuts fresh on site, with the other locations being small shopping mall food-court stands, dependent on the delivery of baked goods.

Player Performancecontinued

Financial performanceIn the five years to 2014, Starbucks’ Canadian industry-specific revenue is expected to grow at an average rate of 15.2% per year to total $1.4 billion. Over the past five years, Starbucks has grown due to an increase in its store footprint, as well as higher in-store spending by

customers. Starbucks also started offering free Wi-Fi internet access to its customers, attracting more store traffic and increasing the number of potential purchases. Canada has become a major priority for the chain in North America as the limits of its growth in the United States have started peak.


Capital Intensity The Coffee and Snack Shops industry has a medium level of capital intensity, and in 2014, IBISWorld estimates that for every $1.00 spent on wages, industry operators will spend $0.08 on the use and replacement of capital.

The industry relies heavily on labour because of the need for personal, face-to-face service and labour input in all areas of operation, including order taking, serving, food and beverage preparation, acceptance of deliveries, cleaning and management. The industry’s overall spend on labour is relatively low as most positions within coffee and snack shops require little training or skills and can be undertaken by students or other low-skilled workers. Upscale cafes and coffee shops may require staff (including chefs)

with a broad knowledge of coffee and food, however, this is currently a niche segment of the industry.

Operating ConditionsCapital Intensity | Technology & Systems | Revenue VolatilityRegulation & Policy | Industry Assistance

Tools of the Trade: Growth Strategies for Success

SOURCE: IBISWORLD

Labo

ur In

tens

ive Capital Intensive

Change in Share of the Economy

New Age Economy

Recreation, Personal Services, Health and Education. Firms benefi t from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labour skills are key to product differentiation.

Traditional Service Economy

Wholesale and Retail. Reliant on labour rather than capital to sell goods. Functions cannot be outsourced therefore fi rms must use new technology or improve staff training to increase revenue growth.

Old Economy

Agriculture and Manufacturing. Traded goods can be produced using cheap labour abroad. To expand fi rms must merge or acquire others to exploit economies of scale, or specialize in niche, high-value products.

Investment Economy

Information, Communications, Mining, Finance and Real Estate. To increase revenue fi rms need superior debt management, a stable macroeconomic environment and a sound investment plan.

Specialty Food Stores

Coffee & Tea Production

Full-Service RestaurantsDairy Wholesaling

Fast Food Restaurants


Capital intensity

0.5

0.0

0.1

0.2

0.3

0.4

SOURCE: IBISWORLDDotted line shows a high level of capital intensity

Capital units per labour unit


Accommodation and Food Services

Economy

Level The level of capital intensity is Low


Operating Conditions

Technology& Systems

The food services sector as a whole is experiencing a medium level of technological change. However, these changes may not affect many operators in the industry, especially those small business owners that do not have a strong incentive to invest heavily in new technology due to the limited economies of scale available. Many owner-operators rely heavily on their own labour or extended family and friends, usually at relatively low hourly rates. Consequently, it is not as critical to lower wage costs or raise productivity, particularly at the small-business end of the industry.

Coffee and snack shop operators regularly leverage technology to reduce labour and food costs to increase sales. They also use it to improve business processes, support growth, maintain current operations and improve meal experiences.

Quality of serviceThe majority of technological adoption by the industry aims to address new systems and processes that are designed to promote quality service and reduce customer wait time. Wireless electronic ordering systems that link front-of-the house orders to kitchen meal preparation are an example of such innovation. Equipment such as advanced bean grinders and coffee machines are used to minimize coffee brewing times. The increasing sophistication of the internet and mobile technology have also allowed industry

players to reach wholesalers and suppliers online. This has allowed for increased efficiencies in coordinating supplies and other pre-prepared food items.

Point of sale systemsThe small-business nature of the industry means many operators do not have the capacity to invest heavily in advanced technology. However, there are various low-cost options that assist store efficiency. Most operators now have point-of-sale systems in stores to speed up service, which helps lead to larger purchases on average and cuts down on labour costs. Retailers are increasingly accepting credit card payments through devices such as Square, which connect directly to the store’s iPad or iPhone and facilitates ease of transaction. Customers can sign with their finger on a touchscreen rather than with a pen and have the receipt emailed to them. Certain coffee and snack shops have adopted mobile technology, allowing for the ordering of coffees and food items via mobile applications and online.

Social mediaTechnology has also aided coffee and snack shop owners with marketing. Social media such as Facebook, Twitter and Instagram allows savvy operators to connect directly with customers and tailor their brand’s message to target fragmented consumer segments.

