How Covid-19 will impact Coffee Consumption

JDE Peets managed to raise US$2.5B literally in a matter of hours this week thereby validating not only the premium coffee market (in both Europe and the US) but giving a much needed boost to investor confidence generally - much in the same way as coffee impacts our daily lives with focus and clarity. Despite the shuttering of hundreds of coffee stores in that portfolio, investors of all kinds turned up to proclaim that coffee remains an investable sector and category - indeed this might even signal that there are not enough deals to be had in coffee.

This lack of deal flow could explain the investor rush to Lukin Coffee (which turned out to be a fraud) as well as to a new Sequoia backed venture in Indonesia called Kopi Kenangan that seems to be more popular because of the celebrity status of it's investors rather than the strength of it's business model (never a good sign).

Lets get real - despite the apparent bubble, Covid will change things. With the intelligent analysis from our friends at Euromonitor, namely Matthew Barry, here are some key insights we can take away

1. Channel Shifting -- Food Services (Restaurants & Coffee Shops) and Institutions (Offices, Schools) will move toward At-Home Consumption a 4.5% monthly boost as a result of office and school closures
2. Single-serve pods will perform well during recession due to the Substitution Effect -- pods are an indulgent yet economical way to make coffee-shop style drinks at home
3. Accelerated growth in premiumization of American coffee consumption will be curtailed somewhat -- premiumization came from rising incomes combined with coffee shops educating consumers about quality but now both these components are in jeapordy so growth will slow down.
4. War on Plastic will take a temporary back seat during COVID crisis and the focus will be on safety of consumers -- consumers will need visible and aggressive sanitary procedures for reassurance.

We are on the verge of a new renaissance in the coffee capsule market in the US. This $6B industry should be $15B. With the Substitution Effect, Channel Shifting and focus on hygiene, all single serve coffee businesses should see growth - but those that meet the needs of the American consumer will see extra-ordinary rewards.

Bruvi in particular is a break-through single serve system that delivers hygienic brewing in an ingenious way - no coffee or beverage or liquid ever touches any part of the machine. No rinsing is required as there is no cross contamination between capsules. Imagine a system with no build up of bacteria, mold and other unwanted microbes.

Consumers are going to wake up in a new America and will demand quality coffee at home (delivered daily or weekly on-line), fresh sealed in mess free capsules, hygienically brewed, that offers that same coffee house experience for a third of the price. They are going to want these products looking great on their counter tops and connected to their Apps for automation and smart delivery.

It's time to put investor dollars to work not on another retail brand that opens more stores, or even traditional single serve businesses that refuse to innovate. Today there are innovative and break through coffee companies out there that will soon change the landscape of coffee at home.