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Modern Process Equipment

Coffee Business Leaders Offer Insight
for the Next Decade

By Melissa J. Pugash

As the global coffee industry enters a new decade, we encounter new challenges as well as opportunities for unprecedented growth. To help guide us through these uncharted waters, we’ve asked top-level representatives from the green sector, roasting companies and trade associations to share their perspective on where the industry is going and offer their insight into how stakeholders from “seed to cup” can achieve their maximum potential. Here are their responses to two questions. Please be sure to read their responses to two additional questions in our next issue.

Question 1. Where do you see the greatest growth potential in the next 10 years?

Patrick Criteser, president and CEO, Coffee Bean International (CBI) of Portland, Oregon: “We do not anticipate significant growth in total coffee consumption, however we do see a continuation of current trends toward better coffee - specifically, more consumers are looking for specialty coffee in more places. This trend is supported by both a growing consumer awareness of coffee quality and by the entrance into the category of younger demographics, which correlate with an interest in coffee quality.”

Judith Ganes-Chase, founder and president of J. Ganes Consulting, LLC, based in Katonah, New York: “Competition in the U.S. beverage market is going to continue to be fierce, not just within the coffee category but also relative to other products. The coffee sector is going to have to continue to deliver innovative new drinks to maintain market share. Much of this will be in the form of functional beverages that offer consumers great taste, convenience but nutritional value. Canned, iced coffee will see greatest growth and instant coffee will continue to have a makeover.”

Nathan Herszkowicz, executive director, Associação Brasileira da Indústria de Café (ABIC): “For individual consumption, the largest growth potential is in individual coffee doses, and this happens both in mature markets and in those experiencing high development rates. Practicality, less waste, better quality and broad availability of preparation equipment for home and office coffee consumption are the reasons that will increase this form of coffee consumption. Coffee is apparently the drink of the 21st century. Coffee in infinite combinations with milk and other products offers a special attraction for the younger generation who traditionally used to consume very little coffee. Encouraging this population to consume coffee will bring huge growth opportunities. Regarding mass consumption, in the traditional and modern ways, growth in emerging markets such as Eastern Europe and Asia seem to be a large opportunity for coffee business in the next ten years.”

Henry Hüeck, president, Cafetalera los Compadres in Nicaragua: “Increased consumption will be coming from the producing countries including Brazil, India, Mexico and Central American nations that have started strategies with the help of the International Coffee Organization (ICO). And, governments as well as coffee shops and producers that start roasting their coffees should also help with promotion by working with their coffee associations. Corporate Social Responsibility (CSR) practices would be helpful to promote coffee consumption.”

Andrea Illy, chairman and CEO of Trieste, Italy-based illycaffè SpA: “The greatest growth potential is in educating consumers and operators about quality from the bean to the cup. Illycaffè has spent years and many resources making this happen. He adds, “There is also much growth potential in the home sector; making it easier for consumers to prepare and enjoy top-quality espresso and espresso-based beverages at home. The industry and top-tier players in particular have done a phenomenal job over the past two decades developing awareness and interest in better quality coffee, especially in markets like the U.S. where there was a lot of room for education. So now, we have more discerning consumers who want and demand a great coffee experience everywhere. The consumer wants and needs the process to be easy, fast and certain to produce something great. I see our iperEspresso capsule technology and similar capsule-based systems as becoming the dominant format, both at home and on-premise.”

David M. Neumann, speaker of the board of management, Neumann Gruppe GmbH of Hamburg, Germany: “World coffee demand has not slumped in the current crisis as we may have expected. On the contrary, we note a slight rise in 2009. This said, one must make substantial differences by markets and products. Generally, overall consumption has been down in countries and markets in which drinking coffee is more of a lifestyle than a true habit. But even here we see a strong recuperation in the last months. In mature markets, many consumers have moved to more economical products and out-of-home consumption has suffered, but overall disappearance has not really changed. Today, we predict that the world will consume just below 2% more coffee every year for the next 10 years. This might not seem like a lot but, when looked at in bags and over time, growth will be very impressive and the challenges for producing countries and the roasting industry are great and growing.”

Neumann explains, "Within overall growth, instant coffee will be the main volume driver. With products in a large variety of qualities available and instant coffee often being the basis for coffee based beverages in supermarkets and elsewhere, this industry and its products have become very diverse over the last years. At the same time instant coffee continues to be oftentimes the first kind of coffee chosen by new consumers - especially in Asia and Eastern Europe. In the specialty sector, the trend seems to be going towards upgrading less “exotic” coffees by adding to their perceived value through certifications and approvals of all sorts, from the politically driven to trade certifications.”

