All Food & Beverage

How COVID-19 is disrupting coffee and transforming the industry

The global pandemic has impacted almost every sector and the coffee industry is no exception. From coffee farmers to small independent coffee shop owners, the reach of COVID-19 has extended into every nook and cranny of the coffee ecosystem. 

This article will consider how the obstacles presented by the coronavirus outbreak are being navigated and assess the critical coffee trends that are emerging through the pandemic.

 

Shift Toward At-Home Coffee Consumption

Nationwide and statewide lockdowns have unsurprisingly decimated demand for away-from-home coffee consumption. This has spelt bad news for coffee shops, roasteries, and brands that are so heavily dependent on the retail and hospitality environments. In the US, there will be 25,307 outlets specialising in coffee or tea by the end of 2020, representing a fall of 7.3% from a year prior. That decline in the number of coffee retail outlets will mark the first since 2011. Producers and retailers of premium and speciality coffees are set to be disproportionately affected as they are the market segment most consumed within a coffee shop setting. As a result of declining on-premises demand, annual sales are predicted to plunge by 12% to $24.7 billion. 

The shift towards at-home consumption has also been exemplified by the financial results of the leading names that target the home-coffee-consumption market. Nestle reported its strongest quarterly sales growth (4.4%) in five years as customers stayed at home during the early stages of lockdown. Likewise, Keurig Dr Pepper (owned by JAB holdings) have reported a 5.6% increase in the sales of their K-Cup pods during the same period. 

With the outlook toward the coffee shop remaining pessimistic in the short to medium-term, it’s critical for those within the industry to find a way to pivot and facilitate an at-home experience for their customers. For many premium coffee brands, that will necessitate a move to e-commerce. Don Francisco Coffee, the flagship brand of the Gavina Family of coffee brands, is one such example. With coffee shops and selected retail partners closed or severely hampered by social distancing measures, the company has developed a digital direct-to-consumer strategy with the help of the plug-and-play online infrastructure provided by Amazon. All live in-person events have been cancelled, and after the initial success of launching on Amazon, the focus has turned to develop their in-house retail channels. It’s an example that many rivals, suffering from a lack of sales channel diversification, will likely follow.

 

A Shift from Experience to Convenience

As much as through necessity as anything else, the fundamental role of coffee outlets has changed. With the advent of social distancing, customers are often prohibited from sitting inside, negating much of the experiential and social aspects. Enforcing physical space between patrons has also created long lines bringing the speed of service sharply into focus. For many coffee shops, offering convenience has become an operational necessity. Those who have invested in online ordering and automated service technology are reaping the rewards.

Take Roasting Plant, a high-tech roastery-café concept with five US stores and two in the UK, as an example. Their cashless and mostly automated in-store system utilises patented ‘Javabot’ pneumatic technology to dispatch coffee directly from an in-store roaster to its super-automatic espresso machines. Such is the speed of delivery; a customer can place an order and receive a cup of coffee 45 seconds later. Their operational efficiency made their move to online-only service (a combination of click & collect and home delivery) during UK lockdown seamless, quadrupling their online sales almost overnight. 

The move away from the experience to the convenience of coffee has the major operators best-placed to take advantage. Starbucks, Dunkin Donuts and McDonalds already have online ordering and drive-thru service for coffee products. Starbucks is already trialling a “pickup” store concept with no tables and chairs, and many employees have been relocated to drive-thru sites to increase operational efficiency. In fact, Starbucks is planning on a net increase in U.S. stores both this year and next. Many of the major coffee retailers such as Starbucks, Costa Coffee, and Tim Hortons will all look to capitalise upon superior automation and operational efficiency to gain ground this year. Meanwhile, independents who fail to adapt to the need for speed could struggle to keep their doors open.             

