America’s coffee cup is half full
Why the U.S. coffee market may still be far from saturated
new
Feb. 20, 2013, 3:47 p.m. EST
America’s coffee cup seems filled to the rim.
Hot or iced, drip, French press, espresso, Chemex or Keurig, each of us
downs about 23 gallons of joe a year on average. It’s in our blood. It’s
also on our streets, where Starbucks
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outposts outnumber hospitals and colleges. And even on our resumes: 161,000 people list “coffee” as a skill on LinkedIn. See: Coffee as a skill on Linkedin
But the truth is, our cup is half empty. We could be drinking a lot more
coffee and, in fact, we used to. In 1946, when America’s thirst for
coffee peaked, each of us swallowed about 48 gallons a year on average,
according to the U.S. Department of Agriculture — more than twice
current consumption. “We’d drink coffee with breakfast, coffee with
lunch, and coffee with dinner,” says John Sicher, publisher of Beverage
Digest. “And mostly, we’d drink it at home.”
What makes midcentury America’s passion for coffee all the more amazing
is what passed for a decent cup back then. Most coffee in the postwar
years was made from canned, pre-staled, pre-ground beans, boiled to
oblivion in a percolator or served so diluted as to become what
folksinger Ani DiFranco calls “water dressed in brown.”
And while Starbucks says a customer ordering a cup at one of its stores
can choose from some 87,000 possible drink combinations, 60 years ago
there was essentially only one. “All coffee tasted pretty much the
same,” says coffee historian Mark Pendergrast, author of “Uncommon
Grounds.” And it only got worse from there. “From this state of
mediocrity, coffee went from safely middling to awful within the next
two decades,” he writes.
The caffeination gap from the 1940s to the present day is significant
beyond just as a historical curiosity, however. With coffee consumption
on the rise again, the numbers suggest that despite appearances, the
market is far from saturated, and that Starbucks, Green Mountain Coffee
Roasters
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, Dunkin’ Donuts and independent cafes still have much ground to conquer.
“I don’t know if we can ever go back to the levels of the 1940s and
1950s, but there is no doubt that we can substantially increase
consumption in North America,” says Mauricio Galindo, head of operations
for the International Coffee Organization. “There is no reason
consumption cannot begin to approach levels in Europe.” We’re
teetotalers compared with the Finns, for instance, who set the coffee
bar for the world by drinking a staggering 62 gallons a year.
The numbers also demonstrate just how swiftly and dramatically tastes
can change. Since a person can only drink so much liquid in a day, due
to the physiological limits of bladder and stomach, the rise of one
beverage’s fortune cannot occur without the fall of another’s. Thirst is
a zero-sum game.
Coffee’s star rose during Prohibition, and plummeted as soft drinks took
hold in the 1960s. It’s unlikely any one beverage will achieve the
dominance coffee or Coke held in prior decades for the same reason it’s
doubtful any TV show in the cable era will ever manage the same ratings
as the season finale of MASH: variety. “There have never been so many
choices of beverage, and there have also never been so many beverages
with high caffeine content,” says Agata Kaczanowska, a coffee industry
analyst for IBISWorld, who nevertheless predicts the $11 billion U.S.
business will have 3.1% annual growth over the next five years.
Though coffee executives and investors have good reason to feel
optimistic about the drink’s fortunes, the history also demonstrates how
fickle tastes are. We could fall out of love with coffee. In 1956, for
instance, the coffee industry was so overconfident, it was in denial
about the threat posed by Coca-Cola, Pendergrast says. “Coffee was here,
on this earth, long before any of the colas,” Arthur Ransohoff, then
chairman of the National Coffee Association boasted.
Meanwhile, soft drinks managed to market themselves to the
not-yet-teenage baby boomer generation as the beverage of youth, energy,
and vitality. When Coke hired pop singer Eddie Fisher as a pitchman in
1956, marketer Judy Gregg urged the coffee industry to follow suit. “The
coffee manufacturer who decides to use the same personality technique
and hires the services of one Elvis Presley could enjoy a strange
success,” she said. “Imagine Elvis sipping just one cup on TV?” The
industry did not bite, Pendergrast says, and while soda drinking
quadrupled over the following decades, coffee sank.
Why coffee is going down market
The lowly robusta bean, a variety that often winds up in Nestle's Nescafé and other instant coffees, is moving up in the world. Leslie Josephs joins Markets Hub. Photo: Getty Images.
