By Michael Segal | Tea & Coffee Trade Journal - July, 2009
In the midst of the worst economic crisis in decades, most attendees at the National Coffee Association's 2009 Annual Convention in March probably wanted reassurance; at least as much as social or even business interaction. The fact that they were able to get all three, and in spades, underlines both the success of the Boca Raton Convention and the resilience of the industry that it serves.
NCA chair Jonathan Feuer, of L M Zuckerman & Co, welcomed attendees to Florida with some heartening statistics: despite the downturn, registration levels were on a par with the last 10 years at the Convention, and the NCA itself had brought in 64 new members in the past year.
The NCA Convention always tries to bring its industry audience face-to-face with the policy makers whose work directly affects the coffee business, and this year, NCA president Robert Nelson held an on-stage interview with assistant U.S. trade representative Mark Linscott. On behalf of the new Obama administration, Linscott explained his role in developing and administering free trade agreements, including those involving several major coffee-producing countries. He also pointed out the changes coming with the new International Coffee Agreement (in force from September), under which, he said, the ICO would now fully graduate from "the legacy of market intervention" to focus on sustainable growth in the sector.
Challenges Ahead During the Obama Administration
Several of the Obama Administration's aims could directly affect the U.S. coffee industry, Nelson said in his own subsequent presentation. Food safety and labelling regulations could become even more strict under the new President, he warned, and proposed country of origin labelling could cost the industry $100m annually, with no resulting public health benefit. Better funding for agencies like the Food and Drug Administration could mean more regulations being enacted whenever any negative news emerged. The NCA, he stated, believed in and lobbied for sound science first, rather than regulation as a sort of precaution, which was the sign of a panic-driven government.
The change in government, the economic situation and the advent of new media all called for new efforts to be made by the industry, Nelson added. "It's not business as usual," he said. "The dogmas of the past are inadequate for the storms of the present." Calling on the audience to help achieve what he called "a smart, efficient and profitable business," he warned that this task was the industry's own responsibility: "The worst mistake is thinking that somebody else will do it for us."
The current concerns of the coffee industry are often mirrored in the topics covered at the convention, and this was true this year, with several presentations aimed directly at helping businesses weather the current circumstances. Former coffee futures trader Richard Magid, now with Soundboard Consulting Group, outlined the ways that good leadership and a resulting healthy environment in the workplace can mean the difference between mediocrity and excellence in any business. "In these difficult times, there are still plenty of things we can control," he said. "Tough times make better leaders."
A "From Seed to Cup" panel of luminaries allowed attendees to direct the discussion towards pertinent questions of the day, including the way that producers could be offered better returns. One way, responded Colman Cuff of Starbucks Coffee Trading Co, was to use simple techniques to reduce the on/off production cycle in origin countries. These techniques had already made a huge difference in African producing nations, which had seen some of the largest production increases, he said. Adding value at origin was another way, stated the Colombian Coffee Federation's Juan Lucas Restrepo; increasing exports of processed coffee from origin had already made a big difference to producing country incomes.
Turning to issues closer to home, the Boca audience was keen to know how sales in coffee shops were comparing to those in other retail channels--like supermarkets--as a result of the downturn. Cuff answered that while Starbucks' same store sales were down on previous years, they were still healthy, and that he viewed the supermarket channel as a benefit, and a way to reach a much larger community of consumers.
Sustainability As More Than Just a Buzzword
The issue of sustainability once again proved to be at the forefront of industry minds, and the panel's Ellen Rogers, of Dunkin' Brands, stressed the importance of her company's move to 100% Fair Trade coffee, and the challenge of continuing to secure supply. Cuff argued for a more educational approach, pointing out the benefits of teaching growers to use fertilizers more efficiently, during this period when the costs of such inputs are high. Programs improving grower access to finance were also critical in these "credit crunch" times, Cuff added, because even small farms need labor. "The risk is that no access to credit will reduce yield and quality," he warned.
Sustainability came up as well in David Browning's presentation, looking at how business can take advantage of and benefit from it. The industry--with no evidence to suggest that coffee is running out, and continuing strong supply and demand--already has a firm basis. Now, with a much broader definition taking in corporate social responsibility, it was necessary for all coffee companies to develop tools and methods to measure sustainability. Using as an example the case of a Rwandan farmer able to pay for health care for her daughter and send her through high school as a result of coffee revenues, Technoserve's Browning pointed out that coffee already has a strong story to present in this area.
Developing the theme of corporate social responsibility, Rick Peyser reported on research in which his company, Green Mountain Coffee Roasters, was involved, investigating los mesos placos, the lean months that about two-thirds of Central American growers have to endure when coffee is not being harvested and sold. The initial research advocated diversification of farms and storage of basic food grains as a means to alleviate the reduced diets that affected growers and their families, he said, and more awareness of this issue was a good first step.
