Hello, reader! Welcome to the digital release of Issue 12. When we first started work on this issue all the way back in October 2019, we never would have imagined where we are now. As the situation has continued to evolve—global lockdowns shuttering the doors of our printer and postal routes as well as necessitating changes to how we prioritize spends as a nonprofit association in the middle of a pandemic—we’re not entirely sure if, or when, this issue will ever make it to print. (And, to be honest, having seen the final design: It’s more than a little heart-breaking! You would have loved it.)

We’re excited to release these features digitally for now, months in the making, to showcase the hard work of our authors. And we’d especially like to take this moment to thank the companies who supported this issue of 25: Pacific Foods, Bellwether Coffee, BWT Water + More, Cropster, Wilbur Curtis, iFinca, Pentair, and TONE Swiss.

Coffee industry growth and trends are difficult to quantify on a global scale, but if you start to look at different geographical regions and analyze what factors are leading growth, similarities between markets begin to surface.

Specialty Coffee Association CEO YANNIS APOSTOLOPOULOS shares findings from the recent Coffee Growth Dynamics Report from Euromonitor International.

The sources of global coffee growth are diverse. Some markets are large and mature; others, rapidly developing. In some ways, this is good for the future of coffee: a diversified base lends itself to market resilience. But it also means that there is no one-size-fits-all approach to understanding market dynamics: the global is driven by the local.

Euromonitor International, a network of global analysts focused on market research, applied its industry forecast model to the coffee industry. By mapping quantitative values like historic retail volume sales, gross domestic product per capita, and population size alongside less-quantifiable soft drivers like lifestyle trends, a picture of the global coffee industry begins to emerge.

The Coffee Growth Dynamics Report indicates that four major types of coffee markets (or drivers of growth) exist worldwide: premiumization, income, population, and soft driver. In each case, a market is rarely shaped by only one factor, but in most cases, a single factor is dominant and plays a decisive role in shaping the nature of coffee demand. These four types of markets correlate strongly, but not entirely, to certain regions of the world.

Figure 1: Leading positive growth drivers of coffee value sales 2018–2023 Source: EMI Hot Drinks Industry Forecast Model.

Premiumization

Premiumization is especially crucial in countries where population growth is slow and coffee markets are mature, and this is especially true in East Asia and Western Europe. Volume growth is slow in these markets and there is a clear emphasis on consumers switching to higher-value formats. In this type of market, demand for quality is high and there is a willingness to pay more for coffee if the product meets expectations.

What’s interesting to note here is that, in this report, the concept of “premiumization” doesn’t just apply to approaches like single origin coffees, specialty shops, or cold brew ready-to-drink products: the report also identifies coffee pods as an example of premiumization, and suggests that the maturity of the pod market specifically may slow rates of growth in these types of markets.

Premiumization-led markets generally have little room to grow volumes, being the world’s most mature coffee markets, but there are exceptions. Historical tea-drinking markets like Taiwan and the UK have an opportunity for volume growth precisely because of the pod market: consumers want easy-to-use formats and have enough disposable income that they do not need to rely on instant coffee.

Brazil is an outlier in this category, but an incredibly important one. While technically a premiumization-led market, Brazil’s growth is broadly based, seeing an increased demand for premium products while still maintaining steady demand for standard ground formats. Brazil is the world’s most important growth market in coffee, with per capita rates among the highest in the world.

Income

The Coffee Growth Dynamics Report classes income-led markets as places where consumers are drinking more coffee as their incomes rise, and coffee shops play an important role as a symbol of entry into the global middle class. These are places where consumers are familiar with coffee, but are not able to drink as much of it as they might like to right now. However, as economies grow and incomes rise, they are gaining the ability to do so.

Income-led markets, based predominately in Asia and Eastern Europe, have become the focus of future growth in coffee shops locally: China alone will see more outlets added by 2023 than every non-Asian region put together. But this future coffee shop growth will be reliant on an expanding base of consumers with enough income to afford it: these types of markets are especially vulnerable to sudden macroeconomic shifts.

