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Background: Sweden is one of the biggest coffee consuming countries in Europe with the average annual coffee consumption per capita as high as 8.2kg. This mass consumption of coffee therefore creates high level of competition amongst coffee providers in the Swedish coffee market. There are numerous coffee shops and even some food chains and retail stores selling their own brand of coffee. This study will focus on Generation Y, as they will soon be the majority of consumers

Purpose: The purpose of this thesis is to investigate and analyze what factors affect Generation Y’s loyalty to coffee shops and examine what forms the basis of Generation Y’s loyalty for coffee shops.

Methodology: In this thesis, the research method is based on a quantitative approach using a questionnaire to collect data. The findings are established by using both existing literature and primary data. The questionnaire consists of 432 respondents and 400 respondents’ data was used to answer the research question. The respondents consist only of Generation Y who has lived in Sweden for longer than six months.

Conclusion: This study has shown that the most important factor that affects people of Swedish Generation Y to become loyal customers to coffee shops is being provided a comfortable and suitable environment. The second important factor is product quality. The third factor is service. However, for those who are students and unemployed Swedish Generation Y, price is also a factor that could influence their loyalty. Moreover, Coffee shops can use loyalty programs to get their customers’ higher customer loyalty.

Key words: Coffee shops, Generation Y, Customer loyalty, Customer satisfaction