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Practical considerations involved in running a coffee business were the concern of a number of breakout sessions at the convention, tackling such topics as digital marketing (with Ron Fierman and Gene Lewis of Digital Pulp giving an overview of the latest web-based methods to tackle markets in the current tough times); coffee roasting regulations (Probat Burns' Karl Schmidt previewing the tighter environmental controls likely to affect roasters in the near future); carbon monitoring (Sabrina Vigilante of Rainforest Alliance explaining a method in use in Mexico and Nicaragua of measuring carbon stored on coffee farms and helping to mitigate global warming); and the relationship between coffee and other beverages (Bunn-o-Matic's Margaret Heery and Michele Schmal of the NPD Group reviewing consumption trends and what influences them.)
Wake Up and Smell the Tea
Several sessions at Boca this year also addressed the strong links, at wholesale and retail levels, between coffee and tea, by making the attendees more aware of the opportunities available in the growing tea sector, and giving them the chance to taste some specialty teas. Panel moderator Joe Simrany of the Tea Association of the USA presented the impressive figures about the strength of the American tea market, now worth $7.13bn, thanks in part to strong growth in the largest segment, ready-to-drink products like iced tea. "People are looking for new experiences, so we need to listen to customers and see what they are looking for," said panelist Eliot Jordon of Peet's Coffee & Tea. "If health benefits drive them to us, we need to make sure our tea flavors keep them." While tea was becoming more of a focus for his business, Peerless Coffee & Tea, fellow panelist George Vukasin Jr said that because of the product's subtlety, more education was involved than with coffee. "This is the biggest challenge," he said. A number of private label packers could get coffee roasters and retailers into the tea business without too much expense, explained Bill Bowron Jr of Red Diamond Coffee & Tea. "In this environment, we need to look forward at trends, and one of them is ready-to-drink tea," he said. "Convenience and new flavors are where we need to be focusing."
Directing the industry's attention at the important science-based issues--the work of the NCA's Scientific Advisory Group--was a session during which Dr. Candace Doepker of J M Smucker looked at a number of imminent concerns to the coffee market. One was proposed legislation in California could bring the terminology "Product contains an ingredient known to cause cancer" to product labels, and, with caffeine shortly to be examined, she said, "it is important to stay engaged with this issue." Roger Cook of Cosic reported on some recent coffee and health stories, many of which are closely followed whether or not they have scientific value. Because of the impact of the media, he said, consumers often reduced their consumption because of preconceived and ill-informed reports--so the industry itself needs to provide good scientific data.
How the Market Looks
Green coffee price movements are of major concern to everyone in the business, and Marvin Perez of CoffeeNetwork gave convention attendees a forward look ahead at a recession-hit market in his comprehensive presentation. While the current macroeconomic situation would play a huge role in the coffee market, he predicted, consumption was continuing to rise steadily in developing and producer markets. Meanwhile, in the American market, it was clear that home consumption and the use of private labels was on the increase too, at the expense of out-of-home coffee drinking, he said, and predicted a range of 130 to 140 cents would be achieved on the New York "C" market later this year.
David Neumann, of the largest coffee trade house Neumann Kaffee Gruppe, gave his views on the state of the market during a lunch to aid the International Women's Coffee Alliance. Overall, coffee would be in surplus for the next two to three years, Neumann told his audience, thanks in part to the fact that the reduction for the Brazilian "off" year crop was becoming much less significant than in the past. While consumption growth was thought to have a great deal of potential in developing countries, he added, it was much less clear what sort of coffee products these markets would want and be able to afford.
For industry attendees worried about the current U.S. market, perhaps the most reassuring presentation at Boca Raton came from Mark DiDomenico of Sara Lee Foodservice, who previewed the results of the 2009 edition of the National Coffee Association's National Coffee Drinking Trends survey, conducted annually since 1950. This year's results, to be published in full later in 2009 by the NCA, showed that consumption was "recession resilient," DiDomenico said, and found that coffee had maintained its position as the country's second most popular drink after water, just slightly ahead of soft drinks.
Traditional coffee beverages were holding their own, according to the survey, with over 50% of respondents drinking them regularly, while specialty or "gourmet" drinks (and especially espresso-based beverages) showed a slight fall, to 14%. Overall, despite a significant dip in overall consumer spending and confidence over the past year, coffee consumption showed virtually no change, the poll found.
Next year's National Coffee Association Convention takes place March 19-21, at The Ritz Carlton, Laguna Niguel, California.
From Entrepreneur published on Sunday, July 2009
