- Over the last year, US packaged coffee sales fell by almost 4% – below pre-pandemic levels
- The pandemic shifted consumers away from supermarkets, and persistently high prices have stopped them from returning
- Supermarkets are seen as a significant step for a brand’s retail journey – but are they actually that valuable?
IN THE world’s largest coffee-consuming market, grocery store coffee sales dropped below pre-pandemic levels in the year ending September.
Data shows packaged coffee sales in the US fell by 3.7% compared to the previous year, to 1.13 billion units. This marks the third consecutive annual decrease and the lowest level since 2019.
This could be considered a confusing trajectory, given that coffee prices have fallen since the beginning of the year. From a high of $2.58 per pound at the beginning of 2022, to $2.05 in April this year, the C price last closed at $1.50 at the end of September.
Along with falling shipping and container costs, it could be expected that lower costs across the board have kept retail prices down, and ultimately spelt good things for supermarket coffee sales.
However, if we look at this more broadly, the C price today is still far higher than it was before the pandemic. In early 2019, just as Covid-19 was sinking its teeth in, it was below $1 per pound – 50% lower than it was in September this year.
So while coffee may be getting cheaper, it’s still considerably more expensive than it was before the pandemic.
Along with global inflationary pressure, this has meant that coffee retail prices have been steadily rising. Over the past year ending in September, prices per unit went up by 9.3%, building on a 12% increase in the previous 12 months.
“I think the main reason that grocery coffee sales are falling is the same reason volumes in most grocery categories are falling – consumers are reacting more and more to price increases,” says Matthew Barry, food & beverage insight manager at Euromonitor International. “It’s not just that coffee prices are up, but the prices of so many things are up, and so many grocery items in particular, and that is leading to cutbacks.”
Evidently, consumers continue to make cutbacks in response to persistent inflation and the cost-of-living crisis. With the possibility of a recession looming, this is unlikely to change in the short term.
Premiumisation
As is the nature of a cost-of-living crisis, individuals with lower disposable incomes are typically more price-sensitive. On the other hand, those with higher disposable incomes often maintain their ability to purchase premium products as they did before.
According to the data, ground coffee sales experienced the most significant decline, dropping by 5.6%. In contrast, coffee pods – considered a higher-priced premium product – saw a more modest decrease of 1.4%.
“Something particularly interesting as a result is that the window on premiumisation is narrowing,” says Matthew. “Our research indicates a declining willingness to pay more for a wide variety of value-added attributes, including functional benefits, branding, sustainability, and even taste.
“This is not because consumers care less about these things, it is just that price is so dominant as a concern right now.”
Online retail spaces
Besides the wide-scale impact on production costs and market prices, the pandemic also forced consumers into online retail spaces. In the coffee industry, ecommerce platforms and subscription models remain vital for many businesses.
It’s worth noting that traditional point-of-sale (POS) tracking does not capture online sales, so any increases in that category since the pandemic will not be reflected in the data.
However, the wider shift online has undoubtedly impacted supermarkets across the board – particularly as consumers find it easier to explore alternative options and to “support your locals” when shopping online.
Essentially, the pandemic shifted consumers away from supermarkets; and persistently high prices have stopped them from returning.
At the same time, out-of-home coffee sales continue to demonstrate steady growth, offering surprisingly stiff competition to at-home consumption considering many consumers’ cost constraints.
“The coffee shop sales have held up surprisingly well, especially given how often cutting back on your latte habit is given as pop financial advice,” says Matthew. “What I think is going on there is that consumers are finding on-premise coffee to be an affordable splurge so even as they cut back, that’s an indulgence they can still allow themselves because in the grand scheme of things it is relatively inexpensive.”
“The out-of-home is quite interesting and at least some of that decline in grocery is the continued shift back to the in-person workplace, although I don’t think that is nearly as important a factor as price.”
In the past month alone, two UK specialty coffee roasters have secured a distribution deal with the supermarket chain Waitrose. Indeed, supermarkets are widely seen as a significant milestone in any brand’s retail journey.
But is supermarket retail actually that valuable a market? Of course, it’s likely to remain central in consumers’ lives – but the landscape has fundamentally shifted since the pandemic. Ecommerce and other online spaces offer a level of convenience hard to compete with, and their prominence in today’s retail environment is unlikely to diminish anytime soon. In other words, we could be looking at the new status quo.
Coffee Intelligence
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