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Coffee in the time of COVID-19

From the August 2020 issue.

The coronavirus pandemic has rippled through the Coffee industry, impacting different links in the chain to various degrees. GCR looks at how some businesses have successfully adapted.

COVID-19 is a once-in-a-lifetime shock to the world economy, and the future impact of such an unprecedented event is hard to guess. Coffee is no exception.

The now global pandemic began in late-2019 with foreboding reports coming from China of a virus forcing people into their homes and businesses to close their doors. By March 2020, the coronavirus was wreaking havoc across Europe, North America, and the Asia Pacific, and the rest of the world not long after.

Many people, businesses, and governments outside China were caught off guard by the pandemic. Starbucks was not, with the world’s largest coffee chain having closed as many as 2000 branches in China in January 2020. President and CEO, Kevin Johnson, said during a National Retail Federation Leadership Series webinar in July that this allowed Starbucks to see what the coronavirus was capable of.

“The first period was understanding how this was effecting China, but it was also really evident that this was going to be something affecting all markets around the world,” Johnson said. “The thing we did immediately in January was to define three simple principles that would guide every decision we were about to make in every market around the world.”

These principles were the safety and wellbeing of its partners and customers, supporting government officials to mitigate the impact of the virus, and “showing up” as a responsible part of community.

Johnson said sharing these basic goals allowed Starbucks’ leadership to adjust its approach to suit the situations in different markets, put strategies in place as restrictions ease and tighten, and share best practices or what has worked in other regions.

These initiatives included limiting sit-down service, requiring employees and customers to wear face masks, installing plexi-glass service windows, and embracing digital ordering.

“We’ve created what we believe is the playbook that we’re going to have to operate within for let’s say the next 18 to 24 months while we wait for a vaccine for this virus,” Johnson said.

“Until there’s a vaccine, everyone around the world is just going to have to be aware that we have to live in a world with COVID-19.”

On the ground
While coffee consuming countries were largely the first to feel the sting of COVID-19, producing countries were hit soon after. At time of print, Brazil and India are behind only the United States in the number of confirmed cases.

This has had a number of effects on producers, going beyond concerns for their and their community’s health. Countries like Colombia, which were in the middle of or soon to begin harvest when restrictions came into effect, suddenly struggled to find workers. Many customers also had to cancel, postpone, and rearrange shipments.

Nelson Omar Funez, General Secretary of the National Coffee Council of Honduras, says his country’s farmers adapted well to the pandemic, thanks to restrictions coming in towards the end of the harvest. The Honduran Coffee Institute and government institutions also designed protocols to deal with the pandemic on the farm, processing plant, and logistics level, including transportation. However, Funez is wary of how COVID-19 will impact the next harvest, beginning in October.

“The country needs about 500,000 pickers, who usually came from different regions around the country, and also outside, mainly from Guatemala and Nicaragua,” Funez tells Global Coffee Report. “If the border stays closed, those workers cannot come to Honduras to pick the new harvest.”

With coffee consumption shifting from in-store to at-home, and end consumers in many countries facing economic challenges, Funez says the specialty coffee sector will be the most affected by the pandemic long term.

“This ‘new normal’ has to bring a ‘new’ way for the global coffee industry to work, ensuring all actors of coffee supply chain earn enough income to live and be resilient to this reality,” he says. “The impact of the pandemic will be felt by the coffee industry and coffee supply for a long time.”

Spreading globally
Operating across more than 25 producing countries, green bean trader Sucafina has seen how the pandemic took hold in different regions. David Behrends, Managing Partner and Head of Trading, says Peru and India have been among the worse impacted. However, he adds that there has been good news for at least some coffee producers.

“The side impact of COVID-19 was a large devaluation of the Brazil Real and the Colombian Peso, which meant farmers were receiving much more money for their coffee and profitability levels returned to very good levels for both countries,” he says.

“However, the negative is that this will likely lead to further consolidation of origin production, at the expense of other Washed Arabica producing countries.”

While there are fears a global recession and shutdowns in hospitality will reduce coffee demand, Behrends says Sucafina has not seen this impact overall demand.

“What has changed is where and how people are consuming coffee. Online sales have skyrocketed – and are notoriously hard to track – and at-home consumption, we believe, has largely compensated for the losses of office and out-of-home consumption globally,” Behrends says.

“The bigger shift has been in the quality of coffee, where we see consumers either gravitating to higher-quality commercial coffee for home consumption, or the very low-priced ‘value’ coffee found at supermarkets.”

