Coffee Report: What's Brewing?
Perhaps no other beverage, or consumable product for that matter, stirs more emotion in consumers than coffee. For tens of millions of Americans, it’s the beverage of choice to start their day, and the selections available at retail feel never ending.
If there is one constant for retailers and suppliers operating in the coffee world, it’s change. The previous two-plus years dating back to the start of the pandemic saw consumers radically alter their coffee drinking habits and look to bring their familiar coffee shop experience home.
Retailers and product suppliers in the face of numerous challenges responded and updated assortments to meet this new demand. Much of the focus was on expanding assortments to include flavors that allowed coffee drinkers to replicate the coffee shop experience.
Today, however, the hot topics among coffee experts include the challenges the current inflationary environment is presenting along with the issue of sustainability. Taken separately or apart, these two topics are top of mind for many and are having an impact on the product retailers are putting on their shelves and webpages.
Facing rising costs that are impacting everything from the crop itself to shipping costs, coffee prices have skyrocketed and forced retailers to reevaluate their assortments. Coffee industry experts reported that coffee prices are at their highest levels in 20 years.
National brands have seen price increases of between 20% and 50% while private label products have seen less of an increase, but are still up between 15% and 30% over the past two years.
Facing these price increases, retailers have put a greater emphasis on private label coffee assortments in an effort to give shoppers a quality product that carries a lower price tag.
“Store brands are now becoming more familiar to buyers as retailers step up their focus on creating great tasting items at a value,” said Elizabeth McLaughlin, executive vice president of Sales with Westrock Coffee Company. “What once was really only a presented opportunity to capture low budget shopping now has the opportunity to capture a wider audience if trust is gained and if the retailer can show how the product positively impacts the environment or benefits their health.”
She pointed to a recent study by Mintel that shows 30% of U.S. shoppers purchase store brand food and beverage products more often than a year ago.
“The shift to private label is definitely something to note in stores as people look for more ways to maximize the value of their spending,” McLaughlin said. “The key factor to note here is that consumers are still not wanting to sacrifice quality, so store brands have an opportunity to gain brand loyalty with high-quality products.”
Accompanying the shift to more private label selections, some retailers are also focusing on modifying their assortments to carry store branded products sold in small quantities as part of an effort to help cash-strapped consumers.
“As more and more shoppers are living paycheck to paycheck because of inflation, this impacts unit volume when looking at the size of the market basket,” said Clay Dockery, vice president of Corporate Brands at Massimo Zanetti. “Retailers are gravitating to smaller package sizes in an effort to help consumers make ends meet on a weekly basis.”
Retailers such as Aldi that have offered a significant selection of private label coffee for quite some time have had a head start on their competitors as consumer demand has risen, and have been able to adapt more quickly to the changing budgetary concerns of their shoppers.
“Our suppliers are trusted partners and we work closely with them across every product category to identify ways to offset increases and minimize the impact to our shoppers,” said Joan Kavanaugh, vice president of National Buying at Aldi. “We want our shoppers to know providing great value remains a priority, even as we navigate cost increases.”
Claudio Gemmiti, chief innovation officer with Club Coffee, echoed Kavanaugh’s comments, “Those retailers that have carried private label coffee assortments for some time are able to dial up certain aspects of their selections more easily in response to customer demand.”
Sustainability
While inflation is having an impact on consumer coffee consumption habits, it is
not having a negative impact on the issue of sustainability. In past years, inflationary periods have diminished the importance of the topic in the minds of consumers who were unwilling to pay more for sustainable products. But, industry insiders say this time that’s not the case.
“Frankly, I think it’s here to stay,” said Gemmiti. “[Sustainability] is at the forefront of so many coffee discussions.”
Dockery noted that recent information from the National Coffee Association showed that consumers are motivated to purchase coffee by a small handful of factors that include roast color and the issue of sustainability.
“People want to buy from a company that makes sure farmers receive equitable pay,” he said.
At Aldi, Kavanaugh said 53% of the grocer’s coffee products come from sustainable sources and the effort to increase that number continues. Aldi’s Corporate Responsibility Progress Report issued earlier this year included an update about its efforts to make 100% of the company’s Barissimo coffee products certified by the end of 2025.
“This goal follows our prior success in making 100% of our Simply Nature-branded coffee products from sustainable sources,” she added.
Additionally, Aldi has partnered with Fair Trade USA, Fairtrade America and Rainforest Alliance to certify that its products are certified fair trade and sustainably sourced to help farmers and community development projects worldwide.
Others noted that third party certifiers are of growing importance to ensure that claims related to sustainability made by suppliers and retailers are accurate. This also gives consumers focused on the issue piece of mind and confidence in claims being made when they are choosing products in store or online.
McLaughlin cautioned that rising prices can impact sustainable production, but the news isn’t all gloomy, she said, adding that rising prices lead to farmers being paid more for their products allowing them to make investments in their farms.
“Demand for sustainably sourced coffee is higher than ever,” she said. “It’s a great time for all of us to increase our knowledge on what it takes to create a sustainable product. It’s not just about the coffee the consumer buys, but the packaging and filter with it. All of these materials are subject to cost increases.”
Consumption trends
Today, the style of coffee brewed at home continues to evolve with experts noting the pandemic having a major impact on consumer consumption habits. While the U.S. is largely operating at a pre-pandemic level of normalcy, there are
still elements of change impacting the coffee segment. This includes the types of products people are purchasing and the style of coffee being consumed.
A major factor on the radar of suppliers and retailers is the continued trend of working from home, or companies offering employees a hybrid work schedule. Those who are now a part of the remote workforce are no longer visiting their local coffee shop for the morning cup of joe, but are seeking out alternatives that bring the coffee shop experience home.
“When the pandemic started, at home consumption of coffee shot through the roof,” said Kim Cunningham, chief commercial officer with Mother Parkers Tea and Coffee. “There was some anticipation that the trend would slow, but it has largely held up. Those working at home full-time or on a hybrid schedule are out on the road less and drinking more of their coffee at home.”
While the location of work for many has shifted from the office to home, their taste for that coffee shop-style coffee they became accustomed to did not wane. As a result, many invested in quality home coffeemakers and then sought out quality coffee to brew in their kitchens.
But as is typical in the coffee world, the winds of change continue to shift with the younger generation having their say on the types of coffee now available at retail.
“With consumption patterns in Millennials and Gen Z being very different from those of older generations, the need for hot, traditionally brewed black coffee and lattes has decreased,” said McLaughlin. “As a result, the desire for cold beverages and ready-to-drink bottles and cans are increasing.”
While drinking cold coffee is not new, it continues to gain popularity. For many, having coffee over ice with a flavoring is a popular choice. But cold brew coffee is made by steeping coffee in water for between eight hours and 24 hours at cold or room temperature. This slow process leads to a product that tastes differently than coffee made in traditional hot brewing techniques or iced coffee.