In trying to make sense of coffee’s steady decline through the 1970s, a
1977 USDA report concluded it may have been a combination of two
factors: first, changing lifestyles that “encouraged quick and cool food
and beverage breaks as opposed to complete breakfasts and full meals
that include coffee.” Though coffee is still offered at the conclusion
of most dining experiences, these days one is more likely to have a
bottle of water with lunch than a coffee, Sicher says. The second reason
the report cited was taste: To lower costs, coffee producers began to
adulterate grounds with growing proportions of Robusta beans, which are
cheaper and substantially more bitter than the favored Arabica variety. See: U.S. coffee consumption, 1946-76.
It also didn’t help that while soft drinks managed (believe it or not)
to come across as a healthy choice, coffee was increasingly portrayed as
a poison. Research linked coffee drinking to heart disease, stunted
growth and birth defects. In recent years, there has been a near total
reversal on this front. Soda drinking is cited as a cause of the
nation’s diabetes and obesity epidemics, while recent research makes
coffee sound like a panacea, associated with reduced rates of heart
disease, cancer, Alzheimer’s and Parkinson’s (link). Giving coffee an additional boost, a federal report recently tied energy drinks to a rise in emergency room visits. See: More Emergency Visits Linked to Energy Drinks.
Consumption is currently rising among a wide range of coffee drinkers,
from those with pretensions once reserved for the finest wines (who
admire how each drop on the tongue hits various highfalutin flavor
notes) to those who guzzle it as thoughtlessly and automatically as tap
water. So if American coffee drinking is to truly boom again, where is
there still room for expansion? The battlegrounds are no longer the
street corner cafes so much as kitchens, offices, and anywhere else
there isn’t a fresh cup within arm’s reach at all times, executives and
analysts say. Single-serve devices like Green Mountain Coffee’s Keurig
machines have exploded in recent years, growing at more than twice the
rate of the industry overall, according to IBISWorld.
Interview: Andrea Illy, CEO of illycaffè
illycaffè Chief Executive Andrea Illy talks arabica vs. robusta, the pursuit of quality and how to make it in the coffee business. Video by WSJ's Leslie Josephs via #WorldStream.
“Right now, 12 million out of 118 million U.S. households have a Keurig
machine,” says David Sachs, vice president of brand management and
innovation at Green Mountain. “By 2016 there is a market opportunity for
35 million single-serve brewers at home — roughly three times where we
are today.”
Green Mountain also sees great potential in perfecting instant,
single-serve iced coffee, Sachs says. “It’s become very popular away
from home at Starbucks and Dunkin’ Donuts, but it’s really challenging
for most people to make a good consistent cup at home with the right
amount of coffee and ice,” he says. “This could boost the number of
afternoon and evening coffee-drinking occasions.” In addition, given the
increased awareness of coffee’s health benefits, the company sees
potential in K-cup blends infused with antioxidants, he says. “Beverage
trends do seem to come and go, and to be cyclical,” he says. “But right
now, at least, coffee does seem to be on the rise.”
Coffee is growing on the snootier side of the spectrum, too, with more
Americans taking care to buy premium, single-origin beans, sometimes
even doing the roasting themselves and brewing their cups slowly and
with far more complexity and care than is possible in a single-serve
machine, says Galindo. “There is even a trend toward pairing coffees
with particular desserts,” he says. Independent cafes like Brooklyn’s
Café Grumpy say they are also doing more and more business selling
high-quality beans, co-owner Caroline Bell says. “People are becoming
more interested in preparing very good coffee at home.”
With some 13,000 U.S. locations, Starbucks also sees great potential for
expansion in homes, offices and venues not traditionally associated
with a good cup of coffee, spokeswoman Alisa Martinez says. The chain
plans to open more “branded locations” within colleges and hotels, its
coffee is now served at 30,000 feet on Alaskan Airlines, and though it
isn’t yet available in IV-drip form, patients at hospitals around the
country can now get Starbucks in their beds.
“We have Starbucks in health-care facilities across the country —
including the Fred Hutchinson Cancer Research Center in Seattle -- and
plan to add more,” Martinez says. “This is something the facilities, the
staff, the patients and their families have been asking us for. We want
to make it easy for someone to have Starbucks when they want it, no
matter where they are.”
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