Sun, Jun 09, 2013 - Page 14 News List

Big investments brew robust US craft coffee market

Proponents of ‘slow coffee’ aim to convert express espresso sippers into coffee connoisseurs by providing an upscale experience that one coffeeshop owner termed ‘the democratization of luxury’

By Lisa Baertlein, Marcy Nicholson and Martinne Geller  /  Reuters

Harvested robusta coffee berries are spread out on May 30 to sun dry at a coffee plantation in Tanggamus in Indonesia’s Lampung Province.

Photo: Bloomberg

F or exotic coffee connoisseurs like Geoff Watts, the search for the perfect bean is not the solitary quest it once was.

On a recent visit to Ethiopia’s southern Yirgacheffe region, eight hours from Addis Ababa, the buyer for Intelligentsia Coffee bumped into a familiar face.

“I saw a random white guy walking around in a field, and it turned out he was a friend and competitor,” Watts said.

US craft coffee purveyors are getting less lonely. The segment is a small, but growing, slice of the US$27.9 billion US coffee market, which has increased in recent years at an annual average rate of 5.6 percent. It is expected to reach US$33.7 billion by 2018, according to research firm IBISWorld, though it does not yet separate revenues for high-end purveyors.

Small bicoastal chains Intelligentsia, Blue Bottle Coffee and Stumptown Coffee Roasters lead the so-called “third wave,” or “slow coffee” movement, while industry behemoth Starbucks Corp shows off its craft roots selling limited supply “reserve” coffees for as much as US$50 for a half-pound (0.226kg) bag.

The new generation of upscale coffee shops and roasters includes dozens of operators around the country. They are in a race to find rare and distinctive beans and hope to elevate one of the world’s oldest and most popular drinks in the same way that craft beer brewers, boutique wineries and olive oil makers won fans by focusing on high-quality ingredients and production.

During the past two years, private equity firms, venture capitalists and wealthy individuals, such as former professional skateboarder Tony Hawk and Instagram chief executives Kevin Systrom and Jack Dorsey, have poured in more than US$55 million.

Not your typical retirement investors, they are often coffee connoisseurs themselves and are eager to capitalize on the new breed of enthusiasts who were raised on espressos and lattes popularized by Starbucks.

Customers are willing to pay dearly for their java habit — US$80 for a half-pound of rare, roasted beans and US$3 and up for a cup of individually prepared “pour over,” high-tech “siphon” coffee, or old-school espresso. Those prices are as much as triple the cost for an average cup of coffee and bean prices are at least 10 times more.

Sales are expected to climb as the US job market improves and more Americans treat coffee as an experience rather than a utilitarian pick-me-up, IBISWorld analyst Andrew Krabeepetcharat said.

Yet experts also wonder if there will be enough demand beyond wealthy, urban enclaves to support meaningful growth and whether getting bigger would hurt the mystique that fueled the craft operators in the first place.

“I don’t think the [exotic] market is that big,” said Bonnie Riggs, restaurant analyst for the NPD Group’s foodservice unit.

While many people may try such coffees as a treat, winning the loyal, frequent users needed to support significant growth will be a challenge, she said.

Blue Bottle founder James Freeman and his peers say they do not aspire to Wall Street-style expansions, nor the pricey exclusivity of high-end wine.

For about US$5, “you can have an incredible experience at a high-end coffee bar and get something impeccably sourced and roasted and made,” Freeman said. “It’s the democratization of luxury.”

The new movement is built on the success of Starbucks, whose founder and CEO Howard Schultz often speaks of the theater and romance of coffee, and is credited with pioneering coffee’s “second wave” by shifting the masses from cheap, hours-old brew to fresh-made drinks from premium beans.

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