For our last Coffee Talk of 2020, a panel of unique industry experts was organized to share their insights about how 2020 was ending for the different players in the industry and how 2021 was looking for all.
Despite 2020 being called by some the “Zoom year” due to the large number of virtual calls and meetings, we were extremely happy to have over 200 people in attendance for this event.
Going full coffee cycle meant we wanted experts that could showcase the three pillars of the industry. Insights regarding farmers and exporters were provided by Judith Ganes from J. Ganes Consulting, roasters’ perspectives were provided by Ric Rhinehart, former President and CEO of the Specialty Coffee Association, and consumers and industry perspectives provided by James Watson, Senior Beverage Analyst at Rabobank. Each one of our guests offered different backgrounds and expertise.
The most important consensus was how blessed we are to be in the coffee industry. Despite the massive impact that COVID has had on economies across the world, global coffee consumption hasn’t taken the kind of hit suffered by other industries. Depending on choice of measurement, consumption in 2020 was estimated to have dropped between 3-5%.
However, within these numbers there are winners, losers, and new trends that will likely stay with us.
Clear winners are online, grocery, subscription coffees and coffee gear vendors and among roasters, those who focused on high end commercial and specialty coffee. With a shift from out-of-home consumption towards in-house consumption, coffee drinkers have spent more money on coffee gear (brewers, grinders, single-serve machines, and even home espresso equipment) than in previous years. In-house brewing has become a ritual for many seeking to replicate the “coffee break” experience that occurred in offices and cafes. With this change in consumption, we’ve seen an increase in the price per pound spent as convenience has been partially substituted by a “luxury” product that most households in Australia, North America and Europe can still afford, as visits to restaurants and entertainment venues plummeted or ceased altogether.
Having said this, one of the main conclusions that 2020 delivered is that one of the keys to success is meeting our customers where they are. When we understand that this is what really matters, to be there in the right place and moment for your customers and consumers, it can offer a significant advantage. Sometimes we can fall into the trap of thinking about what we want and being where we think we should be, but at the end, we must understand that our own customers have the right answers. Whether they are at home, online, looking for subscription programs, or willing to go for a quick take away, it’s key is to be there at the right moment.
Roasters’ performance in the past year were clearly linked to how they managed their inventory and their relationships with farmers, suppliers, and sales outlets. Roasters with 100% retail focus took the hardest hit as shops were partially or fully closed, as well as roasters that had few or weak relationships with their farmer partners as the ability to move contracts into the future was limited. For roasters with good online and grocery channels, sales have increased and relationships with their farmers have also probably strengthened.
Production and the ‘C-Market’ is the wild card for 2021 and onwards. We might be sailing into a perfect storm where we see a substantial increase in the ‘C-Market’ in 2021, breaking away from the lows seen in the previous 3 years. The projected 25-35% drop in Brazilian production due to extreme drought that occurred in September-November, plus global low interest rates can push a lot of money into commodities. With both a structural deficit being built and hedge fund players adding fuel to the fire, the days of cheap coffee may be reaching an end. Additionally, with most washed Arabica origins failing to offset the reduced Arabica yields in Brazil, differentials on Milds will most likely remain high for the foreseeable future.
Certainty is key to the success of any business, and with COVID’s ongoing impact continuing to cloud the outlook for 2021, constant communication with farmers will be essential to try and address some of their needs for 2021 and 2022 if possible. As farmers also need certainty about purchase volumes and qualities to plan for the harvest and cover their costs, this is a potential win-win for all involved in the supply chain. Conversely, delaying purchasing decisions until the last minute in times of high prices and differentials could be a recipe for disaster. Remember that farmers do not generally have enough savings to wait until the last minute, and thus will have to sell coffee to pay for workers and live. Without commitments from specialty buyers, there will be a competitive advantage for the risk takers and local middlemen.
Overall, coffee and its supply chain held up remarkably well in 2020, thanks to the resilience and cooperation of all the players within it, from producers to consumers. Today, we see a more transparent supply chain, because as Judith mentioned during the webinar, “everybody has had to make adjustments, the focus wasn’t only downstream at the producers […] roasters had to make some shifts also.” We’ve learned that what makes coffee better is the sum of joint effort, cooperation, and transparency from every participant within the coffee supply chain, because everyone has an essential job and responsibility to make coffee happen.
2021 will deliver more surprises and challenges for all. How lasting will at-home coffee consumption prove when cafes reopen? Will high-end specialty coffee continue to be perceived as an ‘affordable luxury’ should inflation and the C-market shoot upwards? Will there be a recession in consuming countries, and will it cause a slump in coffee demand? We can’t say, but we do know that e-commerce and online platforms have been a gamechanger for the industry and that some things will never go back to 2019. Let’s hope vaccines roll out quickly and coffee can be eventually enjoyed face to face with our loved ones.
Thank you once again to our 3 panelists for accepting our invitation and for sharing with us their insights. If you did not get a chance to attend our Coffee Talk, I invite you to watch the full video by clicking here or visiting our YouTube account.
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