The PRESENT of Coffee (Trends, Technologies & Consumer Interests)
DETAILS ON THE FOUR WAVES OF COFFEE
?First wave started in the late 1800s and defined coffee as an?accessible commodity.
Innovation in packaging, transportation, and brewing technologies made coffee an accessible, affordable beverage for the average American consumer.
Brands such as Nescafé and Maxwell House rose to prominence.
?Second wave: beginning in the late 1980s/early 1990s—brought?the rise of the coffee shop chain and specialty coffee drinks, such as lattes and cappuccinos, took hold among young adults.
Demand for higher-quality coffee increased and attributes such as ‘location of origin’ began appearing on coffee packaging.
The key location shifted to the coffee shop, specifically Starbucks and those like it. Mass popularization of espresso-based drinks, as well as the idea of the coffee shop as a social gathering place (Central Perk on the TV sitcom Friends being in many ways the idealized version of the Second Wave).
?Third Wave: The late 2000s/early 2010s when?coffee went craft with a hyper-focus on quality?primarily driven by coffee shops.
Coffee shops utilize premium-brewing techniques (eg pour-over) and provide detailed sourcing information—such as specific ‘location of origin’—and detailed tasting notes paying a greater attention to bean quality.
Eschew the highly flavored drinks in favor of drinks that celebrate coffee’s natural flavor.?
Coffee began to be more commonly understood as more than a mass commodity (the “speciality” descriptor began to have real importance around this time).
Baristas began to become more appreciated as skilled professionals similar to mixologists and people began to pay attention to sourcing in a way they did not before.
Interest in how a bean reached a cup emerged as a major trend
Coffee’s Fourth Wave
The US coffee market is now entering its fourth wave, marked by?Gen Z’s unique coffee preferences and the growth of at-home specialty coffee drinks.
Coffee will be characterized by cool brews, bottom-up innovation, and a new approach to coffee marketing.
Premium home-crafted coffee drinks
Coffee innovation will center around the home.
Many consumers upgraded their home coffee bars during the pandemic in response to the closure of coffee shops and mandated work-from-home policies.?
A third of remote workers own a single-cup specialty coffee brewer (eg Nespresso) compared to a quarter of non-remote workers;
20% of remote workers own a pour-over coffee set compared to less than 10% of non-remote workers.
Ownership of specialty brewing equipment along with the decline of commutes (due to an increase in remote work) will empower consumers to craft their own specialty coffee drinks at home, indicating opportunities for retail coffee brands, as well as complementary categories such as coffee additives (eg creamers, flavored syrups) and coffee appliances.
Market opportunities for premium coffee appliances (eg. Fellow).?
TikTok shapes coffee culture: content creators will dictate future coffee trends and influence US coffee culture.
“Coffeetok” influencers regularly share their coffee drink recipes, coffee rituals, and their brewing techniques and display their curated coffee bars to a large audience of consumers, many of whom attempt to replicate the drinks they see.
49% of Gen Z consumers?learn about coffee and coffee topics on TikTok.
This bottom-up approach (where trends are set by individual content creators rather than established coffee shops) will challenge coffee shop culture as influencers primarily share recipes for consumers to follow at home.
Rising inflation will only increase consumers’ demand for home-sourced coffee drinks.
?Cold coffee drink innovation
The future of coffee is cold:?more than three in five Gen Z consumers?ordered a cold coffee drink from a foodservice location in the first half of 2022 compared to a third who ordered a hot coffee drink.
Coffee drink innovation will primarily revolve around cold coffee beverages.
Increase in?new at-home cold coffee drink recipes,?new textured cold coffee drinks?(eg a redux of the sparkling coffee trend),?new cold coffee brewing techniques?(eg flash brewed), and?ready-to-drink (RTD) coffee innovation?(particularly the rise of functional RTD coffees).?
Third-wave backlash and outsider brands
Coffee may represent a backlash to the overly craft (borderline pretentious) nature of third-wave coffee.
Quality will certainly remain important to consumers, and coffee enthusiasts will still treat themselves to pour-over coffee, however, expect to see more brands take a less serious approach to coffee.
