Once upon a time coffee got its start (legend says so) thanks to a herd of goats and a very observant goat herder who saw his flock a bit more excited after eating some coffee cherries on their daily jaunts through the forests of Ethiopia. Those cherries found their way into a process at a monastery full of monks who turned it into a cup of coffee. So goes the legend of coffee’s auspicious start.
It’s doubtful that the goat herder named Kaldi and his connections at the monastery could’ve foreseen the world of coffee as we now know it. In terms of today’s coffee talk, can’t you just hear the abbot at the monastery seeing Kaldi and asking him, “How’s the goat business?” and Kaldi the omniscient herder proceeds to tell him about the cherries and goats’ excitement. There’s always something to discuss when coffee comes up. Today, something caught my eye as I was reading about anything coffee. No different than what a barista encounters at the bar when a customer asks about their unique coffee beverage and its origins, we emphasize being an informed and all-encompassing source of information no matter what role we play in the retail coffee business. I found myself reading about the coffee capsule market and the expectations of it significantly growing over the next 10 years. Given the proliferation of machines using capsules in corporate offices and the low-cost entry point of this type of a setup, growth shouldn’t be that much of a surprise. A compound annual growth rate (CAGR) of 5% from ’23 to ’33 certainly is an “eye catcher”. Now, for a coffee house or bricks and mortar facility emphasizing an “experience”, for which the gurgle of the Keurig machine cannot replicate, talking about capsules may seem blasphemous. However, as businesspeople in the business of coffee, we wouldn’t be too effective if we couldn’t handle a “softball” question about the capsule market and its considerable usage. Correlate it to the barista who doesn’t have an answer when asked where today’s brew comes from. As an owner of the establishment, you’d most likely have a chat with said barista with a map in hand.
Think for a few minutes about what the seemingly innocuous capsule question can conversationally lead to. For starters, the capsule market is dominated by the corporate world for convenience and cost reasons. Corporations have an approximate ¾ market share of the capsule world. With this type of majority and the prevalence of this coffee offering, what effect if any, is there with capsule usage. Perhaps you want to discuss or think in terms of quality of taste or maybe the health concerns of drinking coffee coming from an aluminum or plastic capsule. No doubt a conversation around health gets attention but questions about sustainability and the environment are prevalent too. Where exactly do all these capsules go? Are they recyclable? If one agrees with the CAGR of 5% then these questions become much more substantive as the discussion evolves.
What about the impact on coffee supply and pricing? Sourcing coffee may be at the top of your questions list now. Whether you are thinking in terms of Arabica or Robusta, or Brazil versus Vietnam, the ultimate question starts with, where are we getting more coffee from? While that question hangs in the balance, the demand for more coffee continues in new markets. Further intensifying the need for new players in the coffee world. India continues to evolve as not only a producer and exporter of coffee, but the consumption of coffee grows within the country too. India at last check is the 5 th largest exporter of coffee and 6 th largest producer of coffee. As one goes down the pricing “rabbit hole”, its quickly apparent that depending on what reading material you source from, you may think that prices are going up with a lack of supply due to weather events like “El Nino” or the advent of a new rule on the exchange for coffee (ICE) about no longer posting older inventories. Something like this clearly is a supportive component of a stable coffee price. What exactly is the price of coffee in the futures market? This futures market is where roasters can price hedge themselves given the dynamics of coffee beans. The “C” price is what its called and it represents Arabica green beans that qualify under a lengthy set of criteria to be met (sourcing and delivery of beans to certain warehouses). Lastly, the farmers, of course, deal with pricing extensively. The “C” price tends to be lower than market pricing for beans. Farmers dealing with the transaction in “C” pricing terms may not reap the full benefit of a market price.