Despite the uneven easing of pandemic trading restrictions around the world, 2022 was a year of steady recovery for the global coffee industry. While many coffee chains continued to build on sales streams ramped up during Covid, such as app-based ordering, drive thru and at-home coffee, operators also benefited from a recovery of consumer footfall, prompting an uplift in sales and the resumption of outlet expansion
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The stage is set for 2023 to become a year of reinvention for the global business of coffee | Photo credit: Boontoom Sae-Kor via Shutterstock
There have been many positive stories from the coffee business world over the last 12 months. With a few exceptions, notably in China where Covid trading restrictions were sporadically reimplemented, the global branded coffee shop market has edged towards normalcy following the pandemic.
However, the last 12 months have not been without obstacles. Russia’s invasion of Ukraine has adversely impacted the global economy, exacerbating existing supply chain challenges and generating soaring energy costs for hospitality businesses already grappling with staff shortages and uneven footfall recovery, particularly in city centre locations, following the pandemic.
Nevertheless, with many coffee chains resuming outlet growth, striking out into new international markets, particularly the Middle East and India, while tapping into new store formats and digital sales, the stage is set for 2023 to become a year of reinvention for the global business of coffee.
European and US branded coffee shop markets approach full Covid-19 recovery
The European and US branded coffee shop markets recovered strongly from lingering pandemic trading restrictions levels in 2022. World Coffee Portal research showed 29 out of the largest 40 European markets expanded by outlets, with the £4.4bn ($6bn) UK branded coffee shop market achieving a better-than-anticipated £1.3bn sales rebound in 2021. The UK market also recovered to pre-pandemic levels in terms of outlets, growing 3.5% to reach 9,540 stores. Meanwhile, Project Café USA 2023 show the $45.8bn branded coffee shop markets grew 10% in 2021-22 achieving a $4.5bn sales rebound and regaining 96% of its pre-pandemic market value.
International coffee brands exit Russia following invasion of Ukraine
The Russian invasion of Ukraine in February 2022 prompted scores of international businesses to cease operations in Russia, including several coffee companies. Having originally suspended its business in the country in March, US coffee chain Starbucks formally withdrew from Russia in May 2022, closing its brick-and-mortar locations and halting the shipment of all branded products. In August 2022, 130 former Starbucks premises were converted into ‘Stars Coffee’ outlets, a new coffee chain launched by Russian restaurateur Anton Pinskiy and rapper Timati.
A similar decision to exit the Russian market was also announced by McDonald’s, which sold its 847 fast-food restaurants and 154 McCafé outlets. Finnish coffee and food supplier Paulig ceased trading in Russia and sold its coffee roastery in the country in May 2022, with fellow Finnish coffee cup and packaging giant Huhtamäki ceasing operations in the country and offloading four manufacturing units to Russian holding company Espetina Ltd in September.
In April 2022 Luckin Coffee announced it was no longer subject to bankruptcy or insolvency proceedings in any jurisdiction. The company said the announcement marked ‘a new beginning’ and that Luckin Coffee was ‘well positioned for long-term growth'. In the months since emerging from bankruptcy, the coffee chain achieved corporate level profitability for the first time in 2022, reaching 7,846 locations across China, and posting consecutive quarterly results of $379m, $493m and $547m.
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Photo credit: via Shutterstock
Caffè Nero bounces back
UK-based Caffè Nero fully acquired UK coffee chain Coffee#1, purchasing the remaining 33% stake in the coffee chain from Welsh brewery S.A. Brain, adding to the 67% stake it originally purchased in 2019. The acquisition marked a remarkable turnaround for the UK coffee group which quashed a takeover bid by petrol station forecourt operator EG Group at the start of 2022 before reporting sales reaching 107% of pre-pandemic levels in September 2022. Additionally, Coffee#1, which now operates 106 stores across the UK, announced strong trading for the period between June-October 2022, with strong like-for-like sales growth driving revenues to 111% of 2019 levels.