Coffee will include ‘outsider’ brands—such as those founded by individuals outside the traditional coffee industry— and other?coffee start-ups?that often take an identity-based approach to coffee marketing.
Examples of outsider brands include?Big Face Coffee?(founded by NBA star Jimmy Butler);?Black Rifle Coffee Co?(one of the fastest growing coffee brands known for its military and gun-themed brews); and?Chamberlain Coffee?(founded by YouTube star Emma Chamberlain).
?Eg: Coca Cola potenciará la venta de bebidas alcohólicas y café para crecer en Europa - Economía Digital (economiadigital.es): Coca Cola potenciará la venta de bebidas alcohólicas y café para crecer en Europa - Economía Digital (economiadigital.es)
What fourth-wave coffee means for retail and foodservice
Increased interest in?premium at-home coffee experiences will drive retail coffee sales?and offer both coffee brands and complementary coffee categories key growth opportunities.
Retail coffee brands must respond to coffee-related topics that percolate across social media and release products that allow consumers to replicate online trending coffee drinks.?
While foodservice will still play a major role in shaping coffee culture, TikTok will have a greater influence on consumers’ coffee preferences and behaviors and more consumers will seek to replicate trending drinks at home.
Coffee shops must prioritize innovation and act as market trendsetters.
Coffee chains must keep a finger on the pulse of what coffee drinks/topics are growing across social media?and be quick to capitalize on any emerging coffee trends.
Goood coffee anywhere (will seek to establish a presence at all potential consumption occasions): delivery, office, Vending Machines, RTD,?on-the-go, …
The rise of RTD, delivery options, online ordering, e-commerce, new-styles of vending, etc, are all leading us towards a world in which good coffee can be consumed anywhere
?A Fifth Wave? = The end of traditional supply chains
Re-thinking of supply will be a defining feature of coffee in the decades ahead
Potential features of the Fifth Wave:
-Advanced agricultural techniques
-The effects of climate change
-Labcultivated products
-Shifting of growing áreas
-Rising prices for arabica
-Localisation of supply chains
Supply chains and meeting future demand
Inflation is temporary but supply challenges are not
Supply will cease to be of primary importance for the coffee industry
Climate change is threatening a huge swath of growing areas in the Coffee Belt and global demand for coffee continues to increase every year.
Prices for coffee should continue to rise consistently
The steady rise in global demand raises serious questions about future sourcing
Global coffee demand has risen fairly consistently around 2-3% each year
Assuming a conservative 2% growth rate a year that means global coffee demand in 2040 will be about 50% higher than it is today.
Meeting this global demand can be done but it will require a coffee industry that looks different than it does today.
100% arabica will become something of a luxury item, with shortages and strong demand combining to raise prices significantly
Breeding of new strains of coffee will be the first choice for the industry
Improve the resiliency of the coffee plant itself to prepare it for climate change.
-Diversifying the genetic base of the coffee industry will be a critical portion of building future resilience
-Improve the resiliency of arabica
?????????-Scale use of stenophylla: https://en.wikipedia.org/wiki/Coffea_stenophylla
?????????-Increased usage of Robusta
“Beanless coffee”: Plant-based without the halo
Sustainability credentials, focusing on the deforestation, water usage and other environmental harms associated with coffee production
Lab-cultivation will be the real key to filling future demand gaps
Synthesised in a lab rather than being taken from a coffee plant
People will need to think of coffee as a commodity again rather than as a unique product with terroir and a bean-to-cup story.
?Dairy alternatives are also very much a part of the shift towards new sourcing
The majority of coffee is taken with milk or a creamer
The development of dairy alternatives:
?????????-Soy-based: Alternatives are relatively uncommon. The lactose intolerant are the key target group
?????????-Diversified plant bases: Oat, almond etc. Flexitarians enter the category; sustainability becomes important
?????????-Blended plant bases: Mimicking taste of dairy is priority, specific plant base de-emphasised
?????????-Animal-Free: Dairy proteins from lab cultivation and fermentation
Conclusion: The Leopard Principle and the future of coffee supply: “If we want everything to remain the same, everything will have to change.”
