Ultra-Premium Coffees, amidst a backdrop of economic challenges worldwide, have navigated through tumultuous times. The World Bank’s assertion that Covid-19 triggered unparalleled global economic turmoil underscores the diverse pathways to recovery.
In the aftermath of the pandemic, compounded by the conflict in Ukraine, there has been a noticeable surge in inflation rates internationally, primarily propelled by the escalating costs of food and energy. Consequently, this has significantly impacted both businesses and consumers, who have been grappling with steep price hikes.
Despite these hurdles, the coffee industry has managed to sustain itself. During lockdown periods, the demand for coffee consumption within homes surged, prompting coffee shops and roasters to innovate and navigate through the uncertainties. On the other hand, producers appeared to have faced the brunt of the challenges, dealing with shipping delays, deferred payments, and fluctuating coffee prices.
Considering the stable consumer demand for coffee since the onset of the pandemic, it’s crucial to delve into how different market segments, including the ultra-premium coffee sector that commands significantly higher prices, have navigated these turbulent times.
To gain deeper insights, I engaged in conversations with Charles Fleer, the visionary behind La Boheme Café, Darrin Daniel, Partnership Manager at Enveritas, and Ryan Noh, the enterprising CEO of Ryans Coffee Roasters.
What is the extent of the demand for ultra-premium coffee?
The global coffee market is expanding rapidly, as highlighted by the International Coffee Organization’s 2021/22 annual review which reported a 3.3% increase in global coffee consumption to 170.3 million 60kg bags.
Breaking down the market, we can distinguish between commodity and specialty grades. While specialty coffee holds a smaller market share compared to commodity-grade coffee, its growth is evident.
For instance, in 2022, the National Coffee Association noted that US consumption of specialty coffee reached a record high. Globally, sales of roasted coffee are projected to surpass US $192 billion by the end of 2023, with premiumization driving 52% of this growth.
Premiumization involves roasters offering more exclusive, rare, and higher-quality coffee to enhance brand appeal and justify higher prices. This trend is prominent in mature markets like Western Europe, the US, Australia, and East Asia.
Consequently, more roasters are turning to specialty-grade coffee, including high-end options such as micro lots and competition coffees.
Ryan Noh, CEO of Ryans Coffee Roasters in Seoul, Korea, emphasizes that while the market for ultra-premium or rare coffees remains niche, these offerings serve as unique selling points for certain roasters.
“Selling super-exclusive coffees is one of the marketing strategies roasters employ to distinguish themselves,” he explains.
The impact of competitions and auctions
In the dynamic landscape of the coffee industry, competitions and auctions abound, yet none wield quite the influence over the realm of green coffee as Cup of Excellence and Best of Panama. These prestigious events stand as beacons, showcasing the pinnacle of coffee excellence from their respective nations.
Ryan champions the transformative power of these green coffee competitions and auctions within the specialty coffee sphere. He contends that they have been instrumental in spotlighting unique coffee varieties, making them more accessible to discerning consumers.
Charles Fleer, the visionary behind La Boheme Café, a specialty coffee roaster nestled in the heart of Prague, Czech Republic, expounds upon the dual role of competitions such as CoE and BoP.
“The organizers of these auctions have not only succeeded in rewarding farmers for their unwavering commitment to producing exceptional coffee but have also fostered a sense of continuity, stability, and security for both producers and roasters” he asserts. “For consumers and connoisseurs, purchasing these coffees represents an opportunity to savor something truly extraordinary.”
Examining the dual effects of COVID-19 and escalating inflation
Many of us have found it challenging to overlook the significant price hikes across various goods and services in recent years, particularly for essentials like food and fuel. While the reasons behind these increases are complex, much can be attributed to the enduring repercussions of the pandemic and Russia’s invasion of Ukraine, which commenced in February 2022.
Consequently, coffee shops and roasters are grappling with substantial price surges. Despite efforts to absorb these costs, it’s inevitable that some of the burden will trickle down to consumers.
Charles elaborates on the supply chain’s struggles: “The pandemic and its associated challenges were already difficult to navigate, and then came the unexpected frosts in Brazil in July 2021, which significantly drove up coffee prices across the board.”
In the following months, Brazil’s unprecedented weather conditions led to a ten-year high in the C price of coffee, though it has since stabilized.
Has there been a change in the demand for premium-quality coffees?
Given the already elevated prices of ultra-premium coffees, has demand for these lots waned amidst economic downturns?
Darrin Daniel, the former Executive Director of the Alliance for Coffee Excellence and Cup of Excellence, provides insight into the pandemic’s impact on the market.
“In 2018, we observed a proliferation of auctions and an increasing number of producers expressing readiness for their own platforms” he notes. “By 2019, it became evident that the market for these coffees was expanding. However, expansion in market interest doesn’t necessarily translate to increased sales.
“So, what we witnessed in 2020 and throughout the pandemic was a surprising surge in demand for coffee of such caliber,” he continues. “Nevertheless, logistical constraints hindered buyers’ ability to procure micro-lots directly, prompting auctions to emerge as a secure avenue for sampling and purchasing coffee.”
Are certain consumers still inclined to shell out premium prices?
The demand for ultra-premium coffees may remain niche for decades to come, but as inflation rates rise, is there a trend towards more budget-friendly options among consumers?
Charles doesn’t necessarily see this shift happening. According to him, when the pandemic hit, many of his wholesale customers shut down. To support both producers and his business, he made his first bid at the 2020 Cup of Excellence Ethiopia auction. Teaming up with Geoff Watts at Intelligentsia Coffee in the US, La Boheme bid US $108/lb for the second highest-scoring coffee – a 90.98 washed lot from Sidamo produced by Rumudamo Coffee Industry Trade PLC.
“It may not have sold as quickly as other coffees, but our customers truly appreciated it” he explains. “For those with the financial means, they savored it at home. For others, they indulged in a cup at one of our coffee shops.”
Challenges inherent in specific markets
It’s evident that not all coffee enthusiasts and aficionados are inclined towards acquiring ultra-premium or rare coffees, either due to financial constraints or simply personal preference. Yet, for those who do seek out these exceptional brews, economic downturns haven’t dissuaded them from investing more in top-tier coffees.
Ryan notes, “Certain coffee enthusiasts are still eager to invest in the exquisite coffee experience” expressing his belief that the demand for such coffees will persist and potentially grow in the future.
However, this growth is likely to be concentrated in specific regions, notably East Asia, the US, Western Europe, and Australasia, where the market for these premium coffees is already well-established.
Despite shifts in consumer behavior spurred by Covid-19 and rising inflation rates, there’s been a notable resilience in the coffee market. In fact, specialty coffee consumption has surged, particularly in mature markets, showcasing a sustained interest in the ultra-premium coffee sector.
Nonetheless, it’s essential to recognize that the market for high-scoring and rare micro-lots will always be niche, catering primarily to those with the means and inclination to indulge in these exceptional coffee experiences.
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