The full long-term effects of Covid-19 on the coffee industry will not be known for some time. However, as time goes on, we see more and more businesses in all sectors close their doors either temporarily or permanently.
Much of the focus around Covid-19 in the coffee sector has been on how cafés and baristas have coped. However, with the decrease in demand from many of their regular customers, roasters have also faced difficulties throughout 2020. Café closures mean less business for roasters, in turn affecting cashflow along the rest of the supply chain.
To look at how roasters have adapted and diversified to survive through the pandemic, we spoke to Jolene Zehnder and Michelle Dunaway from Mercon Specialty, a member of the Mercon Coffee Group, as well as Jill Killen from Cloud City Coffee.
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The Issues And Impact
When buying coffee, roasters want their green beans to be as fresh as possible. This allows them to offer customers the full range of flavours that the beans hold.
Roasters will look at their sales to determine where and when demand peaks, to make sure they don’t overbuy (leaving them with too much green coffee that starts to lose its freshness) or underbuy (leaving them without enough coffee to fulfil customer demand).
With this in mind, roasters generally buy precise quantities of beans to maximise quality for the consumer. However, when Covid-19 spread rapidly and countries across the world went into lockdown in early 2020, roasters faced an issue.
Many of them found that they were unable to guarantee the sales they had relied on when cafés and other hospitality sector customers closed their doors. Furthermore, demand shrunk so quickly during the first surge of the pandemic, and roasters didn’t have the time to anticipate and change their green coffee orders. In fact, many had even already pre-signed sales contracts with their green coffee suppliers.
Michelle Dunaway is a coffee trader at Mercon Specialty in Seattle, Washington. As a green coffee importer, Mercon Specialty’s client base is predominantly made up of roasters. Michelle says that at the beginning of the pandemic, she saw that roasters were not at all able to use the amount of coffee they had already purchased, let alone commit to buying more.
“I would say that maybe 80 to 90% of the customer base that we have has been impacted,” Michelle says. “Small roasters that, for instance, operate a coffee shop or sell at a farmer’s market… for them, that all stopped. Then [you have to consider] restaurants and shops being closed for a month or two.”
It’s important to note that this doesn’t just impact roasters and coffee shops. The knock-on effects impact everyone across the supply chain. For example, green coffee importers like Mercon often have close relationships with producers at origin. The money brought in from coffee sales boosts the economy in producing regions, which improves infrastructure, education, and healthcare in these areas.
How Roasters Have Diversified
With demand and sales down in a totally unprecedented way, roasters had to look beyond major supply contracts to secure new income streams. Even today, as restrictions are being eased in many areas around the world, uncertainty still remains.
Jill Killen is the owner of Cloud City Coffee in Seattle, Washington. She tells me that her business, like many others, was affected when pandemic regulations came into play. “I was forced to close one business that was too big to sustain other sales. Plus, my smaller business is down by 40%, as we do not allow customers inside.”
To adapt, Jill explains that she made some quick changes in areas she felt would benefit the business as much as possible. “We’ve made online and mobile ordering more robust, and expanded our social media presence. We also started offering coffee subscriptions.”
Even though some areas of the business have seen huge drops in sales, Jill says there were signs of how the market was changing and that Cloud City adapted in kind. She explains that while sales went down in some areas of her business, others grew. “Grab and go and wholebean sales have exploded,” she says. “We’ve also sold more retail [equipment], such as pour over coffee brewers.”
This change in the market appears to be here to stay. Roasters all across the world adapted during Covid-19 to offer online sales and subscription services. Earlier this year, it was reported that by the end of March 2020, packaged coffee sales were up by as much as 70%.
The Importance Of Supplier Flexibility
However, while diversifying and adapting have helped in some aspects, for many roasters, this isn’t enough to make up for a massive fall in sales.
Jolene Zehnder is Mercon Specialty’s Director of Sales. She explains that when Covid-19 hit, the company realised that it needed to change the way it was dealing with existing customers. Jolene says that by being more flexible and empathetic, they were able to support customers while also strengthening their customer-buyer relationship for the future.
“Typically, when importers sell green coffee, we sell on ‘spread contracts’ over long periods of time,” Jolene explains. “This is because cafés and roasters know their business, and know how much green coffee they’ll use. All of a sudden, they weren’t picking up their contracts at the warehouse.”
So, as many cafés had to close their doors to sit-in customers, there was a huge drop in demand for wholesale coffee. What did suppliers do to respond?
Jolene says: “We changed our sales technique. We said we were willing to let these customers out of contracts to ease business and to make them feel better.
“That’s because we know once the pandemic is over and businesses come back up, they will feel more comfortable coming back to suppliers that have helped them during this time.”
Jill explains that when she worked with Mercon, they were understanding and ultimately flexible. She tells me that it was beneficial to work with a supplier who understands that supporting their customers throughout a tough time will eventually lead to a stronger buying relationship.
“Mercon specifically helped me to find a home for some of the coffees I was over-contracted for, and also supported me in purchasing coffee from another company that they were overstocked on.”
A Flexible Future?
Across all steps of the supply chain, coffee businesses continue to struggle with the impact of Covid-19. At present, nobody really knows what will change for sure in the next few months. However, both green coffee suppliers and roasters have adapted to the need for increased flexibility across the supply chain.
Michelle explains to me that going forward, Mercon Specialty will look at ways to be more flexible with existing and prospective customers. When the year started, our minimum order was one bag,” she says. “People would order anything from one bag to 10 containers.” However, with a need for more flexibility across the supply chain, this has changed dramatically.
“One of our latest innovations has been selling 25lb and 50lb boxes,” Michelle explains. “We ship these via UPS directly to the customer’s door.” She says that this allows them to “take care of the micro roasters that might have cash constraints”, as well as their larger customers.
It’s not an understatement to say that Covid-19 has changed things for the coffee industry. We’re no longer able to predict what the market will do with any certainty, and large parts of the supply chain have had to adapt in order to survive.
Without the ability to predict what the next week, month, or year’s sales might hold, both green coffee suppliers and roasters are benefiting from increased flexibility.
But could this new structure could be here to stay? A more flexible supply of green coffee will surely open more doors than it will close, and improve access for aspiring roasters looking to get started somewhere.
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