Coffee is for Closers!

Friends of Branded:

Happy Saturday and I hope you had a great week.

Google the two words “hot coffee” together and the 2011 documentary film that analyzes the impact of tort reform on the United States judicial system will be the top of the list. The title of this documentary was derived from the Liebeck v. McDonald’s Restaurant lawsuit and a story that I was infatuated with back in 2011. The plaintiff, Ms. Stella Liebeck, was severely burned after spilling a cup of hot coffee purchased at a McDonald’s restaurant into her lap.

The title and image above may have been drawn from this documentary, but this week’s Top of the Fold has nothing to do with the lawsuit or film (and while I think I can cover a range topics, tort reform would be pushing the limits).

Coffee is the focus and how this segment of the market is one of the hottest (pun intended), fastest growing, most dynamic, and resilient parts of the restaurant industry in 2025.

How hot is this segment of the market right now? Great question, so let’s dive in.

Globally, out-of-home coffee revenue, which includes sales in restaurants, cafes, and bars, is projected at $376.7 billion in 2025. Combined with at-home consumption, total coffee market revenue reaches $473.1 billion.

Between January and May of 2025, coffee saw a 2.6% year-over-year increase in visit trends (which is outpacing fine dining).

Coffee continues to be America’s #1 daily beverage with 66% of adults consuming coffee every day (at an average of 3 cups per day). Did you really think Dunkin Donuts dropped the word “donuts” from its name b/c the “time to make the donuts” guy retired from acting? (RIP Mr. Michael Vale and thank you for the smiles & laughs).

Do I have your attention this morning? Are you reading this with a cup of coffee nearby? Are you addicted to coffee?

I’ve heard from many coffee experts (and investors) that coffee is like a drug. That’s not correct, b/c from a scientific and regulatory sense, coffee is in fact a drug b/c it contains one – caffeine.

If we want to be scientifically accurate, I think it’s absolutely fair to refer to coffee as a drug delivery vehicle for caffeine.

The definition of a drug (per the FDA) is a substance that when introduced into the body causes a physiological change and caffeine is the most widely used psychoactive drug in the world! Caffeine stimulates the central nervous system by blocking adenosine receptors, which reduces feelings of fatigue and increases alertness. The effects include an elevated heart rate, improved focus, and sometimes mood elevation (I want to give attribution of the preceding sentence to the National Institute of Health).

Let’s face it, your morning cup of ‘Gregory’ is the world’s most accepted drug ritual. 😊

But I digress and want to get back to this growing segment of the market and the trends driving it.

On Thursday night, at a modern steakhouse, Monterey, in midtown Manhattan, I was at a dinner with two old friends and business partners, and the topic of consumer data and preferences was at least one of the topics of discussion. To be nothing less than fair to my dinner mates, I brought up this topic b/c I continue to be pretty obsessed with how restaurants can be viewed as vessels for collecting consumer preference data (hmmm…maybe I’m not as much fun a dinner companion as I think I am).

For those keeping score, yes, Thursday night is writing night and if you dine with me ahead of my sitting down at my computer to write, there’s a pretty good chance I’m thinking about topics for the newsletter, and I may draw inspiration from our dinner discussion. Just saying. 

The coffee segment of the industry isn’t just growing; it’s trending and transforming. Love it or hate it, winning in the coffee industry requires more than just serving up a cup of coffee.

Restaurant operators are paying attention (or at least they should be). Consumers are demanding value, but they also want experiences. My favorite influencer generation and the fastest-growing segment of the consumer market, Gen Z, is a key factoid in the demand and trends transforming the coffee landscape. Gen Z is the first digitally native generation, and the coffee market is ideally suited to meet so many of Gen Z’s needs and expectations.

This is generation, along with coffee enthusiasts from other generations, want craft experiences and they expect transparency about sourcing and ethics. They want speed and seamless execution, and coffee cafés are well-positioned to leverage technology and subscription / loyalty models that deliver that experience. Tech and loyalty also help coffee café operators offset rising labor costs, labor shortages and supply chain pressures.

The market for coffee restaurant brands is as fiercely competitive as any in the industry, and formats are only becoming more fragmented. Like all parts of the hospitality market, guests have their format preferences. Are you a drive-thru coffee buyer, walk-up, order ahead? Like my daughter’s elementary school told us during the interview process, coffee cafés are prepared to meet you where you’re at when it comes to your coffee preferences.

You want to remain a traditionalist and keep your coffee simple, yes, of course there’s a place for you, but don’t expect Branded to invest in your concept. Sorry, not sorry, but when Starbucks reports that about 75% of its US beverage sales are cold drinks, the structural shifts that are shaping menus, equipment and packaging is where we’re going to focus.

But it’s not just about cold drinks, it’s about customization and sugary drinks with creamers, syrups and boosts that create treat-like offerings that are critical for daypart diversification. My learning curve in the competitive landscape that is coffee cafés is wonderfully steep and hearing experts breakdown the dayparts and the importance of winning the guest in the PM (1pm to 7pm) with specific menu items is how they’re doing it. The PM is being won by brands that are embracing energy drinks and dessert-like offerings.

Over the past few weeks, we’ve seen a bevy of activity in the coffee landscape. Just last week I was reading about Dutch Bros, and how its disrupting the specialty coffee market with major expansion plans to directly challenge Starbucks’ position in key markets like California and Texas. Dutch Bros has over 1,000 units and plans to open another 1,000 by 2029.

At the same time (yes, the very same week), Philz Coffee, the self-proclaimed “unofficial coffee of Silicon Valley” and a growing coffee chain with 77 units, announced that its been acquired by P/E investor, Freeman Spogli.

And again, in the very same week, Branded had the privilege of joining our existing partners at Craveworthy Brands and Harborfield Management with an investment into Gregory's Coffee and now have the privilege to be working directly with our newest partners at Kitchen Fund.

Dutch Bros began as a pushcart in Oregon and is seen primarily in the Pacific Northwest.

Philz Coffee was founded with a single café on the corner in San Francisco’s Mission District and has transformed into dozens of locations from California to Chicago.

Gregory’s Coffee is a native New Yorker and primarily rooted in the Northeast region (JB: would you really expect me to get involved in a coffee company from any other city?).

Are we setting up a little East Coast vs West Coast rivalry?

I can already see our friend and the CEO at Ovation, Zack Oates, officiating the “Caffeinated Clash” at an upcoming conference. Gregory’s will proudly put our friend Sam Stanovich into the ring against any west coast challengers! We can go head-to-head in all sorts of categories including innovation, loyalty, and daypart dominance.

In all seriousness, Branded is super excited to be part of the Gregory’s Coffee team and dive into this fast-growing and transforming segment of the market. We’re not wallflowers and when Branded jumps in, we’re all in and looking forward to being on this journey with Gregory’s!

Let’s get caffeinated!

It takes a village.