Capital Intensitycontinued

Start-up costs can be relatively high for a new industry entrant, with commercial kitchen equipment, furniture and decor required to set-up a store. However, little ongoing capital investment is required for a coffee or snack shop once it is up and running. Many coffee and snack shops lease their

premises and equipment to lower the initial capital outlay. Although technology can help with staff scheduling, ordering and sales analytics, labour cannot be reduced beyond a certain level. For these reasons, the industry’s level of capital intensity remains relatively unchanged over time.

Level The level of Technology Change is Low



Regulation & Policy The industry is subject to a medium level of regulation that is increasing. There are regulations covering a range of areas, from food safety and standards, to labour conditions, liquor licencing and franchising requirements. Most regulation is enacted and enforced at the provincial level.

Food safety and standardsHealth Canada is responsible for establishing standards for the safety and nutritional quality of all foods sold in Canada. The department exercises this mandate under the authority of the Food

and Drugs Act, and pursues its regulatory mandate under the Food and Drug Regulations. Provincial governments, municipalities and regional health authorities carry out restaurant and food service inspection. Consumers can report concerns about restaurant food to their local health department or to the Canadian Food Inspection Agency.

Labour relationsThe industry employs a high number of young and low-skilled workers at hourly rates and, therefore, is subject to

Revenue Volatility Over the past five years, industry revenue volatility has been low to medium due to renewed consumer spending since the recession. Most products sold by the industry are affordable to a range of income levels, even when the economy is not doing well, so the industry is not subject to large swings in demand. The industry also offers a range of food types, quality, menu prices and locations to suit consumers’ changing tastes and needs. Changes in consumer preferences and lifestyles can increase volatility. For example, the general increase in health consciousness over the last few years has led to healthier eating patterns. This

works to the advantage of those operators that can cater to these changes. Healthier eating may also be detrimental to operators that primarily sell unhealthy products such sweets and cakes.

Volatility is also typically dependent on the product being sold. Higher cost food items are more dependent on discretionary income and are likely to be more affected by weaker economic performance. The fact that certain product segments, such as coffee shops and frozen yogurt, have experienced strong growth within the past ten years has also reduced the industry’s level of volatility.

SOURCE: IBISWORLD

Volatility vs Growth

Reve

nue

vola

tility

* (%

)

1000

100

10

1

0.1

Five year annualized revenue growth (%)–30 –10 10 30 50 70

Hazardous

Stagnant

Rollercoaster

Blue Chip

* Axis is in logarithmic scale


A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment.

When a fi rm makes poor investment decisions it may face underutilized capacity if demand suddenly falls, or capacity constraints if it rises quickly.

Level The level of Volatility is Low

Level & Trend The level of Regulation is Medium and the trend is Increasing



Industry Assistance Although the Coffee and Snack Shops industry receives no formal assistance in the form of government aid or monetary compensation, there are industry associations that help the industry as a whole. These associations provide industry news, research, sponsoring events, networking opportunities, and

representation, among other things. For example, the Coffee Association of Canada has been in operation for more than 20 years and acts as a spokesperson for the industry collectively. There are also trade groups and other organizations that provide the same services on a more local level.

Regulation & Policycontinued

minimum wage and employee benefits regulations. Each province formulates and regulates its own minimum wage. Currently, Alberta has the lowest minimum wage, at $9.95 per hour, and the highest is that of Nunavut, at $11.00 an hour.

Smoking bansSmoking is banned in indoor public spaces and workplaces, including restaurants, bars and casinos, by both the federal government and by all territories and provinces. Each jurisdiction has developed legislation separately; however, most laws are relatively consistent. There are some differences pertaining to the circumstances in which ventilated smoking rooms are permitted and the

distance smoking is banned outside a building. Most of these laws have been in effect since the mid to late 2000s.

Franchising lawsThose restaurants that operate under franchise agreements are also subject to franchise legislation. Franchisors in the provinces of Alberta, Ontario, New Brunswick, Prince Edward Island and Manitoba are required to provide prospective franchisees with a disclosure document which provides a summary of information on the franchisor, its executive team, history and existing franchise agreements. The laws are intended to address the perceived imbalance of power in the franchisor-franchisee relationship.