Behrends echoes Funez’s sentiments that the specialty sector has been the worst hit by COVID-19, but he adds that demand for top scoring lots is already back on the incline.

“I have little doubt that consolidation at all levels will continue in the coffee industry. Unfortunately, smaller players will struggle to compete and also to have access to financing, which will favour larger, more diversified companies,” Behrends says.

“I don’t believe the coffee industry will ever return to being the same as 2019. Actually, my belief is that we will use the challenge of COVID-19 and the drive for more inclusiveness to actually evolve as an industry.”

United stand
When cafés in the United Kingdom were forced to close or transition to take-away-only in late-March, many coffee roasters saw their main stream of revenue trickle out almost overnight.

This was the case for one of the country’s largest specialty coffee roasters, Union Hand-Roasted Coffee. However, the business also had a strong online presence and has been in a distribution partnership with grocery store chain Waitrose since 2005. Manager Director Violeta Stevens tells GCR this has helped guide Union through the pandemic.

“COVID-19 has been a bump on the road, but we are fortunate to have a well-established and diversified [from a sales channel point of view] business,” she says. “People did not stop drinking coffee, actually the opposite. Coffee did bring some normality into their lock-downed world and kept them connected. At home, people had more time to learn about coffee quality, ethics, flavours, and brewing methods.

“We did lose business in some of our sales channels, but at the same time, our grocery and direct-to-consumer channels saw a significant growth.”

Stevens says these channels have allowed Union to scale up visibility of its brand and connection with the consumer, sharing its company values and information about its sustainable coffee buying practices.

“We see the ability to talk directly to the consumer as very exciting, and we hope this will help our wholesale customers, independent coffee shops, and all of our business partners, come back post-COVID-19 to a good level of business,” she says.

“There’s been a significant shift in consumer behaviour over the last few years, which I believe will benefit the specialty coffee industry and, ultimately, the coffee growers. The coffee drinker has a better understanding why it’s worth spending a little bit more for their cup of coffee – to ensure its ethically sourced and skilfully roasted, so they can enjoy a delicious cup of coffee.

“I believe there will be a change in consumer behaviour post-COVID-19, and we’ll be ready to further adapt as a business.”

Not many coffee brands are as familiar with or intrinsically linked to the direct-to-consumer market as Nespresso. But even the coffee capsule pioneer isn’t immune to COVID-19.

“As with many businesses across all sectors globally, our business has been disrupted by the crisis,” a Nespresso spokesperson tells GCR.

“Our key focus remains the safety of our employees, the continuation of our supply chain, and the support and care for our customers as many countries around the world still continue to be heavily affected by COVID-19.”

Due to limited access to its boutique shops, some of which had to temporarily close, Nespresso saw an uptake in online and over-the-phone orders, even reporting mid-single-digit organic growth in the first half of 2020.

“What we have seen is that at-home coffee consumption has increased as people had to stay home, or still do. There has been a logical shift from out-of-home consumption to in home consumption,” Nespresso says.

When asked where he sees the coffee industry going post-COVID-19, Starbucks’ Kevin Johnson said customers will look for experiences that are safe, familiar, and convenient. With Starbucks’ ‘third place’ policy embodying the first two ideas, the coffee chain will focus on the latter going forward.

“We’re transforming our store portfolio to create a network of stores, and this is especially true in dense metropolitan geographies,” Johnson says.

“Take Manhattan, [New York]. We’ve got a number of stores in Manhattan, and we’re now going to transform that trading area and blend in a new format of store called a Starbucks Pickup.”

These stores will place a greater emphasis on to-go coffee and many other service features cafés have embraced during COVID-19, such as new digital capabilities and curbside pickup. Johnson said Starbucks Pickup will work alongside traditional Starbucks stores rather than replace them.

“The ‘third place’ [isn’t] going away, we’re just complementing that with more digital experiences and choices for our customers,” he said. “This global pandemic will certainly reshape the way we live and think about the rest of our lives.”

The threat of COVID-19 still lingering, with many countries experiencing a second wave of the virus, or still rising number of cases. Johnson said now is the time for brands to show consumers what they stand for and to do the right thing by their employees and community.

“In times of adversity, values matter. Values are going to be tested when you have to make hard decisions… When we shut down all of our stores, we made the decision to pay all of our Starbucks partners whether they came to work or not,” he said. “Doing the right thing, even when it’s hard, is what builds trust.

“If customers trust, as a retailer, you want to create an experience that is safe for them during COVID-19, they’re going to trust you forever.”

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