Coffee Shops Are Brewing Deals Again After Pandemic Slowdown
Coffee retailers took some hits in 2020 as the coronavirus pandemic stifled indoor traffic, making java-fueled meetings at local coffee shops a potential health risk.
In the wake of the pandemic's outbreak, Melanie and Jay Edison McWhorter, owners and operators of Edison Coffee Co. in Flower Mound, watched their single coffee shop shift from 70% in-store consumption and 30% to-go orders to nearly 100% delivery and to-go service.
"We started selling bread, toilet paper and paper towels and things we had access to [in order] to bring in revenue," Jay McWhorter said. "Now being fully opened, it has shifted back."
The past year was tough for coffee concepts, but selling a warm cup of joe in today's coffee-enthused climate still remains a solid traffic driver nationwide and makes a coffee shop an appealing tenant.
This is particularly true when comparing the performance of coffee providers to standard retailers during the pandemic. The pandemic caused DFW retail traffic to experience its worst year ever on record in total absorption, or retail net leasing activity, Weitzman reports. Total retail absorption for 2020 came in at negative 2.7M SF, down from positive net absorption of 3.2M SF in 2019, even though total occupancy remained above 90%, according to Weitzman.
"Coffee seems to be one of the categories that continued to survive and expand during the pandemic," Weitzman Executive Vice President Michelle Caplan said. "I don't know if it's because it's an easy item to grab without getting out of your car for those that have a drive-thru, or if it was an affordable luxury."
The list of brands with shops either set up in DFW or adding new locations continues to grow, Caplan said.
"New concepts came in and are starting to pop up all over the place, and just like grocery is a staple for most people, coffee is the same thing," Venture Commercial Real Estate Vice President Ryan Smith said. "I was part of the grocery war back in 2011 to about 2015, where we started to see all of the grocers go after market share and stake their flag in different parts of the market. I think you are seeing the same thing on a smaller scale with the coffee guys."
There are the traditional corporate and large-franchise players like Starbucks and Scooters doing well in DFW. And then there are smaller brands that are growing in the market, like La La Land, which opened a couple of locations in DFW this past year.
Other local concepts include Fairgrounds Coffee & Tea, which opened its first DFW location at Highland Park Place in the Knox-Henderson District of Dallas in March, White Rhino Coffee, and the Ascension Coffee brand, which spent the past year upgrading its technology and menu, Caplan said.
"I would say over the past year, there has definitely been a lot going on in that space," she added.
National coffee consumption numbers support Caplan's theory of strength in the retail segment. During the pandemic, the number of Americans drinking coffee at outlets away from home fell almost 20%, according to a National Coffee Association poll released in October 2020.
Yet, Americans still consumed the same amount of coffee during 2020 — nearly three cups a day per drinker on average — with 6 in 10 Americans sipping java every day, the NCA says.
One-third of the coffee drinkers studied by the NCA in October 2020 said they missed visiting coffee shops, and half of the respondents had either recently returned to a coffee shop or planned to do so in the near future.
McWhorter said he had some tough months in 2020, but his business has returned to normal and CRE pros looking for coffee retail tenants for their mixed-use developments and retail centers continue to call him.
"I think there is an allure," McWhorter said. "Shopping center owners and mixed-use owners, they want traffic. Coffee shops because they are not a sit-down restaurant or a concept that requires people to stay awhile have a lot of people that come and go in a relatively short amount of time, and it kind of dovetails into other things that happen in shopping centers."
Landlords in traditional retail and mixed-use spaces remain keen on attracting coffee brands that are still growing or trying to plant their roots in DFW, Smith said.
M2G Ventures' redeveloped Bogart on Ross mixed-use office development on Ross Avenue in Old East Dallas has brought the Fiction Coffee brand into the 50K SF project in a concept targeting people ready to ditch the home office.
Fiction Coffee is operated by coworking firm Common Desk and is expected to keep its doors open seven days a week, offering everything from coffee and pastries to wine and beer. The location at the Bogart offers two conference rooms, work-oriented tables, desks with power outlets and outdoor seating with WiFi access, according to Common Desk.
Common Desk launched its own coffee brand four years ago when it realized the power in driving traffic with various coffee and tea products.
"We always partnered with local brands, and at a certain point, we kind of realized we can take that amenity to a more intentional level by really focusing on coffee after seeing our members so receptive to it," CommonDesk's Megan Kaye Marti said. "And so, we were able to partner with a local shop and basically purchase it to rebrand it and create the concept of Fiction Coffee and grow it from the ground up from there."
The Fiction Brand brings to the Bogart building a sense of place that aims to establish reoccurring traffic patterns that benefit the entire mixed-use destination.
"In both the Common Desk and Fiction side of things, one of the big things we focus on is hospitality," Fiction Coffee's J.D. Lauderdale said.
"We want to try and grow relationships with people in the building and within the neighborhood rather than just being a place where you stop and get coffee. It's a place where you can build relationships with other people."