Circa 850 AD, a goatherd in the Abyssinian highlands noticed something unusual. His goats seemed to be dancing and displaying an unusual burst of energy. Upon investigating, he noticed that they were merrily chomping on plants with red berries. Curious, he tried those berries too and soon became the ‘happiest herder in the land’, joining his goats in their dance.
That day, Kaldi the goatherd discovered the joy of coffee like billions would in the years to come. Kaldi narrated the effect of these magical beans to a passing monk who was in search of a solution to stay awake during prayers. And the legend of coffee was born.
Coffee shapes the morning ritual of billions.
The industry is now being reshaped by COVID-19. Price pressure on farmers, ‘premiumization’ of the beverage, and rise of a mobile workforce in the wake of the pandemic will alter our relationship with the beverage. Let’s unpack this today.
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The spread of coffee
While the story of Kaldi is almost certainly apocryphal, monks’ desire to stay awake does have a kernel of truth. Coffee reached Yemen where the Sufi mystics used it as a source of spiritual intoxication when they chanted the name of God through the night.
As a magical drink of the ‘Islamic world’, coffee was religious and political. Its identity was enmeshed with the religion and its spread reflected that. Yemeni traders spread it across the Islamic world and, by the 14th century, coffeehouses had popped up across megapolis like Cairo, Damascus and Constantinople. The coffeehouses in these cities served as centres for social gatherings, political chatter and gossip. A few survive to this day.
The Christian world, battered by the crusades in the middle ages, were naturally wary of adopting the ‘devilish drink’. However, the lure proved irresistible and, soon enough, coffee houses dotted major European cities such as London and Paris.
Rapacious in their colonial ambitions, the European countries saw commercial planting of this high demand beverage as a path to riches. The plant travelled to the Dutch colony of Indonesia and a recalcitrant French naval officer brought a plant gifted by the Dutch to South America - birthing mega plantations.
Most of the plants today are descendent of that single plant that was introduced in South America. These have helped reshape economies of countries like Brazil, Vietnam and Colombia (the world’s top three coffee exporters respectively).
Hard time for farmers
Things have not looked good for coffee farmers in the last few years. Brazil produces a third of the global supply, hence harvests in the country determine the crop’s global price and the fate of thousands of farmers.
A surge in coffee production in Brazil has depressed prices. It is estimated that coffee growers outside Brazil need a price of $1.2 - $1.5 per pound to break even. Brazils’ bumper coffee years have led to that price hovering much lower.
Plantation owners abandoning their farms in Guatemala, the threat of social unrest in Colombia and request for bailouts in Mexico and India.
COVID-19 struck the coffee industry at a particularly tumultuous phase. Under duress from depressed prices, coffee growers in most of the exporting countries expect things to get worse and sales to fall across traditional channels. Exports have declined by a sixth already compared to last year.
But could these falling sales present a new opportunity?
This where I get into crystal ball gazing and all the associated disclaimers apply.
But before I get into my prediction, let’s delve into how coffee is actually consumed. An integral part of the romance with coffee has been the cafés. As I had mentioned earlier, they were the centres of socialization back in the Islamic world.
Roy Oldenburg – a sociologist coined the term “third place,” to describe social settings separate from our home (“first place”) and office ( “second place”).
If there is no neutral ground in the neighbourhoods where people live, association outside the home will be impoverished. Many, perhaps most, neighbours will never meet, to say nothing of associate, for there is no place for them to do so.
According to Augustine Sedgewick – a historian and the author of Coffee land
The very emergence of a public was based on people having a place to go to be a publicIt was a more free-floating social entity called the public that took shape only after there was a place for it to do so. And the first institutions that nurtured this public were coffeehouses.
However, the coffeehouse culture, so prevalent in the middle ages and the Islamic world, was lost.
By 1970s, most of the coffee was consumed at home or in diners. Cafes were not common. A young marketing executive at a fledging coffee startup had another idea after visiting Italy. What if the start-up instead of just selling better quality beans, sold the beverage as well?
The executive was Howard Schultz and the start-up was Starbucks. He eventually bought the company from the founders and the cafe culture centred on coffee was re-born.
No doubt, sitcoms such as Seinfeld and Friends which captured the zeitgeist of the new liberal world order of the 90s contributed to the popularity of cafes. Eventually, the rise of laptops and the proliferation of wifi converted these spaces into workspaces for our generation and the third place was reclaimed.
COVID-19 has thrown this equation off balance.
Cafes and restaurants account for a quarter of total demand for coffee. With over 95% of them shut down at some point during the pandemic, the global demand for the beverage is expected to decline for the first time since 2011.
Worryingly, the catastrophe faced by the service sector will disproportionately impact the smaller cafes which already operate on single-digit margins.
Yet I believe that the cafes will bounce back due to the inevitable rise of the ‘third wave of coffee’.
Waves of coffee
The first wave of coffee is commonly understood to be the phase until the 1970s which consisted of mass-produced instant and diner coffees. The second wave was kickstarted by Starbucks which created a spatial association with the beverage and got a large segment of the population comfortable with paying ~$5 for a mediocre fare.
The third wave is obsessing over artisanship, aesthetic, and traceability. While it could be dismissed as a concept designed for the avocado toast Millennials, it represents a multi-billion dollar opportunity to source better coffee, serve it in consciously designed spaces and elevate the art of baristas to that of sommeliers.
I think the march of third-wave coffee is past the tipping point. The pandemic has resulted in increased demand for artisanal home-delivered coffee which will only drive the appetite for quality fare once our lives outside resume. The remote work paradigm will create its own opportunities for cafes catering to an increasingly mobile workforce.
Over a quarter of coffee drinkers, cite quality as the determining factor for repeat visits in a cafe. As the third wave of coffee accelerates, elevating the art form and the beverage, it will create an aspirational halo around the product. This, in turn, will create an opening for ‘hipster cafes’ selling their specialities and innovations.
Reading the writing on the wall, even Starbucks is making early moves in this segment by opening Starbucks Reserve Roasteries. They look like this.
According to Starbucks-
Reserve Roastery showcases the theater of coffee roasting, brewing and mixology in a breath-taking environment in the epicenter of fashion and culture.
Yup, the cafes are changing with better spaces, better-sourced beans and trained baristas coming near us once the pandemic passes. Farmers and consumers will take delight just as Kaldi supposedly did, over a thousand years ago.
In other news
I had a lot of fun putting the edition today. If you want to delve deeper into the history of Island and coffee, I recommend this video.
I recommend this beautiful piece unpacking the history of the iconic Indian Coffee House, the story of coffee plantations of Chikmagalur and the socio-economic structures that bind it.
Quibi raised $1.75B before launching a mobile-first on-demand streaming service in the belief that there was a market for 10 minutes ‘bites-sized’ video content. It has failed spectacularly and almost no one is watching it. Why?
Did you know this fun trivia about a popular snack?
No one likes taxes.
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