Level & Trend The level of Industry Assistance is Low and the trend is Steady


Key StatisticsRevenue

($m)

Industry Value Added

($m)Establish-

ments Enterprises Employment Exports ImportsWages ($m)

Domestic Demand

Consumer spending

($b)2005 5,974.8 2,176.1 4,769 565 87,774 -- -- 1,692.1 N/A 765.22006 6,134.3 2,284.7 4,950 577 91,775 -- -- 1,744.9 N/A 796.62007 6,580.5 2,446.1 5,332 594 100,043 -- -- 1,893.3 N/A 831.22008 6,833.8 2,576.4 5,589 612 103,866 -- -- 1,968.1 N/A 854.92009 7,447.4 2,800.2 5,823 613 109,050 -- -- 2,159.8 N/A 857.42010 7,721.2 2,934.1 6,053 622 108,329 -- -- 2,231.4 N/A 887.12011 8,094.7 3,027.4 6,323 634 118,556 -- -- 2,339.4 N/A 907.22012 8,540.2 3,159.9 6,583 642 126,053 -- -- 2,451.0 N/A 924.22013 8,999.4 3,338.8 6,998 650 132,580 -- -- 2,582.8 N/A 946.32014 9,189.3 3,427.6 7,285 657 133,095 -- -- 2,628.1 N/A 968.12015 9,501.8 3,553.7 7,518 665 139,144 -- -- 2,717.5 N/A 991.32016 9,805.8 3,667.4 7,736 674 143,084 -- -- 2,804.5 N/A 1,015.62017 10,070.6 3,766.4 7,976 680 145,371 -- -- 2,870.1 N/A 1,037.92018 10,312.3 3,856.8 8,191 691 147,194 -- -- 2,939.0 N/A 1,063.92019 10,601.0 3,964.8 8,388 704 149,386 -- -- 3,010.7 N/A 1,091.5

IVA/Revenue (%)

Imports/ Demand

(%)

Exports/ Revenue

(%)

Revenue per Employee

($’000)Wages/Revenue

(%)Employees

per Est.Average Wage

($)

Share of the Economy

(%)2005 36.42 N/A N/A 68.07 28.32 18.41 19,277.92 0.022006 37.24 N/A N/A 66.84 28.44 18.54 19,012.80 0.022007 37.17 N/A N/A 65.78 28.77 18.76 18,924.86 0.022008 37.70 N/A N/A 65.79 28.80 18.58 18,948.45 0.022009 37.60 N/A N/A 68.29 29.00 18.73 19,805.59 0.022010 38.00 N/A N/A 71.28 28.90 17.90 20,598.36 0.022011 37.40 N/A N/A 68.28 28.90 18.75 19,732.45 0.022012 37.00 N/A N/A 67.75 28.70 19.15 19,444.20 0.022013 37.10 N/A N/A 67.88 28.70 18.95 19,481.07 0.022014 37.30 N/A N/A 69.04 28.60 18.27 19,746.05 0.022015 37.40 N/A N/A 68.29 28.60 18.51 19,530.13 0.022016 37.40 N/A N/A 68.53 28.60 18.50 19,600.37 0.022017 37.40 N/A N/A 69.28 28.50 18.23 19,743.28 0.022018 37.40 N/A N/A 70.06 28.50 17.97 19,966.85 0.022019 37.40 N/A N/A 70.96 28.40 17.81 20,153.83 0.02

Figures are inflation-adjusted 2014 dollars.

Revenue (%)

Industry Value Added

(%)

Establish-ments

(%)Enterprises

(%)Employment

(%)Exports

(%)Imports

(%)Wages

(%)

Domestic Demand

(%)

Consumer spending

(%)2006 2.7 5.0 3.8 2.1 4.6 N/A N/A 3.1 N/A 4.12007 7.3 7.1 7.7 2.9 9.0 N/A N/A 8.5 N/A 4.32008 3.8 5.3 4.8 3.0 3.8 N/A N/A 4.0 N/A 2.92009 9.0 8.7 4.2 0.2 5.0 N/A N/A 9.7 N/A 0.32010 3.7 4.8 3.9 1.5 -0.7 N/A N/A 3.3 N/A 3.52011 4.8 3.2 4.5 1.9 9.4 N/A N/A 4.8 N/A 2.32012 5.5 4.4 4.1 1.3 6.3 N/A N/A 4.8 N/A 1.92013 5.4 5.7 6.3 1.2 5.2 N/A N/A 5.4 N/A 2.42014 2.1 2.7 4.1 1.1 0.4 N/A N/A 1.8 N/A 2.32015 3.4 3.7 3.2 1.2 4.5 N/A N/A 3.4 N/A 2.42016 3.2 3.2 2.9 1.4 2.8 N/A N/A 3.2 N/A 2.52017 2.7 2.7 3.1 0.9 1.6 N/A N/A 2.3 N/A 2.22018 2.4 2.4 2.7 1.6 1.3 N/A N/A 2.4 N/A 2.5

2019 2.8 2.8 2.4 1.9 1.5 N/A N/A 2.4 N/A 2.6

Annual Change

Key Ratios

Industry Data

SOURCE: IBISWORLD


Jargon & Glossary

BARRIERS TO ENTRY High barriers to entry mean that new companies struggle to enter an industry, while low barriers mean it is easy for new companies to enter an industry.