Key global growth opportunities
Most important global opportunities
-????????????????Fresh in Latin America: strong Brazilian preference for fresh over instant (and Mexico, Argentina & Guatemala)
-????????????????Cold in North America: Cold beverages dominate coffee shops, combined with other trends such as rising demand for caffeine to supercharge the RTD segment
-????????????????Coffee shops in Asia: 3/4 of all new coffee shops expected to open in the next five years are expected to open in Asia, with China alone accounting for 43% of the global total.
Big global players are very interested but local chains are becoming more important
-????????????????Pods in Europe
The growth in coffee shop spending dwarfs that of retail at a global level
Growth in spending at coffee and tea shops (a channel that mostly consists of coffee-focused outlets) is projected to be over three times that of retail coffee during the forecast period.
Western have collectively committed to thousands of new outlets in China in the next few years.
The key categories for growth in some areas are major liabilities in others
The four types of coffee growth markets
GDP LEAD
Continued personal income growth is the key to coffee growth are the ones that will be most important to the future of coffee: China, Indonesia, India and Russia
Consumers are eager to get their share of global coffee culture, and coffee shop growth is especially strong here.?
Highly exposed to macroeconomic shocks which can send consumers trading down or switching back to tea.
POPULATION-LED
Population growth both rising volume and value demand.
Developing countries in Asia, Africa or Latin America and some high-immigration developed countries such as Australia or Israel
Tradeup happening to higher-value categories such as pods
A larger trend is coming from standard ground and instant increasing in volume thanks to rising numbers of people of coffeedrinking age.
Most stable markets in terms of growth.
PREMIUNISATION-LED
Developed countries where volume growth has largely stalled out because of high per capita consumption and slow population growth.
Instant and standard ground struggle
Growth through consumer switchover to pods, speciality products and RTDs.
The US is the key market here, along with the larger Western Europe (France and Germany) and Asian markets such as Japan.
Especially challenged by high inflation, as consumers trading down at a mass scale would send their markets into negative territory.
LIFESTYLE-LED
More amorphous set of trends, defined above all by powerful cultural or lifestyle factors.
Brazil, whose growth fits neatly into none of the other three categories.
The traditionally Turkish-style coffee drinking markets fall here,
Integration of globalized coffee trends into traditional patterns creates unusual patterns not seen elsewhere. Dependent on local factors.
Brazil’s size and category mix makes it uniquely important to global coffee
Still has a growing population and a relatively low degree of market maturity.
The US is the epicenter of the global cold revolution
Starbucks announced that three quarters of its US beverage sales are now in cold and many other chains are seeing levels nearly that high.
Young Americans are now cold-first when it comes to coffee
A wave of cold innovation, particularly in the RTD field.
Frappuccino/Hybrid energy drinks/Cold brews/Nitros /Emergent alcoholic “hard coffee” space = Standard Sweet/Energy/Hybrid Cold Brew (excl. nitro)/ Nitro/ Hard Coffee
The untapped potential of China makes it a focal point for the future
20,000 outlets are expected to open in the next five years, a little short of half of the global total
Chinese consumption remains extremely low by global standards.
If mainland China was to reach half of the per capita consumption of Taiwan it would be the third largest coffee market in the world behind the US and Brazil
领英推荐
The pods category continues to grow but is staring down market maturity in Europe
Faces numerous challenges: from workers returning to the office, sustainability concerns so in most places this has done little to slow it down.
In Germany alone among major global coffee markets beans are now the leading growth format.
Private label has established itself in this category
Medium term, pods remain the key growth format
Long-term challenges: quality expectations and more time-intensive and/or expensive methods to prepare their coffee at home
Preparing for the next “black swan” event
Historic relationships between coffee demand as well as GDP and product prices.
Countries will cut back their coffee demand in times of trouble and which ones will not.
The most resilient are found in Northern Europe, where per capita rates of consumption are extremely high and per capita incomes high enough even serious economic crisis would not force many to change their coffee habits.
Others are places where coffee consumption is culturally important and where macroeconomic shocks have been common in recent years, acting as something of an inoculation against future trouble (Brazil, Turkey).
The most vulnerable countries interestingly tend to be in Western Europe because consumers there are less used to macroeconomic shocks and therefore tend to react more strongly when they do happen.