Take, for example, Ukraine: Between 2013 and 2015, amidst major socioeconomic turmoil, total consumer expenditure fell 28%. Consumers quickly abandoned non-essentials such as coffee during the crisis and spending on coffee at foodservice and retail plummeted, but specialist coffee shop spending returned to growth after the crisis.

Population

Of the four market types identified in the report, population is credited as the most significant positive driver for coffee growth. Here, it identifies two major groups of population-led markets: those increasing populations through natural growth and those increasing through immigration.

In both cases, growth is driven by already popular formats, like standard ground or instant. However, in countries where immigration is increasing population, hybrid growth patterns emerge, with some consumers shifting to higher-end products.

Canada is an interesting outlier in this category: while it has many characteristics of a premiumization-led market, the country is actually seeing an overall unit price decline in coffee. Here, the category of instant coffee is growing at 4% annually when it is shrinking in other countries. The report attributes this to a high rate of immigration from East Asia, where instant coffee mixes are incredibly popular.

Soft Driver

This market type is the least geographically consolidated of the previous three. Identified as countries where global coffee culture and its influence on consumer habits is pushing the demand for coffee higher than would otherwise be expected, soft-driver-led markets are scattered around the globe.

There aren’t many of these types of markets, and what we do know of them is that they’re still very immature in comparison. As a group, there isn’t much in common aside from some unknown, intangible factor helping to push growth rates: they are a mixture of developed and developing, traditional and non-traditional.

Azerbaijan, a country with a strong history of tea consumption, is among this group and is growing at a rate of nearly 9% a year, one of the fastest rates in the world. While both population and income growth are playing a role, the report suggests that rising rates of tourism actually drive this growth in both directions: visitors looking for coffee in Azerbaijan as well as Azeris experiencing global coffee trends while abroad. To meet the demand, more establishments have started to serve and stock coffee, increasing coffee’s availability and further driving interest.

Like income-led markets, soft-driver-led markets are vulnerable to external shocks like political events or economic recessions. In Turkey, a country where soft driver trends play a large role, much of the growth of coffee comes from younger generations spending more time in coffee shops. However, in mid-2016, an attempted coup understandably led people to stay in—while foodservice volume growth (which includes coffee shops) dropped from 8% to 2% during this time, retail sales were not affected in the same way.

Applications

Apart from valuable insight into market trends, why are reports like this valuable to specialty coffee? First, they give us a unique understanding of global coffee market growth and highlight the diversity in consumption trends across the globe. That there are similarities in factors leading growth in certain countries is particularly interesting: it helps us to see the bigger picture and extrapolate what it means for the future of the coffee market.

Secondly, they highlight that among a growing, diverse consumer base, premiumization—which includes specialty—is leading overall growth. The total value of global retail sales of coffee was US$173.6 billion in 2018, jumping to US$180 billion in 2019. Here, Euromonitor estimates that the global retail value growth by 2023 will be US$12.5 billion, and that 52% of this will be led by premiumization.

And, finally, we cannot engage in a sustainable coffee agenda if we don’t fully understand all the elements at play driving value creation. Understanding how different markets work and acknowledging that there are no one-size-fits-all solutions is key to being able to drive the change we seek over the next five years. ◇

YANNIS APOSTOLOPOULOS is the Chief Executive Officer of the Specialty Coffee Association. Learn more in the full report, Coffee Growth Dynamics: The Four Market Types Shaping Global Coffee Demand from Euromonitor International.

Special Thanks to Our Issue 12 Advertisers

This issue of 25 is supported by Pacific Foods, Bellwether Coffee, BWT Water + More, Cropster, Wilbur Curtis, iFinca, Pentair, and TONE Swiss.

Understanding Coffee's Global Growth - 25, Issue 12