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Economic Tea & Coffee Forecast 2009
Staff Report

As 2008 ends with an economic crisis evident, Tea & Coffee Trade Journal asked several key players of the industry for their thoughts on what the 2009 will bring.

What are the most significant changes/discoveries/advances that you have witnessed in your segment of the industry over the past year? In the industry as a whole? How have you utilized these new aspects to benefit your company?

“The most significant developments I have witnessed is the growth of ‘personalized’ coffees; i.e. genuinely unique and different coffees. For example, I discovered monkey parchment coffee while in India this year and it has since been selling in record amounts. This is good for all concerned: growers, roasters, retailers and consumers.”
Instaurator, Specialty Coffee Association of Australasia, Australia

“What we have witnessed through the opening of our carbon neutral roastery and coffee house in the last four weeks has radically impacted our business more than any trend in the industry over the past year. We had totally underestimated the benefit of having our own coffee house and what this means for our brand. Shockingly, people having seen green beans in their raw state for the first time have commented that they didn’t know that coffee was an agricultural product! And even more shocking, our decision to buck the market trend to serve bigger size cups of coffee and go back to the purist traditional 5-fl-oz-cup has had a surprising reaction. Taste and quality! Flavor! Perfection! Just Right! Comments back from our customers - delighted that they can taste the coffee and savor the flavor…something that they believe is being lost in the myriad of coffee drinks available in the market place and the voluminous servings. We opened in an industrial area, where most roasters are based and the customer interaction with our brand in four weeks achieved more than eight years of pretty clever marketing and substantial marketing budgets. This is an area that roasters are afraid to invest in or afraid of competing with their own customer base and need to rethink this incredible branding opportunity.”
David McKernan, Java Republic Roasting Co., Ireland
“As a buyer for Choice Organic Teas, I believe "Old is the new New." In other words, we've seen the consumer's tea knowledge and sophistication in the U.S. grow to the point where they are really interested in classic, traditional teas, as opposed to flavored tea drinks that completely obscure the tea. More tea drinkers are buying varieties like ‘Genmaicha,’ as opposed to say, ‘Deer Jumping Over the Brook Carmel Delight Tea.’ There will always be a market for flavored teas and exotic variations, but classic teas and traditional blends will continue to gain in popularity and have always been our main focus at Choice Organic Teas.”
Abby Waysdorf, Choice Organic Teas, Washington
“Two big changes, coffee by the cup as witnessed by the Keurig System and Nespresso. The Keurig brewer, which uses capsules, is a beverage system, not a coffee maker, with the ability to brew a wide variety of coffees, teas, cocoas and soon chai and others. This is being well received in office and now mainstream consumers. Lots of growth opportunities. Nespresso is the leader in the single cup field with $2.2 billion in sales but just has espresso, although they have around 10 types. The coffees are very good with great crema. They are very popular overseas and are being introduced via their own retail stores in the U.S. as well as high-end advertising.

There's a consumer trend away from whole bean bin coffee in the supermarkets to bagged coffee by the pound or 12-oz. This is a positive evolution, as the coffees are almost always fresher in the bag versus the bin and it reduces line item pricing, which I believe is unfair to the producer. It also helps in eliminating fraud and contamination at the store level. Could you imagine line pricing for wine?”
Dan Cox, Coffee Enterprises, Vermont

“There are many different things happening in the industry, but we see the most significant and exciting is the use of the web with POS systems. Merchants are starting to recognize the benefits and many industry players are moving towards developing web-based solutions. Web systems provide advanced features and functionality so owners can manage single or multiple locations more effectively. Information is centralized and backend duties like menu editing, price changes and viewing reports are done in real time. We see this as a real change and advancement in the hospitality and barista industry as more people move away from traditional systems because of the added convenience these systems offer. “
Susan Young, Auphan Dining, Washington

What recent trends have had an effect on your industry and where do you see the industry going in the future? How will your company keep up with these trends and meet new demands?

“Coffee continues to suffer from an unhealthy image but tea, which is the second most active in the new product development in the non-alcoholic drinks category, has had an impact on our business. We watched the trends, listened to our gut and introduced a range of specialty teas, herb and fruit infusions that are now half the sales of our traditional tea sales. This has been a positive effect and through continued research and development we will be ready to take on the new demands of the consumer in both tea and coffee.”
David McKernan, Java Republic Roasting Co., Ireland

“Innovations in packaging are influencing the industry. Pyramid bags, for example, which have been gaining in popularity over the past few years, are changing the way that both producers and consumers think about their cups. Consumer demand for more sustainable packaging is also changing the industry, making better options for the environment more readily available. Sustainable business practices have been the cornerstone of our company and we are continuing this commitment with our new Whole Leaf Organics featuring biodegradable tea pyramids and 100% recycled packaging material printed with soy ink.”
Abby Waysdof, Choice Organic Teas, Washington
“Consumers are getting more and more demanding, sophisticated and conscious of the quality and origin of the coffee they buy. They are increasingly more concerned with sustainability and the socio-environmental impact of the products they consume. Consumers are looking for coffees that bring them a true experience and history. This is happening both in countries where consumption of coffee is already part of the culture, of a lifestyle, and also in new markets. In this sense, we believe it is essential to bring together the main stakeholders of the coffee chain, allowing more interaction between them, as well as a more direct flow of information and knowledge that can add value to the industry.”
Daniel Friedlander, Nucoffee, Brazil
“We have seen a shift in interest in using Coffee Shop Manager (CSM) to help measure performance and improve control at a coffee shop. This is somewhat of a shift from using the tools of CSM to help support growth. Since features exist to support internal controls, performance measurement and growth, it is more of how we discuss our features with prospects and customers vs. making any specific changes to our software.”
Lee Alexander, Coffee Shop Manager, Washington

How does the exploding interest in sustainability and greening processes affect your industry? Do you believe the eco-consciousness is a trend, or do you think this is a long-term ideology change? Are the expenses involved in "going green" worth the return?

