Coffee Roasters Adapt while Consumers Work from Home
I often wonder what will happen to coffee businesses in the near term, as the economy gradually re-opens. And how will they fare farther down the road when the pandemic is largely behind us?
Coffee companies with various revenue streams seem the most resilient. In particular, coffee roasting businesses with café locations have been offsetting losses from the lack of café customers with increased takeout and delivery orders as well as packaged coffee sales.
Consumers are Making Coffee at Home
It would seem that consumers haven’t given up on drinking coffee throughout the day. It’s just that they are now making coffee at home more often. The sales in packaged coffees increased dramatically in the first quarter of 2020. According to a recent article on FT.com (Financial Times), US weekly sales of packaged coffee was up 73% in March 2020 in comparison to the previous year.
Even though many cafés are now offering takeout and delivery services, many consumers have been opting to stay home for their coffee. This is in part due to lockdown measures and consumers’ safety concerns. In addition workers who have made the switch to working from home no longer pick up a coffee on their way to work. Making coffee at home has become more convenient.
In the near term as offices gradually re-open, it remains an open question as to how many people will continue to work from home. Over the long term, some companies may decide that remote working is actually an advantageous policy, because less office space means lower costs.
If many people continue to work remotely, their coffee consumption routines will be key to the survival of local cafés and coffee roasters. It remains to be seen whether remote workers will replace visiting the café next to their office with visiting a café near their home. And to what extent will they continue to support their local cafés and coffee roasters with takeout, delivery, and packaged coffee orders?
Coffee Companies Look for New Sources of Revenue
When you consider the landscape of cafés and coffee roasters in our neighborhoods they include small businesses as well as large coffee chains such as Peet’s Coffee and Starbucks. All of these companies have recently suffered losses due to the lack of café visitors. Many have tried to offset these setbacks by introducing curbside pickup for coffee, local café menu delivery through services such as Uber Eats, and discounts on online sales of their coffee products, including packaged coffee subscriptions. Larger coffee companies have the added advantages of economies of scale, cash reserves, and a diverse global presence. Smaller coffee companies benefit from the loyalty of local customers who want to support the small businesses in their neighborhoods. In general the companies that seem to be doing the best are the ones that have expanded their ecommerce sales to service the growing number of at-home coffee consumers.
Pavement Coffeehouse
Pavement Coffeehouse is an example of a small business coffee roaster that has recently been diversifying its revenue streams. Pavement Coffeehouse is located in Massachusetts with café locations in Boston and Cambridge. It has a mobile app to facilitate ordering in advance. The main takeout options include a variety of breakfast and lunch food items as well as coffee and tea, while the bulk takeout menu offers homemade bagels, packaged coffee (including instant coffee) and granola. The online store products for shipment include packaged coffees, coffee subscriptions and teas. This expansive range of items offered for pickup, delivery and shipment seem to provide a healthy mix of revenue sources that can help offset recent losses.
Peet’s Coffee
JDE Peet’s BV (known in the US as Peet’s Coffee) is an example of an iconic multi-national coffee company with a good business model that may be able to adapt to the current economic downturn better than many other companies.
Peet’s Coffee is well known as being one of the most important West Coast coffee companies that was established in 1966 by the Dutch entrepreneur Anton Peet. Peet’s Coffee set itself apart with its focus on a European style café experience, high-end Arabica coffee roasts, and a wide variety of custom specialty drinks including caffè latte, cappuccino, and espresso. The three founders of Starbucks all trained at Peet’s Coffee before branching out on their own to start the Starbucks company in 1971.
Peet’s Coffee is currently a well established coffee company with many global locations. One of the company’s strengths is its packaged coffee business. According to a recent article on Bloomberg.com, 80% of the business revenue for Peet’s Coffee is generated through the sale of Peet’s Coffee products for home consumption. Furthermore, the global reach of the packaged coffee business is expansive. A recent article on Barron’s.com states that Peet’s Coffee is second only to Nestlé in packaged coffee distribution in Europe, Australia and New Zealand. While currently not a dominant presence in the US, Peet’s Coffee has been gradually increasing its US packaged coffee sales through grocery store and café sales as well as through the Peet’s Coffee online store and Amazon.com.
The Peet’s Coffee website is impressive, with its online store offering packaged coffee, coffee subscriptions, a large selection of teas, and home-brewing coffee equipment. The website also provides instructional videos on how to brew coffee at home for the aspiring home coffee barista.
Most importantly JDE Peet’s BV (owned by the private company JAB Holding Company) recently went public on the Amsterdam stock exchange. In addition to the Peet’s Coffee brand, JDE Peet’s global brands include US coffee brands Intelligentsia Coffee and Stumptown Coffee, as well as Dutch coffee brand Douwe Egberts. Despite the pandemic, the IPO was successful, raising $2.5 billion. With this added funding, the Peet’s Coffee IPO has placed the company in an even more favorable position to withstand uncertain times.
Cafés: Our Favorite Meeting Places
Going forward it is unclear to what extent the current trends towards working from home and increased home coffee consumption will continue. Ultimately it will be up to consumers to decide how often they choose to visit their favorite cafés as they start to re-open.
Cafés have always been important places for people to go to meet friends, study and work. They are also an important source of employment for café owners, managers, coffee roasters and baristas. If cafés start to shut their doors, that will be a huge loss for our neighborhoods. Similar to the tragedy that we all experienced watching many of our local bookstores gradually close one by one due to the increase in online shopping. It’s important that we continue to support our local cafés, either by visiting in person or through takeout and delivery orders. Otherwise we run the risk of losing some of our favorite meeting places.