Roel Vaessen, secretary-general European Coffee Federation (ECF), headquartered in The Netherlands, sharing his personal views, not necessarily those of ECF: “It is tempting to answer this question by looking at the high Scandinavian per capita consumption of around 10 kilos annually, take this as a benchmark, compare it with consumption elsewhere and identify the biggest gap. Consumption in Vietnam, Indonesia or the Côte d’Ivoire is less than 1 kilo (figures from ICO Coffee Market Report of October 2009), so we may say that there is a potential of a ten-fold growth in these countries. Or we may look at the U.S. per capita consumption of 4,17 kilos and conclude that the greatest potential is to triple the average consumption of its 308 million inhabitants to bring it to the level of Finland (12,62 kilos). Even if we set our sights a bit lower, we can speculate about having the 1,3 billion inhabitants of China on average drinking the same volume as the EU (4,83 kilos). These oversimplified examples illustrate that there is no one-dimensional response. Growth potential can be realized in many markets and settings, but there are factors that are a help, a hindrance or a requirement. A basic requirement is disposable income. In mature and economically developed markets we like to think of coffee as a necessity, an established component of everyday consumption. However, for many people the purchasing of essential foodstuff is a much higher priority. Thus growth potential is closely linked to the general economic development, especially in emerging markets."

Ricardo Villanueva, Chairman of the Guatemalan National Coffee Association, (Anacafé): “The specialty market will continue to grow and that certified coffee demand will increase as traceability and health concerns will demand more information about origins. Coffee consumption will continue to advance as emerging markets and producing countries increase their income. The trend will continue to recognize quality and better coffee production practices.”

Christian Wolthers, president, Florida-based Wolthers America, Inc.: “There is no doubt in my mind that the greatest growth potential lies within the Brazilian Internal market. As long as the Brazilian economy remains stable, the increase by new consumers and current consumers is evident. In Brazil, coffee is considered to be a food product by consumers and by legislation; the government has even included coffee served with milk in public schools daily meals served to students age five years and older. The current per-capita consumption of just under five kilos per year shows that as a preferred food product and part of the family’s diet, the only factors that could stall coffee consumption are lower purchasing power and poor quality. Both threats seem to be well under control for the coming decade.” Wolthers explains, “Brazil is completing 17 years of the Economic Stabilization Program which started with Fernando Henrique Cardoso (FHC) during Itamar Franco’s Government, through FHC’s eight years as president and currently, under President Lula’s seven years in power. The strong economy in Brazil is supported by a series of good news and perspectives such as a growing and stronger internal market, energy self sufficiency, recently found pre salt crude oil and gas in record reserves and a smooth political scenario for the long term. Quality is booming in Brazil and consumers are responding with an average 5% yearly increase in consumption levels; this represents a new demand of 900.000 bags for 2010! Brazil will become greatest coffee consumer by 2012 and is expected to maintain that position throughout the decade. Brazil is also prepared to defend the position as largest green coffee producer and exporter in the planet, although no substantial new areas will be planted, yields and quality are on the upswing.”

Question 2. What can the industry and/or governments do to drive consumption?

Patrick Criteser: “The coffee industry can work together on consumer education, standardizing the definition of quality, and on a coordinated approach to research into how to improve quality in the cup. Regarding consumer education, the more a person knows about coffee - where it comes from, how it’s grown and processed, the art and science of roasting, and unique taste characteristics, for example - the more value he or she will get from the experience of drinking it. By delivering more value in this way, we increase willingness to pay and strengthen our industry for everyone involved in the coffee ecosystem. A standard definition of quality based on sound research facilitates consumer education through clear and consistent messaging.”

Judith Ganes-Chase: “Research on the healthful benefits will be vital to continue to change perceptions about drinking too much coffee being harmful for you. More educational programs and placement in physician offices and schools will help.”

Nathan Herszkowicz: “Education, ample communication and quality seem to be the fundamental components required to drive consumption. Important themes for the industry’s and governments’ promotional campaigns should include coffee benefits to human health, the relationship between coffee consumption and sports performance improvement and better school performance in children and teenagers who drink coffee. Other factors that will drive consumption are the coffee quality attributes that result from farmers’ preparation, the terroir, the different types of coffee available and their relationship with cups of coffee with different flavors. Brazilian government’s educational campaigns on Coffee and Health: Coffee in School Lunches and Snacks, and the creation of a TV character, SuperCafé (SuperCoffee), which is being used in Japan, are impressive examples of what governments and private enterprise can do to promote consumption.”

