From Old Home Brew to Rocket Fuel

Back in my day

Growing up in the 80s and 90s, I remember coffee before it was such an important part of “fueling” the American workforce. Back then, it wasn’t available instantly at a drive-thru. Coffee was primarily made at home with cheap, low quality American brands that made up most of the overall coffee business during this time in the US.

For most Americans, coffee was still an “at home” product that people made before they went to work. Instant coffee brands like Folgers, Maxwell House, and Tasters Choice were what most coffee drinkers consumed in much of the 80s and 90s. In 1990, the US instant coffee industry was estimated to be just $2.1 billion in annual revenue.

Starbucks was founded in 1971, and their first store was in the famous Seattle Pike Place Market. However, it wasn’t until the late 80s, early 90s that they began to expand across the United States. In 1992, Starbucks had 165 stores and went public on the New York Stock Exchange. Today, they are probably most credited with driving the expansion of the specialty coffee industry in the US.

By 1999, Starbucks had grown to 1,657 stores in the US. The coffee business was being transformed. Big cities were getting most of these new Starbucks locations that focused on premium coffee, and a coffee shop ambiance that fostered productive business meetings and was also an ideal place for students and their studies.

By 2006, the US specialty coffee industry was valued at $12.2 billion. Rural markets like Grand Forks, North Dakota (where I grew up) would get their first Starbucks in October of 2005. The coffee economy was being transformed from a focus on cheap, instant coffee sold in grocery stores to a premium coffee “available on the go”, as well as a curated in-shop experience.

In 2006, McDonalds launched the McCafé brand across the USA, and Dunkin launched its “America runs on Dunkin” campaign across the United States. This would elevate the quality of inexpensive coffee choices throughout the United States.

Brands both big and small saw the opportunity in the coffee shop business, and pursued it with large investments in this future growth opportunity. Not only were the big brands seizing on the opportunity, but small business owners were launching coffee shops everywhere.

The economics of coffee

*In 1992, Starbucks had 165 stores and was #1 in the specialty coffee business. By 2024, there were more than 87,000 specialty coffee stores in the entire US - More than 17,000 of these locations are Starbucks specialty coffee shops. Many of these are local small business owners with anywhere from one to several shops, as well as larger regional chains such as Pete’s Coffee on the west coast and Caribou Coffee in the Midwest region.

Meanwhile, back in 2006, the old instant coffee home brew would get an upgrade with the invention of the Keurig home coffee maker. Now the American workforce could make specialty coffee at home. This was a great market solution for coffee drinkers who weren’t pursuing higher-priced coffee shops regularly. In 2006, Keurig coffee maker home market sales were $24.1 million, but by 2024 US home market sales totaled more than $4 billion annually.

When thinking about coffee as a raw commodity, coffee is sold on the open market in terms of one bag, which is approximately 60kg or 132 lbs. In 1992, one bag of raw unroasted coffee beans was sold for as low as $58. By 2006, coffee had increased to more than $100 per bag. Today, one bag of coffee trades for more than $375 (as of 10/07/2025 CNBC.com). For a small business selling coffee, this is a potential 7X increase in the cost of goods since 2006 - When thinking about businesses that might have been around during the early days.

The economics of a coffee shop

According to cafely.com, the average revenue of a coffee shop in the United States is between $450,000 and $500,000, and the average profit is between $60,000 and $150,000 per location. Profit margins can range from 10% to 25% depending on the location (Which can determine customer traffic volumes) and operational efficiency (Largely driven by labor, pricing, and product mix).

Cost of labor can also fluctuate. In cities like Seattle and Los Angeles, the hourly wage could get as high as $25 per hour for an experienced barista. Where as more rural, central states could see hourly wages closer to $16 per hour consistently.

There are many great business cases on the Starbucks in-store revenue model, which I’ve read a few (Great reads btw). Starbuck’s has gained massive profits by focusing on winning the battle at each store location, not by simply adding more locations.

