The window for premiumisation is narrowing in the coffee industry as coffee prices reach new highs and consumers look to cut back as they deal with an elevated cost of living. Successful premiumisation is still possible, but it will become more difficult and will need to follow one of three paths: luxury, wellness, or “permissible indulgence.”
Delivery
This report comes in PPT.
The coffee industry has tried very hard to push premiumisation in the previous decades, particularly in the developed markets where volume growth prospects are minimal. This will become more difficult in the future as input costs (especially that of coffee itself) continue to rise and consumer reluctance to spend on value-added attributes increases.
A small, though high-spending, portion of consumers have enough income that they are largely isolated from these growing price pressures. They will continue to demand high-quality, 100% arabica coffee even as rising prices lead many other consumers to open themselves (if reluctantly) to alternative options.
The stressed modern consumer is looking for products that are simple pleasures. This can translate into spending on premium products, but not in the sense it does in the luxury segment. Rather, this kind of spending views coffee as a “little treat” that is a fun distraction at times when life as a whole is stressful. These sorts of splurges will be especially important for on-premise coffee.
Wellness continues to rank highly as a consumer spending priority even as they tighten up their budgets overall. Coffee with a wellness angle, therefore, is a promising route towards future premiumisation. Energy will dominate the functional space as it always has, but emergent areas such as cognitive health and beauty are also set to become more important.
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