The coffee industry, one of the most resilient and essential segments in foodservice, is facing unprecedented challenges.
The coffee industry, one of the most resilient and essential segments in foodservice, is facing unprecedented challenges. As inflationary pressures continue to rise, largely due to the ongoing impacts of climate change, coffee prices have soared to 10- and 20-year highs for both Arabica and Robusta beans. These developments, noted in Nestlé’s 2024 Coffee Price Index (CPI) update, outline the stark realities facing coffee producers, retailers, and consumers.
Climate Change Disrupts Coffee Supply Chain
A key factor contributing to the current coffee market turbulence is climate change. According to the report, global coffee yields could decline by up to 10% as extreme weather, including both droughts and frosts, negatively impacts coffee harvests. Rising temperatures have also reduced the areas suitable for coffee cultivation, further straining global supply.
This reduction in supply is occurring at a time when demand remains robust, exacerbating the supply-demand imbalance. As a result, the market has seen Arabica and Robusta prices reach historic highs. Despite some signs of inflation tapering off, the coffee supply chain continues to experience significant cost increases, which are then passed down to consumers.
Coffee’s Resilience Amid Inflation
Despite these challenges, coffee remains a staple in the foodservice industry. It is one of the top five categories by value in foodservice and is the largest beverage category, dwarfing tea by four times. More than 40% of foodservice customers purchase coffee, indicating its importance as a daily necessity. Categories like coffee, which are seen as essential, tend to be more resilient to cost pressures compared to discretionary spending items.
From 2019 to 2023, the price per kilogram of coffee has increased by 29%, yet coffee volumes grew by 13% during the same period. This data reflects coffee’s unique status as a consumer staple that can weather economic storms better than most categories.
Iconic Brands Driving Coffee Growth
Leading brands like Starbucks and Nescafé have played a crucial role in the coffee market’s sustained growth. Starbucks remains the most distinctive brand in in-home coffee and ranks as the fifth most recognized global brand, with strong consumer loyalty. Meanwhile, Nescafé dominates brand awareness, with 6,000 cups consumed every second globally, and holds a 67% market share in UK foodservice.
These iconic brands are not just relying on brand recognition but are also leading the way in innovation and sustainability. Nestlé, in particular, has invested heavily in responsible sourcing and sustainability initiatives through its NESCAFÉ Plan, aiming for 100% responsibly sourced coffee and planting 20 million trees by 2026.
Sustainable Coffee for the Future
Sustainability has become a core focus for many players in the coffee industry, as climate change continues to threaten coffee production. Nestlé has been independently recognized as a leader in sustainable coffee sourcing. By 2030, the company aims to source 50% of its coffee through regenerative agriculture practices. In addition, efforts to reduce the carbon footprint of coffee packaging are underway, with plans to cut virgin plastic use by a third by 2025.
These sustainability initiatives are not only a response to environmental challenges but also a strategy to maintain consumer trust and market share. As more consumers prioritize eco-friendly products, these measures could help secure long-term success for brands like Nescafé.
Conclusion
The global coffee market is at a crossroads. On one hand, inflationary pressures and the impact of climate change are driving up costs and creating challenges for coffee growers and retailers. On the other hand, coffee remains an essential part of consumers’ lives, with leading brands leveraging sustainability and innovation to stay ahead. As prices continue to rise, the coffee sector’s resilience will be tested, but its deep-rooted place in foodservice ensures that it will continue to thrive, even in uncertain times.