The big four and the consolidated industry
The great consolidation wave has drawn to a close
Four blocs have formed that are in the commanding position in global coffee
JAB Holding’s decision to enter into the coffee industry has undergone a massive wave of consolidation.
JAB: JDE Peet’s, Keurig Dr Pepper & Panera Brands.
World’s leader in retail fresh coffee volumes
Keurig Dr Pepper is dominant in pods in North America and has footholds in other categories
Chains such as Caribou and Espresso House have a major presence in foodservice
Partnerships with Illy to distribute pods and JM Smucker to jointly develop liquid coffee products, although neither is fully within the JAB umbrella.
Nestlé struck a deal with Starbucks to form the Global Coffee Alliance + Blue Bottle.
Nestle is dominant global force in instant and pod coffee
Starbucks is the leader in chained coffee shops by a wide margin
Their alliance in retail roast and ground expands the reach of both into new areas
Both also have major roles in RTD, with restricted cooperation due to obligations to other partners
Lavazza doubled in size through the acquisition of Carte Noire, Merrild, Kicking Horse and Mars’s office coffee business
The one that has grown at the fastest pace
The Carte Noire, Kicking Horse and Mars deals have massively expanded Lavazza’s geographic reach and category presence
Alliance with PepsiCo for RTD production in Europe
Coca-Cola bought Costa
?Leading player in RTD (mainly in Japan but increasingly elsewhere as well)
Since the Costa deal, also now a leading player in foodservice
Small but growing interests in fresh coffee in retail and institutional channels
Hybrid products, such as Coke+Coffee, are also an interest
Forces other than M&A continue to drive consolidation in the coffee industry
-GROWTH OF PODS
Nespresso, Dolce Gusto, Keurig or Lavazza-branded products represent the dominant share of machine sales globally
There has been a loosening of intellectual protections on the major systems.
Private label growth has slowed after years of rapid share gain, suggesting a ceiling has been hit on the number of consumers willing to switch away from brand names.
Most growth accrues to branded products and therefore the continued growth of pod machines will further increase the power of the Big Four.
Barriers to entry in the category are high and it is very unlikely any major new competitor will arise in pods in the near future
-CONSOLIDATION OF THE COFFEE SHOP SEGMENT
The four key blocs control over half of the global market for coffee shops with plans collectively for thousands of new outlets in the coming years.
The growth of remote ordering, digital-first models over community-style third place locations will further give the edge to those who have well-developed apps and budgets for advanced technology.
The brand names of coffee shops are powerful at retail, ensuring that a growing presence at foodservice will also translate into a growing presence in the at-home segment as well.
China: domestic chains are starting to challenge the global players for the most important market in terms of global coffee shop growth.
-BLURING OF CATEGORY LINES
The growth of RTD products and alcoholic hard coffee has encouraged alliances with other large drinks companies.
Launching coffee products needs a distribution network and striking an alliance with a major existing player is an easy way to do this.
Harder for new players to break in and win significant share.?
RTD and hard coffee are therefore consolidated segments with significant barriers to entry and their continued growth will further benefit a relatively smaller number of companies.
Hybrid products also favour existing companies which have recognizable brand names that can be leveraged to get consumers to try otherwise unfamiliar products.
?The future will be shaped by a relatively small number of companies
The power of the Big Four will likely only continue to grow in the coming years
“Good coffee” looks like globally will have a relatively uniform nature.
The trendy coffee beverage sipped in coffee shops would be the same from East to West
Same a retail version of that drink with familiar branding will be available to them all.
Functionality and caffeine in an anxious world
An anxious world demands ever-larger amounts of energy
Stress and anxiety ranked second behind only vision issues as a top global health concern
This places coffee in a difficult position long term.
How can a beverage that triggers anxiety and sleeplessness perform well in such a world? The answer ?= The Caffeine Paradox = consumers are looking for ever-higher levels of caffeine despite their concerns with sleep and anxiety
Caffeine is their indispensable ally in getting those things done: the more stressed consumers become, the more they reach for caffeine even knowing that it is making them more anxious.
Where is the ceiling on caffeine consumption?