CAPITAL INTENSITY Compares the amount of money spent on capital (plant, machinery and equipment) with that spent on labour. IBISWorld uses the ratio of depreciation to wages as a proxy for capital intensity. High capital intensity is more than $0.333 of capital to $1 of labour; medium is $0.125 to $0.333 of capital to $1 of labour; low is less than $0.125 of capital for every $1 of labour.

CONSTANT PRICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using the current year (i.e. year published) as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the “real” growth or decline in industry metrics. The inflation adjustments in IBISWorld’s reports are made using Statistics Canada’s implicit GDP price deflator.

DOMESTIC DEMAND Spending on industry goods and services within Canada, regardless of their country of origin. It is derived by adding imports to industry revenue, and then subtracting exports.

EMPLOYMENT The number of permanent, part-time, temporary and casual employees, working proprietors, partners, managers and executives within the industry.

ENTERPRISE A division that is separately managed and keeps management accounts. Each enterprise consists of one or more establishments that are under common ownership or control.

ESTABLISHMENT The smallest type of accounting unit within an enterprise, an establishment is a single physical location where business is conducted or where services or industrial operations are performed. Multiple establishments under common control make up an enterprise.

EXPORTS Total value of industry goods and services sold by Canadian companies to customers abroad.

IMPORTS Total value of industry goods and services brought in from foreign countries to be sold in Canada.

INDUSTRY CONCENTRATION An indicator of the dominance of the top four players in an industry. Concentration is considered high if the top players account for more than 70% of industry revenue. Medium is 40% to 70% of industry revenue. Low is less than 40%.

INDUSTRY REVENUE The total sales of industry goods and services (exclusive of excise and sales tax); subsidies on production; all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); and capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded.

INDUSTRY VALUE ADDED The market value of goods and services produced by the industry minus the cost of goods and services used in production. IVA is also described as the industry’s contribution to GDP, or profit plus wages and depreciation.

INTERNATIONAL TRADE The level of international trade is determined by ratios of exports to revenue and imports to domestic demand. For exports/revenue: low is less than 5%; medium is 5% to 20%; and high is more than 20%. Imports/domestic demand: low is less than 5%; medium is 5% to 35%; and high is more than 35%.

LIFE CYCLE All industries go through periods of growth, maturity and decline. IBISWorld determines an industry’s life cycle by considering its growth rate (measured by IVA) compared with GDP; the growth rate of the number of establishments; the amount of change the industry’s products are undergoing; the rate of technological change; and the level of customer acceptance of industry products and services.

NONEMPLOYING ESTABLISHMENT Businesses with no paid employment or payroll, also known as nonemployers. These are mostly set up by self-employed individuals.

Industry Jargon

IBISWorld Glossary

BABY BOOMERS The demographic of Americans born between 1946 and 1964.

BARISTA A person who prepares and serves espresso-based coffee drinks.

ESPRESSO Coffee brewed by forcing a small amount of nearly boiling water under pressure through finely ground coffee beans.

FAIR TRADE Coffee sourced from developing nations at reasonable prices, ensuring better wages and conditions for workers.

FOOD SERVICE The practice or business of making, transporting, and serving or dispensing prepared foods outside the home.

FRANCHISE A store that uses a well-known firm’s business model, including their trademark and goods, for a fee. This is an alternative to chain stores, which share a brand and a central management.

POINT OF SALE (POS) A system used at checkout in retail stores using computers and cash registers to capture transaction data at the time and place of sale.


Jargon & Glossary

PROFIT IBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding interest and tax.

VOLATILITY The level of volatility is determined by averaging the absolute change in revenue in each of the past five years. Volatility levels: very high is more than ±20%; high volatility is ±10% to ±20%; moderate volatility is ±3% to ±10%; and low volatility is less than ±3%.

WAGES The gross total wages and salaries of all employees in the industry. Benefits and on-costs are included in this figure.

IBISWorld Glossary continued

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IBISWorld Industry Report 72221bCA Coffee & …Coffee+... Coffee & Snack Shops in Canada October...

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