This has been accomplished by several factors. By adding breakfast, food items, deserts, non-coffee beverages, mugs, and so on - Starbucks has been able to increase the average potential receipt from a simple one item purchase of $6 for a cup of coffee to potentially a $10 to $20 receipt per order consistently with its regular customers.

Furthermore, by expanding the in-shop seating area, further improving the ambiance, adding custom furniture, etc. - focusing on a culture of having customers linger for hours - the likelihood of multiple purchases and repeat business per week dramatically increased.

Add to this an industry leading loyalty rewards program on your iPhone, and Starbucks has been able to focus on maximizing the lifetime value (LTV) of their regular customers, as well as converting new customers into regulars. These simple factors have caused a boon in profits per location over the past 20 years.

These data points tell the story clearly. According to Starbucks, the average active loyalty program customer visits Starbucks 8 to 10 times per month in the US. Highly engaged “gold tier” customers visit Starbucks an average of 15 to 20 times per month.

There are very few businesses that have their customers coming thru the doors this many times per month. However, a similar strategy can be employed for many businesses when the focus is placed on “winning per location”.

Big City vs. Rural Markets Example

Big cities like Atlanta and Los Angeles were part of the initial large waves of US expansion by Starbucks. However, how has the coffee economy been dramatically transformed in rural areas like Grand Forks, North Dakota where I grew up?

I’m going to estimate some data on how the coffee shop ecosystem has been transformed in the Grand Forks area - home to only 100,000+ people. Even with excluding McDonalds, cafes, and gas station coffee purchases from this example for simplicities sake - the revenue growth of specialty coffee is shocking. Here are coffee consumption overviews for 1992, 2006, and 2025.

In 1992, a large 20-30 ounce container of Folgers or Maxwell House coffee could brew approximately 100 cups of coffee. According to the USDA and National Coffee Association the average adult drank 3 cups per day in 1992. This equates to about $128 per year on instant coffee. There were approximately 45,000 adults in the Grand Forks area in 1992. This equals approximately $5.8 million spent on coffee in the Grand Forks area in 1992.

Let’s take a look at 2006, when there was just one specialty coffee shop in Grand Forks, North Dakota, which was Starbucks. I will estimate $450,000 in coffee shop revenue for the area at that time.

Fast forward to 2025, there are now 7 Starbucks, 6 Caribou Coffee, 3 Bully Brews, 1 Scooters Coffee, Urban Stampede, Sweetwater Coffee & Tea, The Ember Coffee House, Boardroom Coffee & Taphouse, Wired Bean Coffee House, Happy Camper Coffee, and 7 Brew Coffee (24 locations!!!). I apologize if I missed any.

Let’s assume the average of $450,000 per location, and in less than 20 years the specialty coffee shop revenue has grown from just $450k to more than $10.8 million in the Grand Forks area!

In terms of home brew, according to Keurig 1 in 3 households has a Keurig specialty coffee maker. There are approximately 25,000 households (Or 60,000 adults) in the Grand Forks area and the average person drinks 3 cups per day. I will estimate $0.50 per K Cup, but it can be up to $1 in reality. This is $547.50 per year, per adult or $10.95 million spent on specialty coffee K Cups per year in the Grand Forks area. These numbers are incredible in terms of a growth story and transformation of the coffee ecosystem.

In summary, the coffee economy has grown fast since 1992 - expanding more rapidly these past 10 to 15 years. Even for rural markets like Grand Forks, North Dakota - the coffee economy has grown from an estimated $5.8 million in 1992 (In todays dollars, largely spent on instant coffee from grocers), to an additional $450k on specialty coffee at Starbucks in 2006, to a whopping combined $21.75 million on specialty coffee shops and Keurig home brews in 2026 in a rural market like Grand Forks, North Dakota.

It’s no wonder why coffee roasters, and innovative Midwest coffee chains such as Bully Brew, Urban Stampede, Caribou Coffee, and many others have pursued this rapidly expanding market opportunity. In a place known for its frugal retail culture, North Dakotans have proven they will spend money on their rocket fuel of choice.