Expected legislation protecting minors will remain the priority
Functional energizing coffee:
????????????High-energy coffee: Protein High caffeine Energy drink mixes
????????????Moderated-energy coffee: Cannabis L-theanine Adaptogens
Nootropics: The next great coffee functionality
There are increasing concerns about mental performance across a wide variety of demographics.
Stress and anxiety are the top consumer concerns of the moment + memory issues,
Interest in improved cognition and ?from students looking for help studying to video gamers seeking an edge.
Nootropics, or cognition-enhancing products, are as a result gaining traction fast.
Opportunity for coffee specifically, as caffeine is already used for cognitive enhancement and thus is already the world’s largest nootropic
?The idea of a brain-boosting coffee
Categories of the future
“Coffee” will become a harder category to define
Many of them literally will not be coffee, given beanless, lab-cultivated and various other sustainability-minded products such as cascaras
There will be increasing amounts of genre-blurring:Alcoholic / soft drinks / food / consumer health / beauty products
Growing understanding of coffee’s naturally healthy attributes
Coffee base to which other ingredients are added or an ingredient in itself added to something else.
Occasions will also evolve and necessitate new products to meet them
New and emergent coffee categories:
-COLD: Cold brew, nitro, “hard coffee”, coffee liqueurs
-HYBRID: Coffee-based energy drinks, caffeinated water, carbonates+coffee
-SINGLE-SERVED: Compostable pods, bagged coffee, single-serve pour overs, frozen capsules
-UPCYCLED AND PSEUDO-COFFEE: Beanless, lab-cultivated, cascara
“+Coffee” will strain traditional category lines but be a major growth segment
Coffee to both modify the flavour as well as add caffeine.
Occasion-expansion will be a key target of what could be called the “+Coffee” category.
Coffee as a naturally healthy energy source as well as the growing acceptance of cold coffee means new possibilities in the soft drinks space.
Energy drinks have long had these sort of hybrid products and now they are creeping into carbonates, waters, juices and elsewhere.
Coffee as a source of clean energy is a natural value-add as both look to boost their caffeine content in healthy ways.
Coffee and alcohol: A potent mix?
The alcoholic drinks industry is increasingly looking for healthier, more natural ingredients to use in its products
Going full-caffeine limits the number of people that will drink these products in evening social occasions and invites regulatory scrutiny
There has always been a convenient single-serve option suitable for at-home consumption (Instant coffee as the origin)
PODS = expectation for high quality, coffee shop-style beverages available at home.
“single-serve” and “pods” will no longer be used as interchangeably as they are today. In the future, single-serve will be a more diverse category, albeit one still dominated by pods
“Fashion” coffee will go in and out of style in ever-shrinking cycles
Some coffee drinks are purchased simply because they are trendy and the drinker wants to look cool drinking them
Drinks that are designed to be short-term launches where aesthetics come first.
The important thing is for the drink to look as good as possible for the one time most people are likely to drink it
“Fashion coffee” will be an amorphous, always-changing category, but it will be one of significance nonetheless
CONCLUSIONS:
Coffe at Home: good performance is critical = Experience
Time of preparation is key = Fast and good
Coffee is cold
New brands with niche propositions
Innovation = Cold/Hybrid/Single-Serve/Pseudo-Coffee
???????????????????????????+Coffee = Flavor & Caffeine
Quality + Recipes + Portable = Coffee + extraction
Coffee + MORE = Milk, ColdBrew, mixer, …
Coffee is Healthy = Is good
CoffeeShops must outstand Coffee Culture = Innovation + Trend Setters
Flow Coffee Shops + TikTok + Premium Coffee at home
OOH Business = Importance of digitalization for Business model
Overall: technology is changing the business of coffee
Secondary use of coffee waste: Biomass, coffee grounds, …
Occasions = Morning + On-the-Go + Coffee to Stop-by + Office + Delivery + Vending + On-Line
COFFEE ANYWHERE & ANYTIME
Consumer interest on: Sourcing and CSR
Sustainability and connection with Origin credentials
Anticipate consumption in early ages
How consumers of the future will look like?
Caffeine is best coffee benefit (energy boost – recognition for being provider of activation and brain boosting)
Targets: Students, athletes and e-gamers