 

Despite the Crisis, The Industry Focus on Sustainability is Ongoing

Even though the pandemic is reshaping the industry, one of the pre-pandemic trends to continue, and even accelerate, is the focus consumers have on sustainability. The almost global lockdown highlighted to many the impact of human activity on planet earth. In an analysis of the effects of COVID-19 on coffee consumers carried out by the Allegra World Coffee Portal, members of the UK public cited a more sustainable society as being one of the potential upsides of the pandemic, with the benefits of reduced air pollution drawing particular focus. Coffee consumers in both the UK and US are also increasingly aware of the price a farmer receives per cup of coffee, which can be as little as 1p (2¢). In February 2020, nearly three-quarters of consumers surveyed agreed it was important that coffee shops are as transparent as possible regarding their coffee sourcing practices, which the pandemic has further heightened. 

One mainstream retail brand commended for their continued commitment to sustainability is Lavazza. The company has been shortlisted for both IMEA and BITC Responsible Business Awards this year for their work in overcoming drinks packaging and technology recycling challenges in the past twelve months. Lavazza’s most impressive work has come in the form of the KLIX Eco Cup solution. Coffee takeaway cups have long been a source of frustration for eco-conscious coffee drinkers, with their plastic Polyethylene (PE) lining making them unrecyclable. Lavazza have been able to overcome this age-old problem by adding a unique water-based dispersion barrier that removes the need for a PE coating. KLIX Eco Cups are made entirely of paper (sourced from sustainably managed forests), and can be recycled with all other typical paper and cardboard recyclables. Alternatively, they can be composted since they’re also biodegradable. By increasing the recyclability of cups as well as reducing the use of plastics, one is reducing waste sent to landfill and switching to one of these cups can reduce the average customer’s coffee-related environmental footprint by as much as 63%. 

The company also notably holds itself accountable through an annual sustainability report and has recently launched the “A Goal in Every Cup” campaign. The manifesto is based on the principles of the UN 2030 Agenda for Sustainable Development. It focuses on positive actions to foster change within the fields of gender equality, economic growth, sustainable consumption and production, and finally, climate change. 

During times of economic hardship, it can be tempting for brands and retail outlets to look for cost savings in the supply chain and cut back on sustainability promises. However, given increasing public awareness of said supply chain and growing consumer sentiment toward a sustainable industry, coffee companies would be wise to maintain, if not redouble their sustainability efforts. This has been demonstrated by the fact that less than 4% of industry leaders expect consumers to reduce their focus on sustainability after the pandemic. 

As the industry continues to grapple with the shift toward at-home consumption, a preference for convenience over experience and an increasing focus on sustainability, we will continue to monitor the situation here at Haig Barrett Partners and report back with significant findings and insights.   

Sources: 

https://uk.finance.yahoo.com/news/goodbye-local-coffee-shop-america-192252592.html
https://www.theguardian.com/business/2020/sep/04/the-global-coffee-market-has-had-a-rollercoaster-year-amid-covid-crisis
https://www.worldcoffeeportal.com/Latest/News/2020/Strong-global-demand-for-coffee-at-home-boosts-Nes
https://www.jabholco.com/documents/6/PressreleaseS&PKDPFullAnalysisMay2020.PDF
https://www.worldcoffeeportal.com/Latest/InsightAnalysis/2020/July/Finding-the-way-forward-Covid-19-and-the-UK-coffee
https://www.seattletimes.com/business/say-goodbye-to-your-local-coffee-shop-in-americas-cafe-shakeup/
https://www.worldcoffeeportal.com/MediaLibrary/WorldCoffeePortal/WCPExternal/Presentations/The-Impact-of-Covid-19-on-Cafes-and-Coffee-Shops-Allegra-Alpro.pdf
https://www.ft.com/content/44bd6a8e-83a5-11e9-9935-ad75bb96c849
https://www.planet-vending.com/imea-and-bitc-lavazza-professional-klix-ocs-sustainability/
https://www.lavazzapro.co.uk/sustainability/klix-eco-cup
https://www.lavazzapro.com/en/resources/document-library/whitepapers/2020-lavazza-group-sustainability-manifesto#.X44QdUJKiu4