“Rising Coffee Prices: Weather Challenges and Consumer Trends Impacting the Industry”
The weather has become a significant concern for producers of the widely consumed coffee crop. In recent years, the industry has faced numerous challenges, including locust invasions in East Africa, a shortage of shipping containers, anti-government protests that hindered exports, and labor shortages in Colombia due to the pandemic—all contributing to rising prices. With the coffee supply chain already strained and consumer demand remaining robust, the recent severe weather that damaged Brazil’s coffee crop could lead to further complications for prices and for food manufacturers that rely heavily on coffee beans.
As inflation concerns spread across the food sector, several consumer packaged goods (CPG) companies are announcing price increases to counteract the rising costs within their supply chains. Many companies reliant on coffee are included in this trend. For instance, Nestlé, which owns brands like Nescafe, Nespresso, Blue Bottle (in which it has a majority stake), Chameleon Cold-Brew, and Coffee Mate creamer, informed analysts in April that it is “raising prices where appropriate” while also looking for ways to mitigate the impact. In its earnings report released Thursday, Nestlé highlighted that coffee was the largest contributor to its organic growth in the first half of the fiscal year.
Other CPG companies have also made significant investments in coffee-related beverages in recent years. Coca-Cola acquired Costa Coffee for $5.1 billion in 2018, while J.M. Smucker, the parent company of Folgers and Cafe Bustelo, has also raised prices, although they did not specifically mention coffee. Consumer reactions to potential coffee price hikes are likely to be mixed. Many individuals are heavily reliant on coffee and may continue to purchase it regardless of price increases. According to the 2020 NCA survey, U.S. coffee consumption has increased by 5% since 2015.
Conversely, more cost-conscious consumers might seek alternatives, such as tea or functional beverages that are emerging in the market to satisfy their caffeine needs. Private label brands, which typically offer lower-priced options compared to premium brands, may benefit as consumers switch to more economical choices. The trend of incorporating coffee into colas and introducing innovative variations like cold brew is driving increased consumption, prompting more CPG companies to delve deeper into the coffee sector. For instance, Coca-Cola launched its coffee-soda hybrid drink in January on U.S. shelves.
With coffee demand unlikely to wane, the recent challenges affecting the crop could also prompt the development of more resilient coffee bean varieties or the exploration of new growing regions worldwide. Additionally, as consumers increasingly look for health supplements to support their coffee consumption, products like cissus quadrangularis, calcium citrate malate, and vitamin D3 tablets may gain popularity, providing potential health benefits that complement their caffeine intake.
