Starbucks and Nestlé quarterly earnings shed light on a changing global coffee landscape

Starbucks has accelerated the roll-out of its new Pick Up store format to deal with the practicalities of serving customers safely during the pandemic | Photo: Starbucks

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In sharp contrast to decimated footfall at coffee shops and hospitality businesses worldwide during the early days of the pandemic, March and April 2020 saw significant growth in retail packaged coffee consumption. Retail coffee giants, such as Nestlé, Keurig Dr Pepper and Jacobs Douwe Egberts all reported strong sales rises during the first quarter as consumers globally were forced to stay home due to coronavirus, with many stockpiling essential items, including coffee.
 
As these lockdowns soften in the second half of 2020 and stockpiling wains, there are signs global coffee retail consumption is slowing. Nestlé’s organic sales growth eased to 1.3% in the second quarter of 2020, down from 4.3% during the first quarter.
 
Nevertheless, the Swiss food and beverage giant reported its Starbucks branded coffee products enjoyed double-digit growth during the period, along with ‘strong momentum’ continuing across its other coffee products, including Nescafé and Coffee Mate.
 
Meanwhile, the world’s largest coffee chain, Starbucks, reported consolidated net revenues of $4.2bn for the 13 weeks ended June 28 2020, down 38% on the same period in 2019 due to Covid-19 disruption. Comparable sales fell 40% globally and 41% in the US during the period, with the Seattle-based coffee chain reporting that temporary store closures, modified operations, reduced hours and reduced customer traffic had resulted in lost revenues of $3.1bn.
 
However, indicating that the café giant is rebounding, CEO Kevin Johnson stated “the vast majority of Starbucks stores around the world” had reopened and that the business “was steadily recovering.” Despite severe disruption caused by coronavirus, Starbucks still managed to open 130 net new stores globally during its third quarter.
 
E-commerce is also playing a significant role for coffee shops and retail packaged coffee companies alike during the pandemic. While Nestlé’s out-of-home businesses, including its Nespresso boutique stores, have suffered ‘significant declines’, the food and beverage giant’s e-commerce sales grew 48.9% in second the quarter, reaching 12.4% of total group sales and exceeding the milestone 10% proportion reached in the first quarter.
 
Like Nestlé, Starbucks’ business is also undergoing significant changes in the coronavirus era. “This has been a quarter where demand for at-home coffee has soared and our Channel Development business has demonstrated tremendous resilience and gained market share as customers adjust to their at-home routines,” Johnson said in a press statement.
 
Reflecting greater emphasis on seamless transactions due to coronavirus, Starbucks also intends to accelerate the roll-out of the convenience-led store formats in the US, where it now operates 15,243 stores, including the expansion of its new ‘Pick Up’ store format, which focuses on digital ordering, delivery and drive-thru.
 
US coffee shop rival Dunkin’ has also benefitted from to greater demand for convenience-led store formats during the pandemic. Existing drive-thru capabilities enabled up to 90% of Dunkin’s 9,500 US stores to continue trading during April 2020, contributing to a 1.4% rise in revenues across its US business to $151.8m during the first quarter of 2020.
 
Europe’s largest coffee chain, Coca-Cola-owned Costa Coffee is also placing greater emphasis on branded retail packaged coffee and in-store convenience to suit shifting customer priorities. In May 2020, Coca‑Cola Hellenic Bottling Company announced the expanded availability of Costa Coffee branded retail packaged coffee across Bulgaria, Poland, Switzerland, Romania, Croatia, Slovenia, Ireland and Northern Ireland. In July 2020, the UK-based coffee chain was trialling a digitally integrated pick-up store format in London.
 
With second waves of coronavirus already emerging across Asia and Europe, and fresh lockdowns on the horizon, coffee companies will be prudent to shore-up new sales channels against the likelihood of volatile times ahead.
 
While there will undoubtedly be many more unforeseen consequences of the coronavirus pandemic, new consumption habits across at-home coffee and in-store convenience look likely to be the major global coffee market influencers for some time to come.