The specialty coffee industry is eating itself

coffee capsules are an example of market cannibalisation
  • The global coffee capsule market is expected to grow at 7.9% between 2022 and 2023, a greater rate than the whole bean market
  • Coffee companies feel a pressure to innovate to keep up with current trends and technologies
  • Specialty coffee is experiencing market cannibalisation with new products stealing market share from existing products

THERE IS evidence that an obsession with developing new products is eroding market share from the products that inaugurated the specialty coffee industry – and may be eroding the essence of what makes it “specialty”.

Constant innovation is an inherent part of the specialty coffee industry. We have a constant focus on exotic new processing methods, groundbreaking technology and product development – all in the name of pushing boundaries within the sector.

In recent years, however, this characteristic has developed into an obsession that is causing specialty coffee to “eat itself”.

Market cannibalisation occurs when companies develop new products that compete with products they already produce or sell. The new products eat into the market share of existing ones, reducing sales volume and revenue generated from the originals.

This can be seen in many cases in the specialty coffee industry, including in the emergence of experimental fermentation methods stealing market share from washed and natural coffees; in new coffee species increasing in popularity over specialty stalwarts like Caturra and Catuai; and in the innovation of brewing techniques that take demand away from more traditional methods.

One example is the substantial increase in the production of specialty coffee capsules. The global coffee capsule market is expected to grow by 7.9% between 2022 and 2023, which is an increase of almost $1bn. This is evidence that the specialty coffee industry is part of a massive growth market.

However, this growth may have come at the expense of other products. The global whole bean market is expected to grow at a slower rate of 5.5% between 2022 and 2030. This shows that specialty coffee companies producing capsules may do so at the cost of losing whole bean sales.

Classic specialty products are becoming artefacts, sacrificed to make space for newer, shinier things.

the specialty coffee industry has started producing capsules

Only genuine innovation will drive the industry forward 

When coffee’s third wave was emerging, there was less of a need for roasters and cafés to differentiate themselves. With less competition, the specialty coffee industry operated in a more creative, and less commercialised space. 

As defined by the International Trade Center, it offered “craftsmanship, specialty and individuality to a coffee industry that was, until then, largely mainstream”.

This is no longer the case. Specialty coffee products and services have become more mainstream – including their imitation by large-scale brands – and businesses in the sector are looking for new ways to find their niche.

Stephen Houston is a former Irish Brewers Cup Champion and founder of Lucid Coffee Roasters. He believes that many coffee businesses are trying to find a balance between widening their market share and remaining relevant in the industry.

“A lot of the time it seems to come down to packaging, how the coffee looks on a shelf or on Instagram,” he explains. “It’s mainly with newer brands trying to make an impact.

“I also think brands get swept up in the hype around a new trend, like experimental processing, for example – it might not be their personal taste, but they know it can sell.”

As new trends and technologies emerge in the sector, many brands feel pressured to innovate for fear of being left behind. Stephen explains that while this works for some, many businesses outpace themselves when trying to keep up. 

“I think it comes from genuine intention. A brand that has strong ethics can put the work into creating new products, expand their market and attract new customers,” he says. “The brands that try the quick fix or just have cool branding usually don’t stick around for too long, or are forced to evolve.”

Where the conversation around market cannibalisation is so interesting is experimental coffee processing. As the latest trends dominate consumers’ interests, producers and roasters may feel forced to innovate and invest in new processing techniques.

In addition to stealing market share from washed and natural processed coffees, developing new methods is costly – an investment that Stephen believes may not always pay off.

“It can help with company growth and expand your market reach,” he says. “But on the negative side, it can come with higher or unexpected costs and no data to justify the money and time invested. Depending on your company size, this could have a massive impact on your business.”

While genuine innovation – a solution to a legitimate problem –  is what has pushed the specialty industry to where it is today; innovation for the sake of staying relevant could cripple it.

the specialty coffee industry could be becoming over-commercialised

Is the specialty coffee industry over-commercialised? 

The coffee sector continues to be saturated with new techniques and technologies. While this directly impacts roasters and cafés, there are other long-term implications for the industry as a whole.

Developing new products is a way to continually grow the consumer base for the specialty industry. For example, coffee capsules have made specialty coffee approachable for those without the confidence to buy a bag of whole beans. “These products can be a gateway for people getting into specialty coffee, making it more accessible,” Stephen says.

The same is true of RTD, Stephen adds: “There are people who want great coffee without the hassle of making it on the move, so developing new takeaway options isn’t a bad thing at all.”

Perhaps the pressure that brands feel to continuously innovate and develop new products is part of the growing pains of specialty coffee – a part of its journey to becoming more accessible and attractive to a wider customer base.

“I can see it as the industry developing: We need to try new things that can attract more of the commodity and instant coffee market,” Stephen adds.

“These more accessible products can be a great way to switch someone over to the specialty world. Pods have shown this is the case. When done correctly, we can find something that makes it easier and less scary for people to start discovering and enjoying specialty coffee.”

However, some products are seen to dilute the market and distract customers from the true value of specialty coffee. For example, products like “beauty-boosting coffee” and compostable coffee balls seem at odds with the philosophy which drove specialty coffee to emerge in the first place.

“I don’t see these products as positive things for specialty coffee,” Stephen says. “It is already a high-quality product and I see it as distracting from the main purpose of the specialty industry, which is promoting origins, flavours, and processes. Adding supplements or making it a gimmick will dilute that message.”

In the immediate future, businesses should be wary of continuously launching new products and techniques. It can steal market share and revenue from their existing products, as well as deviate beyond the identity that many consumers have historically associated with specialty coffee.