November 13, 2008 / 8:25 PM / 10 years ago

Credit crunch putting the bite on cafe culture

LONDON (Reuters Life!) - What the global financial crisis means to the international coffee trade is as simple as deciding whether to drink it in a cafe or your own kitchen.

A coffee taster sips coffee during a contest in Lima October 2, 2008. REUTERS/Pilar Olivares

Industry experts said on Thursday that a growing cafe culture — which has seen affluent consumers spending top-dollar for the beverage in premium restaurants — has come under pressure as consumers look to tighten their household budgets.

Coffee is the second biggest traded commodity in value after oil and over 25 million people are employed in the growing, distribution and retailing of coffee worldwide.

“What we’ve observed are some declines in people drinking in expensive restaurants,” said Jonathan Banks, business insight director at The Nielsen Company, a New York-based market research company.

Banks said that due to the financial turmoil some people preferred slightly cheaper coffee shops, while others are just staying home for a nice cup instead of going out.

Starbucks Corp, the world’s largest coffee chain, cut its plans for new international coffee shops and effectively lowered its 2009 forecast after posting a steeper-than-expected decline in fourth-quarter profit on Monday.

“We believe that customers continue to visit our stores, but are doing so less frequently,” said Deb Trevino, global director of communications at Starbucks.

But that doesn’t mean that consumers who want to cut back on the cost are also keen to scrimp on their coffee experience.

“We now see what we used to call a big night out becoming the big night in, therefore one of the things that people will want to do is to try and replicate the restaurant experience at home,” Nielsen’s Banks said.

However, one British coffee chain said they still see strong enough trade from shoppers and other ordinary consumers to balance losses from an expected drop in cafe-based business meetings as corporations seek to trim their budgets.

Costa Coffee, a unit of Britain’s Whitbread Group PLC, said it was wrong to imply its stores depended heavily on business custom.

Costa Coffee managing director John Derkach told Reuters the chain store was still growing and continued to open new shops despite the financial crisis.

“It would be wrong to think that Costa Coffee is dependent to a massive extent on corporate customers or on business people,” Derkach said.

“In fact, particularly when you move outside of London our customer base is made up much more of people who are just dropping in at Costa to meet friends, have a chat, or take a break from shopping and that sort of thing.”

Nestor Osorio, executive director of the International Coffee Organization (ICO), said declining numbers in premium coffee shops would also not create a big change to the overall consumption of the commodity as more coffee was drunk at home.

“World coffee consumption is around 128 million bags... The biggest company in the world in coffee shops could be Starbucks and Starbucks only buys about 3 million bags of coffee,” Osorio told Reuters in a telephone interview.

But Osorio said the financial crisis could have an impact on consumption patterns in emerging markets.

“The coffee that is consumed in the high street coffee shops is important, but it is not the substantial part of consumption... which is at home and in the workplace,” he said.

Osorio said the high prices of drinking in coffee shops has probably contributed to the change in consumer patterns.

“One of the problems I see is that maybe the cup of coffee has become too expensive in some coffee shops and maybe they will need to reduce prices a little bit,” he said.

Starbucks and Costa Coffee insist they will not cut prices.

“We have no plans to cut the prices of coffee at the present time,” said Costa’s Derkach. “Our focus is to offer the best possible experience at a reasonable, sensible price rather than necessarily to try and cut prices.”

Starbucks’ Trevino said, the chain store paid the higher prices that premium coffee demands for top quality beans.

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