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Are Gen Z Killing Off The Hot Cuppa?

Date: 20-11-2023
Straws

Starbucks Australia discovers into Gen Z’s Obsession With Iced Coffee.

 

Gen Z drinking ice coffee Image

Starbucks has swung to a modest profit for the first time in its history of operating in Australia, ending a record of consistent unprofitability across two decades – all thanks to Generation Z’s obsession with iced coffee.

The US coffee chain’s local arm made a profit of $3.15 million in the 2023 financial year, a marked improvement on its loss of more than $5.5 million the year before, and $13.3 million the year before that, according to its financial report lodged with the Australian Securities and Investments Commission.

The profit was driven by higher sales: revenue rose 35 per cent to $157.3 million, double-digit growth that significantly outpaces the industry average of 4 per cent.

Food industry consultant and Titanium Food director Suzee Brain said Starbucks had at long last found traction with Australian consumers through the younger generation.

“For many, many years, you can historically read that Starbucks has failed in Australia because it didn’t connect with the coffee-centric culture of Gen Y and Millennials.

“They’re all coffee snobs, wanting to get barista-style, premium espressos, piccolos, all that sort of stuff … that didn’t resonate greatly with chains,” she said.

But the emerging cohort of Gen Z customers have different consumption habits – for instance, they tend to eat five smaller meals rather than three meals – and Starbucks has managed to successfully capture this market, Brain said.

“Starbucks has really nailed the cold-drink sector, the cold brews, the iced coffees, the frappuccinos, the iced teas, which also come at a higher price point.nIt looks like they’re finally actually nailing what it means to be a young coffee drinker in Australia.”

Turnover per store has also improved, from just under $2 million in 2022 to $2.35 million in the 2023 financial year, which Brain said might be due to more efficient store layouts or prime locations.

Read more on the article here on the Sydney Morning Herald.

"Cold has kind of taken over," Starbucks' then-interim CEO Howard Schultz said at the company's November earnings call. "Cold has certainly surprised us all at Starbucks."

Considerably more Gen Z consumers ordered cold coffees than hot coffees in the first half of 2022, according to a survey by market-research company Mintel. "The younger you go, the colder the beverage," Starbucks CMO Brady Brewer told investors in November.

Part of this could be that they're more Instagram-worth for a social-media generation, with their clear plastic cups showing off the drinks' layers and the ability to add various attractive creams, syrups, and drizzles. In summer 2021, Starbucks baristas were flooded with orders for iced white mochas with vanilla sweet cream cold foam and extra caramel drizzle after the drink went viral on TikTok.

Cold drinks can potentially reap higher profits for coffee chains because they tend to cost more and some customers opt for costly modifications. The viral iced white mocha at Starbucks, for example, typically cost more than $7. Brewer told investors in November that many customers, especially younger ones, opt to customize their cold drinks and add plant-based milk. Tim Hortons, similar to Starbucks, lets customers personalize their drinks with various milks, syrups, and extra espresso shots.

Read more on the article here on the Business Insider.

 

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