Henry Hüeck: “Help with communicating the messages of ‘coffee and health’ and the benefits that sustainably operated coffee plantations provide for the environment. Also keep the support for projects that have done a good job in promotion like the web auctions and assistance to specialty coffee conferences on the consuming side and on the production side like the Ramacafé International Coffee Conference (in its 10th anniversary this year 2010). These conferences offer education. They also give us a better understanding of the supply chain and make it easier for producers to establish more and better relationships.”

Andrea Illy: “The industry and governments can help drive consumption by supporting coffee growers so that they can produce high quality coffee for consumers. For illy, this is done by working directly with the producers, educating them to produce the highest quality, environment-friendly coffee, and paying them higher than market prices in recognition of the quality they produce and as an encouragement to continue to improve. Consistently providing consumers with the highest quality product and educating them on what to look for in a quality cup of coffee will drive consumption.”

David M. Neumann: “There are thousands of roasters throughout the world. While a few multinational food companies will continue to market the majority of coffee to consumers, mid-size and small roasters will continuously be able to enhance their profiles by catering to regional and local tastes. Here, also issues of CSR in their own backyards will show promising possibilities for marketing and playing the role their customers expect them to. And, looking at coffee from different angles today, coffee shops define themselves mainly via the countries where coffees comes from - why not offer a range of coffees prepared in the many different local ways across the world?” Neumann also asserts, “We live in a time of growing government intervention and different kinds of subsidization in producing countries. To a certain degree this is supportive. On the other hand, such measures tend to distort markets and cannot be long-term solutions. The only real way to keep a farmer producing coffee is to make it sustainably worth his while economically. While traditionally the weakest part of the supply chain, many producers today have access to a wide range of certifications - not all of them reflecting his true interest - and with growing education as well as more informed and savvy consumers, the farmer needs to be more entitled to make decisions of his own. For this he needs authorities that let him live on the free market value of his labor and regard coffee farmers as an economic factor and not merely as a social one, to be supported in some cases only when election time comes around.”

Roel Vaessen (again, expressing his personal comments): “Producing countries’ governments can help increase local consumption by a liberal import regime regarding green or finished coffee from other origins. Giving the local industry the opportunity to source a large variety of ingredients and facilitating the offer of imported finished products in stores and cafés can only result in a wider choice, more consumer satisfaction and a growing consumption. “Consumption will also be helped by increasing the ‘fun factor’ of coffee, especially in those markets where consumption is already at a respectable level. Much has already been done to take coffee out of the ‘brown and warm’ category. Probably the biggest recent development is single portion preparation in its various forms. This not only increases convenience, but also allows for ‘made to measure’ preparation: taste profile, single origin or region, decaffeinated. This turns coffee into a conversation topic. The same applies to ‘coffee menus’ in restaurants. The food service sector in offices is not left untouched — newer equipment offers a range of preparations. Future developments even go in the direction of defining and pre-programming individual preferences.”

Ricardo Villanueva Carrera: “Eliminating tax barriers to coffee imports, educating the public, consumers and institutions about how to prepare an excellent cup of coffee. In Guatemala we have established the Escuela de Café for that purpose. Information and education about the health benefits of drinking coffee will also attract more consumers.”

Christian Wolthers: “The Brazilian National Coffee Council (Conselho Nacional do Café) is a great example of a successful forum that promotes dialogue among all sectors of the coffee Industry in Brazil. Within the CNC, both government and industry have been able to prepare for the future, keeping production in par with short and long term demands from all different sectors. The CNC includes government, producers, exporters, local roasters and the soluble and decaffeination industries as well as consumer and trade associations. The key to driving consumption in Brazil remains tied to the open dialogue and deliberations between government and the private sector. Exports and the internal market have to be protected alike, an aligned short and long term strategy on increased production, quality enhancement and strategic stocks, remains the priority for the entire Brazilian coffee Industry.”

In the next part of this series, we will ask: What are the key components that companies will need in order to remain successful; and What role will sustainability and/or corporate citizenship play in the coming year? Check back next issues for more in-depth analysis and outlooks on the year to come and the direction of the global coffee community.

Tea & Coffee - January, 2010

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