a changing coffee culture

Brew battles

Hi there,

The ~$100B coffee industry is facing growing pains.

Global coffee production is hitting record highs this year, and analysts predict consumption growth of 5-7% through 2025.

Young people in China are drinking more coffee, while Americans are drinking more expensive coffee — opening huge opportunities on both fronts.

In 2017, Starbucks opened its largest global store in Shanghai. Photo credit: Quartz

At the same time, the types of coffee we drink and the ways we buy it are changing.

What’s threatened?

• Brick-and-mortar coffee shops. In 2017 they saw their lowest growth rate since 2011.
• Whole milk lattes. Non-dairy milk sales have jumped 61% since 2012, forcing cuts among dairy producers like Dean Foods.
• Imported coffee. The countries that lead the world in coffee production also have some of the highest coffee-drinking growth rates. As producers like Colombia and Indonesia use more of their premium beans at home, smaller coffee brands in the US may face higher prices or limited supplies.

What’s booming? Besides the growth in Asia and in premium coffee, we see major momentum in:

Cold brew: This may be unsurprising to anyone who’s walked through a US grocery store or visited a Starbucks lately, but cold brew coffee has expanded through the US like crazy since Blue Bottle brought it to prominence in the late 2000s.

As the CB Insights earnings transcript analysis tool shows, cold brew coffee hit public company consciousness around 2016. Since then, major companies from Dunkin’ Donuts to Nestle have jumped onto the trend. Alcohol companies are even designing cold brew liquors.

Perhaps the biggest sign cold brew is going mainstream? McDonald’s just started serving it last month.

Bold blends: As competition increases, cold brew brands have to diversify to survive. We see a focus on new flavors, with particular momentum in citrus and spicy Southern flavors.

Plant protein: Going forward, more coffee shops will likely roll out almond milk, rice milk, and other new dairy substitutes to differentiate themselves.

Already, almond milk startup New Barn supplies Whole Foods’ in-store coffee shops, and dairy-free coffee and creamer startup Califia Farms (which raised $50M last week) has partnered with The Coffee Bean & Tea Leaf in 2,500 locations.

Furthermore, brands are increasingly adding protein to bottled coffees to turn them into caffeinated meals. New startup Sunniva sells “super coffee” made with coconut oil and lactose-free protein, for example, and Soylent offers coffee products.

Mobile coffee shops: Reportedly the world’s fastest-growing coffee chain, Wheelys is quite literally mobile. The Swedish startup sells small cafe carts that entrepreneurs can attach to their bikes and wheel around.

Franchisees use Wheelys’ mobile app to manage inventory and accept payments.

Other high-momentum startups also put mobile (phones) first.

Luckin Coffee, one of China’s hottest coffee startups with $200M in funding, integrates with Alipay and WePay and relies on mobile ordering, mobile payments, and on-demand delivery.

Meanwhile, India’s leading chai retailer Chai Point created its own mobile payments platform and IoT tools to track shoppers and deliver on demand.

As China leads global growth in mobile payments (through unmanned retail stores, the spending power of Chinese tourists, and more), and as we all demand more convenience, we’ll likely see growth in these types of digital-native coffee chains.

Stay hungry,

Zoe
@Zoe_Leavitt