“Increased interest in sustainability reinforces Starbucks Shared Planet commitments - ethical sourcing, environmental stewardship and community involvement. These long-term commitments are well worth the investment: ethical sourcing helps ensure a better future for farmers and their families; environmental stewardship helps minimize our carbon footprint; and community involvement inspires local action among partners (employees) and customers.”
Elise Chisholm, Starbucks Coffee Company, Washington

“We don’t see this as a passing fad and consumer reports confirm this. We’ve been committed to sustainability for 20 years and in that time we’ve seen consumer interest grow from a small but devoted natural foods shopper segment to the larger mainstream grocery customer base. The consumer is demanding it, which in turn is putting pressure on more manufacturers to provide it, which is putting pressure on the ingredient and packaging suppliers to come up with solutions of sustainability at cost effective levels. That drives real innovations in the industry, with producers finding ways to be both more eco-friendly and more cost-effective. The last 20 years have proven to us that it’s definitely worth the return, and we hope that more companies in the industry follow our lead.”
Abby Waysdof, Choice Organic Teas, Washington
“Companies that are global suppliers (including supplying to the more mature markets) have to meet consumers' expectations by demonstrating responsibility for the environment. We believe this is a long-term change that will eventually payback as we become increasingly sustainable.”
Fabio Sato, Café de Iguacu, Brazil

How do you feel about consumer education? Do you think companies/organizations are succeeding in imparting knowledge to the consumer about different origins and blends? Is this education translating to higher-quality purchases?

“I have felt for many years our industry in general has not been able ‘to see the forest for the trees,’ in reference to educating the consumer. Without proper education...what will drive someone to break out of old habits of drinking mediocre coffee and step up - demanding and appreciating quality coffee? I have been very impressed in the past few years that the roasters are understanding, and making strides to this end in a big way. I still feel there needs to be more done by each of us in specialty to push education to those that create the demand.”
Bruce Milletto, Bellisimo, Oregon

“Consumer education is important, particularly when the consumer wants it. In the tea world we continue to see customers inquire about different teas with a real desire, or thirst for knowledge. We are seeing a rise in the educated consumer, who is looking for something of better quality and real value.”
Abby Waysdof, Choice Organic Teas, Washington

What do you feel is the future for the Barista? Will they remain a counter-service personality or could they become a liaison between origin and customer? How will the role of the Barista affect in-house training? What effects will this have on consumers?

“The future for the barista is vexed. The intelligent ones become bored with being stuck behind one machine for 40 hours a week. They are instinctively becoming liaisons, in-house trainers, as they pass on the answers they have found to their insatiable curiosity. But they want more than that….”
Instaurator, Specialty Coffee Association of Australasia, Australia, Australia

“The barista is the final person in a long chain of hands that is responsible for serving coffee at it's best and educating the public on specialty coffee. With comprehensive in house training, a barista steps out of a traditional ‘counter-person’ role, and into a professional position. The world’s best baristas are the ones who never stop learning and can pass on their passion for the industry onto others.”
Matt Milletto, Bellisimo/ABC, Oregon

How do you plan on surviving the expected economic crisis? Does the solution begin with attempting to cut prices at origin? Roaster? Retailer?

“As the economic crisis continues to unfold, I believe small to middle size roasting companies will feel the impact on many fronts. First, the independent restaurant and foodservice side of the business has already been feeling the impact of selling less cups of coffee because of the Dunkins, Starbucks and McDonalds. This translates into selling less pounds of coffee to these accounts for the roaster. Secondly, the cost to deliver the product to these accounts has increased dramatically, due to the cost of fuel. Next, the cost of providing on-loan equipment has increased due to the cost of this equipment rising because of spikes in stainless steel, etc.

The roaster needs to cover his costs of manufacturing the product, delivery, on-loan equipment, marketing and profit through the pound of coffee. We need to realize that coffee is still a luxury item that the consumer can do without. With this said, I believe green coffee prices at or above $1.50/lb will have an impact on consumption. I believe the roaster can compete and be profitable at the current lower levels and the consumer still receives a value.

We plan on surviving this crisis by: spending on advertising and marketing and hiring additional sales and service personnel. We have also partnered with foodservice distributors who have expertise in getting our product to the customer efficiently. Finally, we will continue to maintain the quality of product that we have been known for these past 55 years.”
Bill Kapos, Excellent Coffee Co., Rhode Island

“We plan on surviving the expected economic crisis by being open and transparent. We openly display the purchase price of our green coffee on-line via our website. Green bean and tea prices are already making tea and coffee a more costly experience than it was 18 months ago. We source our tea from Kenya and this is up more than 50%, the supply position will remain tight at least for 2009 and we will see volatile markets next year with prices hopefully not as high as in 2008 but almost certainly higher than 2007, while Arabica coffee has soared to almost £1,800/ton, a rise of 41% year on year. So, surely now’s the time not to be asking customers to cough up more. People tend to treat themselves in a gloomy economy as an emotional defense and coffee mirrors chocolate as a consumers feel the need to treat themselves!”
David McKernan, Java Republic Roasting Co., Ireland
“We expect businesses to become increasingly price sensitive, sometimes mistakenly putting price ahead of the value received for the money. We have offered a variation of our Coffee Shop Manager package at a lower price point to help coffee shop owners both get the quality of Coffee Shop Manager and help them stay within their opening or POS budgets!”
Lee Alexander, Coffee Shop Manager, Washington

Tea & Coffee - December, 2008

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