Major brands are divesting from physical café locations and investing in coffee distribution networks

However, that model is becoming increasingly difficult to sustain. Rising labour costs, rent, operational complexity, and slower scalability are placing growing pressure on hospitality-focused coffee businesses – particularly at larger scale.

At the same time, major companies are prioritising coffee distribution-led models, consumer packaged goods and retail distribution networks, which offer broader reach and more predictable economics.

Together, these developments suggest a broader repositioning within the coffee industry. Rather than coffee shops functioning as the primary engine of growth, large companies increasingly appear to be treating hospitality as a brand-building tool – while scalable distribution models become the primary driver of growth.

Hospitality is becoming harder to scale profitably

One of the key reasons behind this shift is the growing complexity of operating hospitality businesses at scale. Unlike coffee distribution-focused models, coffee shops require significant ongoing operational management – from staffing and training to rent, maintenance, and customer service.

While physical locations remain central to specialty coffee culture, profitability has become increasingly difficult to maintain, particularly across large retail networks.

Maciej Duszak is Co-Founder and Head of Sales at Hardtank, a Poland-based B2B coffee production facility specialising in RTD and packaged coffee manufacturing. He believes hospitality has become structurally more difficult to scale than distribution-led coffee businesses.

“Coffee shops have the worst economics of the three,” he says, comparing hospitality, roasting, and distribution-focused coffee models. “High fixed costs – rent, staff, equipment – tight margins, and complete dependency on foot traffic and location.”

This distinction is becoming increasingly visible across the industry. In recent years, several major companies have shifted focus toward packaged coffee distribution networks rather than expanding physical café operations.

In 2018, Nestlé paid US$7.15 billion for the rights to market and distribute Starbucks consumer packaged goods globally outside of Starbucks retail stores. More recently, Luckin Coffee and Centurium Capital agreed to acquire a majority stake in Blue Bottle Coffee from Nestlé, while Nestlé retained the consumer packaged goods division rather than the physical coffee shop business.

At the same time, The Coca-Cola Company has explored strategic options around Costa Coffee, reinforcing broader questions around the long-term scalability and profitability of hospitality-heavy coffee businesses.

For Maciej, these decisions demonstrate a change in how large companies view coffee businesses, with scalable distribution increasingly seen as more attractive than operationally intensive hospitality models.

“Investors who understand FMCG are significantly more comfortable with distribution than with hospitality,” he says.

“It’s a product business – recurring volume, predictable cost of goods, distribution leverage. Coffee shops, to most investors, look like restaurants.”

Coffee distribution models offer scale without physical complexity

Compared to hospitality, distribution-led coffee models offer significantly greater scalability.

Rather than relying on physical locations and local foot traffic, packaged coffee products can be distributed across multiple retail channels simultaneously – such as in supermarkets and other distribution centres.

This allows companies to expand geographically without proportionally increasing operational complexity. For large corporations, this model offers several advantages: simplified staffing structures, broader geographic reach, lower operational complexity, and stronger scalability.

“Once production is running, the unit economics improve significantly with scale,” Maciej explains.

“You’re producing a product with consistent COGS that can reach thousands of customers through a single distribution partner.”

Investment is also increasingly flowing into manufacturing and production infrastructure rather than physical retail. In early 2026, Chobani announced a forthcoming US$567 million investment in La Colombe to expand its packaged coffee distribution capacity and meet growing demand.

At the same time, coffee distribution-led businesses are not without challenges. Packaged coffee products face increasing scrutiny around sustainability, differentiation, and long-term brand value – particularly in premium coffee segments.

However, these challenges have not slowed broader investment momentum toward scalable coffee formats.

Coffee shops are becoming brand assets

Despite a growing shift toward distribution-focused business models, coffee shops remain central to coffee culture and consumer engagement.

However, their role may be changing. Rather than functioning primarily as standalone profit centres, coffee shops are becoming strategic assets that support branding, visibility, and customer experience.

“Are cafes becoming brand tools rather than profit centres? For the best-run specialty brands – yes, absolutely,” Maciej says.

“The leading operators are increasingly treating their coffee shops as flagships: places where the brand story is told in person, where content is created, where the customer relationship is deepened.”

While coffee distribution-focused businesses increasingly drive scale and profitability, physical venues continue to offer something difficult to replicate through packaged products alone: direct human interaction and experiential engagement.

For Maciej, this shift reflects a broader change in where economic value is increasingly concentrated within the coffee industry.
“Value in the coffee industry is shifting away from physical location and toward brand, consistency, and distribution reach,” he says of businesses prioritising distribution over hospitality.

“They’re the ones who cracked repeatable quality at scale and built the supply chain to move product internationally.”

For many companies, this creates a hybrid model where coffee shops function less as the core engine of growth, and more as spaces that reinforce brand identity and customer loyalty.

“The economics of that specific location may not stack up alone, but the brand value it generates is real,” Maciej explains.

At the same time, he suggests many operators still underestimate how difficult hospitality has become as a scalable business model.

“The challenge is that most café operators aren’t thinking about it this way,” he says. “They’re trying to survive on margin, and they’re losing that fight against rising costs.”

This does not necessarily mean coffee shops are disappearing. Physical venues will likely remain central to brand identity, customer engagement, and specialty coffee culture – but increasingly less as the primary driver of growth.

Instead, the industry’s economic centre of gravity appears to be shifting toward scalable distribution models that offer broader reach, lower operational complexity, and more predictable returns.

As large coffee companies continue prioritising packaged products, retail distribution, and consumer goods networks over physical expansion, coffee shops may increasingly function as strategic brand assets rather than the core engine of profitability.

Jordan Montgomery