Traditional buying patterns in the global coffee market have been turned upside down by Covid-19, and while some changes are expected to be short term, many may stick for the medium and longer term, according to a new report by agribusiness banking specialist Rabobank.
In the report, Covid-19 Effects on Coffee – What Long-Term Changes do we Expect?, Rabobank says the decline in out-of-home consumption of coffee during the pandemic – due to the closure of food service outlets and offices during lockdown – and the longer-term economic impacts of Covid-19 could reshape the coffee landscape. And new habits formed at home around e-commerce purchasing and whole bean coffee might reflect a new normal for coffee consumption post Covid-19.
The report follows earlier estimates from Rabobank (in its Q2 2020 Coffee Outlook) that global coffee demand is expected to drop by one million (60 kilogram) bags this year, due to the impacts of the pandemic.
Report author, Rabobank New York-based senior beverage analyst Jim Watson said the recent changes to the coffee market can broadly be broken down into three phases.
“The coffee stocking-up period, which began in several key markets in early March, was the first of these significant changes as consumers purchased extra supplies of coffee to stockpile at home. This was shortly followed by another key change when on-premise coffee shops were required to close due to lockdowns in countries across the globe,” he said.
“The final key phase we expect to influence the market is the economic recession that is now starting to take hold as the world begins to emerge from the Covid-19 crisis.”
Stocking Up
The report says the coffee stocking-up period started before on-premise sites began to shut down and caused a wave of ‘out of stocks’, with supplies of coffee sold out at retail outlets, including supermarket shelves.
Mr Watson said this period saw the beginning of massive volume growth in off-premise coffee sales, which continued after the shutdown of cafes and restaurants.
“One of the trends we saw emerge during the stocking-up phase across all beverage categories, including coffee, was a flight to the familiar, with flagship brands often showing significant growth after years of decline,” he said.
“We suspect this was driven by the ‘channel’ (consumer purchasing) shift to larger supermarkets, where the selection leans towards big packages of well-established brands.
“During the stocking-up phase, consumers were also looking to minimise in-store shopping time and relying on familiar brands to speed the decision-making process.”
On-premise shutdown
The report says the subsequent shutdown of on-premise outlets – including cafes, restaurants and other food service outlets – was expected to result in the most significant long-term effects on the coffee market.
Mr Watson said while meeting for coffee will continue to be a core way of connecting with others, and on-premise coffee purchasing is eventually expected to return to close to original levels, the landscape is likely to be very different.
“We anticipate a host of long-term impacts stemming from the on-premise shut down including the permament closure of some speciality coffee shops, a shift to increased coffee purchases from larger retail coffee chains or quick service restaurants, an expansion of contactless retail, greater diversification from the coffee industry into ecommerce and retail, growth of the Ready to Drink (RTD) coffee category and increased pressure on the office coffee segment as working remotely becomes more commonplace,” he said.
The report says the on-premise shut-down is also likely to act as a boost for at-home coffee brewing.
“Brewing at home is becoming a habit again, as people have more time at home and old machines are dusted off and new machines purchased,” Mr Watson said.
“Interestingly, the biggest gainer over recent months has not been coffee pods, but whole bean sales – likely a result of speciality coffee shop regulars moving their premium coffee consumption to the home.”
Recession
The report says the coffee market will also be impacted by changes due to economic recession as the world emerges from the Covid-19 crisis.
Mr Watson said in the short-term, recession may well put a bit of a pause on premiumisation trends in coffee-drinking habits.
“Premiunisation is a super long-term trend, and introducing newer products at the high end is how beverage market segments evolve,” he said.
“However, the recession may well slow this trend with the combination of unemployment, job insecurity, pay cuts and stock market dips likely to result in consumers who are, on the whole, much more conscious about spending money in the next few years.”
While Mr Watson said there would be significant pricing pressure on the coffee industry, the market may see a “barbell effect” (increased purchasing at the upper and lower end of the market but less in the middle).
“Certain consumers under financial pressure may trade down, while those less impacted by the recession may view high-end coffee as an affordable luxury,” he said.
Rabobank New Zealand is a part of the global Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has nearly 120 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 40 countries, servicing the needs of about 8.6 million clients worldwide through a network of close to 1000 offices and branches. Rabobank New Zealand is one of the country's leading agricultural lenders and a significant provider of business and corporate banking and financial services to the New Zealand food and agribusiness sector. The bank has 32 branches throughout New Zealand.
Media contacts:
David Johnston
Marketing & Media Relations Manager
Rabobank New Zealand
Phone: 04 819 2711 or 027 477 8153
Email: david.johnston@rabobank.com
Denise Shaw
Head of Media Relations
Rabobank Australia & New Zealand
Phone: +612 8115 2744 or +61 2 439 603 525
Email: denise.shaw@rabobank.com
