19 Jun 2020
Posted in Foodservice
COVID-19 to affect global coffee demand and premiumization trend, says GlobalData
Due to the rapid progression of COVID-19, coffee sales are expected to witness drastic decline globally, with North America and Eastern Europe being the worst-hit regions. With travel bans and large scale lockdowns worldwide resulting in many working from home, combined with in-store seating bans, there is a substantial impact on out-of-home coffee consumption. Additionally, premiumization, which had gained momentum over the past few years, is likely to suffer as consumers may prefer affordable and private label products over premium brands, says GlobalData, a leading data and analytics company.
According to GlobalData’s COVID-19 Impact Market Model, as of 29 May2020, when comparing the baseline and slowdown scenarios in 2020, coffee and tea shops are likely to witness a 15.5% sales decline globally.
Arvind Kaila, Practice Head of Consumer Beverages at GlobalData, comments: “Although out-of-home coffee consumption is easily replaced by at-home consumption, the losses incurred by on-trade outlets will not be recovered so easily. Consequently, coffee-shops are reformatting their stores towards a takeaway style operating model after months of closure. With the likelihood that varying forms of social distancing measures may need to be in place for the rest of the year, foodservice outlets including coffee-shops are looking to adapt to new model of offerings to avoid insolvency.”
Costa Coffee in the UK has opened all its stores for customers either drive-through or takeaway orders. Coffee giant Starbucks opened 150 of its stores across the UK with a limited menu and has been speeding up plans to build stores with drive-through in the US after reopening its cafe with new sanitation and safety protocols in the first week of May 2020. Approximately 95% of Starbucks stores in the US have reopened and the company has been able to support contactless ordering through its digital loyalty program. It also intends to close up to 400 restaurants owned by the company over next 18 months.
Kaila continues: “The coffee industry had been enjoying an on-going shift towards premiumization, with rising income and increasing knowledge among consumers about good coffee driving this trend. However, COVID-19 will put a dent in the premiumization story in the short-term as consumers cut discretionary spending to save more.”
As per GlobalData’s week 10 COVID-19 tracker consumer survey, published on 3 June 2020, the outbreak has caused consumers to cut out on ‘non-essential’ products like alcohol and opt for lower or mid-priced non-alcoholic beverages. In fact, only 10% of the global respondents bought non-alcoholic beverages at a premium price range, as opposed to 30%, who were buying the low-priced or cut these products from their shopping lists altogether.
Kaila concludes: “Economies may recover but consumer confidence is likely to plummet and take longer to restore back. With a spike in unemployment and slow wage growth, there is a risk to premiumization trend and lower discretionary impulse purchases if the pandemic is prolonged.”