The evolution of coffee: How premiumisation is transforming the market

29 September, 2017
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Coffee shop culture has created a generation of coffee connoisseurs who seek a similar blend of luxury and convenience at home. Michael Schaefer, Global Lead, Food and Beverage at Euromonitor International, gives us the latest insights on market trends.

The evolution of coffee: How premiumisation is transforming the market 

Coffee has an unusual dual quality: it’s an everyday drink that people use as fuel and a premium product that they’ll pay high prices for. As Schaefer points out, “that’s pretty unique and a nice position to be in if you’re a product manufacturer.” 

On the other hand, the development of coffee shop culture – now in its third ‘artisanal’ wave – has raised the bar for coffee brands targeting at-home brewers. As Schaefer says, the concept of premium coffee is inseparable from the evolution of coffee shops. “Coffee shops are the conduit because they’ve enabled people to try high-end coffee and learn to appreciate it. That association is at the core of premium, from the coffee itself to the packaging.” 

According to the National Coffee Association in the US, 59% of coffees consumed daily are now in the 'gourmet'1 category. In 2016, global specialist coffee shop sales hit 49 billion USD.

While established, second wave brands like Starbucks continue to thrive, specialty coffee indies are attracting and cultivating a generation of devotees who care about provenance, processes and brewing methods.

“Premiumisation is about bringing this craft-oriented experience to more people by enabling them to recreate it at home. Convenience and accessibility are key, but successful brands also represent quality, expert knowledge and a unique product story,” says Schaefer. “We’re also going to see more high-end coffee dollars migrating online in the form of subscriptions to a chosen brand. Nespresso is a pioneer in that respect.” 


From cappuccinos to cold brew 

Coffee Premiumization

Coffee shop culture is evolving fast in the US and Western Europe. Schaefer says: “The second wave, focused on Italian-style creamy coffee, is giving way to an emphasis on the coffee itself, not the drink. So we have experiments with cold brew and brands that are targeting a more knowledgeable and experimental consumer base.” In some ways, this means greater simplicity, embodied by coffee shops with minimalist décor, a workshop ambience and pared down packaging. “There’s no need for the brand to shout ‘luxury’ – it’s more utilitarian, conveying an ethos that says, ‘we only care about the coffee,’” Schaefer adds. 

For a brand without that coffee shop connection, this is trickier terrain. “When the best packaging is a barista serving you in a boutique coffee shop, there’s a lot of pressure in the retail environment to generate excitement with comparatively limited means,” Schaefer says. 

Expressing uniqueness 

Differentiation can be achieved through the product itself, novel packaging and presentation, and innovative messaging. “Some brands are taking cues from other types of goods to diversify the coffee experience,” he continues. “For example, emulating beer packaging to suggest a bar experience.” 

In roast and ground, tailoring the product to the consumer’s lifestyle is a promising avenue, building on the idea of quality plus accessibility. “We’re seeing small, ultra-portable flexible packages of pre-ground coffee that you could take on a camping trip,” Schaefer says. “It’s an ‘excellent coffee everywhere’ message.” With freshness as another key imperative, roast and ground manufacturers need packaging materials that offer protection along with flexibility in terms of design and tactile qualities. 

As well as tempting consumers to pick up the packet, there’s a need to offer a narrative that gives the product a unique and credible backstory. Schaefer says: “As with beer, wine and any artisanal product, it’s important to tell either a story about origins, or one that celebrates the craft of creating it.” 

While global fresh coffee growth is currently higher than instant, Euromonitor predicts near identical growth rates by the end of 2021.

When it comes to instant, Schaefer believes there’s plenty of room to innovate in terms of both product and packaging, especially in markets like Asia, where it’s the dominant form. “There’s an interest in trading up to higher-quality instant or replicating coffee shop flavours,” he says. “Branding and consistency are key.”  

The rise of pods 

Pods saw explosive growth in the US as coffee shop culture prompted consumers to spend more on coffee at home. “In the US and Western Europe, which remain the biggest markets, pods replaced a lot of terrible coffee, but the ease of preparation is what made it possible for them to gain market share,” Schaefer says. On the other hand, he points out the sleek, made-for-display aesthetics of pod machines: “there’s nothing utilitarian about them – this is convenience plus luxury. Even the pods themselves are pretty to look at.”

The UK currently leads the way in the instant-to-pods switch, but growth is shifting to markets like Brazil and Southeast Asia, where the instant-to-pods pipeline is forming. Worldwide, instant coffee and pods will account for 75% of global coffee growth by 2020.  

A sustainable brew  

Coffee Premiumization

Schaefer expects to see growing innovation around sustainable and biodegradable coffee packaging, along with a clearer infrastructure for recycling.

“From a consumer perspective, sustainability is a bigger priority in Europe than in the US.  However, for pods in particular, it will become increasingly important in terms of communicating brand value. If we want to see continued growth at the high end in the US – rather than commoditisation, as is happening in Europe – sustainability has to be part of the picture.”

Coffee continues to gain share of total consumer spending on beverages, emerging as a premium option even in tea-dominant markets like Turkey and India. The fourth wave is yet to take shape, but as coffee becomes part of the global luxury industry, it’s certain that the shop-to-home pipeline will continue to evolve. 

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