Swiss coffee pod giant Nespresso attained B Corp certification in April 2022, achieving a score of 84 across its global business spanning 38 markets. Nespresso scored 80 across its North America, South America and Asia Pacific divisions, 83 in Europe and 93 for its headquarters and factory operations. However, its certification was not welcomed by all. In June 2022 a 33-strong group of B Corp-certified coffee and ethical products companies, led by US fair trade advocacy organisation Fair World Project, warned the integrity of the B Corp movement was ‘at risk’ following Nespresso’s certification.
First established in 1962 to regulate global coffee prices, the International Coffee Agreement was updated for the first time in 15 years in June 2022 to engage the private sector to participate in the ICO's sustainable coffee initiatives for the first time. The new agreement invites dialogue with 75 coffee producing and importing nations, all of which are ICO member governments, representing 93% of world coffee production and 63% of world consumption.
Tims China said consumer demand for its convenience-led coffee offering had enabled the company to exceed 500 stores in 2022. In the three months ended 30 September 2022 Tims China generated revenues of RMB 305.7m ($43m) – 68% higher than for same period in 2021. The company, which has operated the Tim Hortons brand in China since 2018, completed its merger with special purpose acquisition company Silver Crest and began trading on New York’s Nasdaq stock exchange in September 2022. Through the merger, Tims China will gain access to approximately $200m investment and plans to build a profitable network of 2,750 stores by 2026.
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Photo credit: Tims China
Branded coffee shops continue to gain significant traction across the Middle East, with World Coffee Portal research identifying a rising tide of premium and specialty operators in Saudi Arabia and the UAE. In total, 12 of 20 Middle East and North Africa markets featured in the report added outlets over the past 12 months, with Morocco (20.8%), Saudi Arabia (18.5%) and Iraq (16.7%) the fastest growing.
The research also highlighted Saudi Arabia's booming coffee shop market, where strong government investment, economic liberalisation, and social reforms generating massive opportunities for both international and domestic coffee chains. Boosted by one of the world’s fastest growing developed economies, Saudi Arabia’s branded coffee shop market now exceeds 3,556 outlets, making it by far the largest in the Middle East.
Starbucks appoints Laxman Narasimhan as CEO
Laxman Narasimhan became Starbucks CEO on 1 October 2022 and will work under the advisement of Interim CEO Howard Schultz until April 2023. Narasimhan, previously CEO of UK-based health and hygiene company Reckitt Benckiser, is responsible for overseeing Starbucks’ reinvention strategy, which includes improving working conditions for staff and driving innovation in customer experience. Schultz had himself returned to Starbucks’ helm for the third time in April 2022, replacing Kevin Johnson, who retired following 13 years with the Seattle-based coffee chain.
International coffee chains eye opportunities in India
Despite India being hit hard by the pandemic, coffee chains are gaining significant ground as demand for aspirational hospitality experiences increases, particularly among more affluent younger consumers. Tata Starbucks, which holds the license for the Seattle-based coffee chain in India, recorded 57% revenue growth in its second quarter ended 30 September 2022 while UK-based Costa Coffee achieved 134% year-on-year sales growth to reach $2.7m. Canada’s Tim Hortons opened its first store in India in August 2022 amid plans to open 120 stores in the country over the next three years. Meanwhile, the UK’s Pret A Manger and Australia’s The Coffee Club also announced plans to launch in the country.
The rise of Blank Street Coffee
US coffee chain Blank Street Coffee achieved strong growth in 2022. Having raised $25m series A funding in October 2021 to expand its mobile cart and small-format coffee shop concept in New York, the company has grown its footprint to more than 50 stores across New York, Boston and Washington D.C, and made its UK debut in June 2022. Blank Street also acquired Over Under, a seven-strong café chain located in West London, in October 2022 and is also launching an e-commerce channel to enter the US coffee at-home market.
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