COVID-19 has devastated coffee companies that have lost revenue from reduced sales to coffee shops. But a boom in online sales has created a new landscape to connect with consumers.
On July 10, with no end to the pandemic in sight, Jason Francis and his brother Zach decided it was the perfect time to found a coffee company.
They were not put off by the United States Department of Agriculture prediction that global coffee consumption will fall this year, the first time since 2011, and that coffee businesses are disproportionately harmed by economic downturns.
Since the pandemic, Jason says sales of dalgona coffee, a Korean coffee drink that uses cream and instant coffee to create a whipped, sugary beverage, have exploded.
Armed with that knowledge, the brothers started ¡Feliz!, a new brand of 100% Columbian dalgona instant coffee, which uses a freeze-drying instead of the normal spray-drying process to maintain flavor.
The increased prevalence of people buying coffee online, working from home, and not going to cafes will create a surge in demand for high-end instant coffee, the brothers expect. “We had been dabbling with the idea for a while. Instant coffee has a negative connotation to it. We’re focused on reversing that,” Jason says.
¡Feliz! instant coffee undergoes a different drying process. Photo: ¡Feliz!
Sales of the coffee are completely online and have been modest since the launch, with an average of three orders a day. But Jason says sales are about where they expected without advertising, and the product has a lot of room to grow. The brand recently launched on Amazon and the brothers are talking to retailers they think would be a “good fit.”
Another startup, Riff Cold Brewed in Bend, is investing heavily in e-commerce. Riff’s new natural enegery drink Alter Ego, which is brewed from the fruity pulp that surrounds the coffee bean prior to harvest, was named a semi-finalist for the Natural Products Expo West Pitch Slam competition in March. The conference was cancelled with the onset of the coronavirus, and company pivoted to make adjustments.
Riff had intended to set up experiential sampling programs at grocery stores to get people to try the new beverage. Once COVID-19 hit, that was no longer an option.
“We’re investing more heavily in Amazon, earned and paid online media and revamped our website to support our own e-commerce channel,” says CEO Paul Evers. “We’re also working with an agency that specializes in building direct to consumer based brands.”
Riff is also launching a promotion in which potential customers receive a coupon that can be redeemed for a single can of Riff Alter Ego at local retailers.
For more established coffee brands, the pandemic has created a new world of e-commerce as the pandemic pushes people away from cafes and businesses with employees working from home stop buying.
“We had a full channel shift from retail and wholesale to consumer-packaged goods and e-commerce,” says Mallory Pilcher, head of brand for Stumptown Coffee Roasters in Portland. In the beginning of the pandemic, the company experienced between 80% and 90% decline in wholesale revenue and cafe revenue was down to zero. “We’ve essentially traveled back in time to 2016 financials.”
Due to the drastic decrease in sales, Stumptown furloughed 130 baristas and staffers since the shutdown. While commerce has since improved, and curbside and carryout orders have generated income, the company had to close three locations in Seattle, Chicago and Los Angeles permanently.
The company recently opened a location in Kyoto, Japan, which Pilcher says is faring well due to Japan’s relative success at preventing spread of the virus.
A biker whizzes by Stumptown Coffee Roasters in Portland. Photo: Stumptown Coffee Roasters
Online sales have also served as a lifeline. In the beginning, online sales were up nearly 300%. Pilcher says online revenue is holding steady at 150% above pre-pandemic levels.
“Digital is the primary method of growth and audience engagement,” she says. “We are investing more in this channel for this particular reason. Segmented email lists to target specific customers by location, plus more robust google ads.”
While companies that have relied on imports from Asia have faced supply shortages, Augusto Carneiro, founder of Nossa Familia Coffee, says that for his company the opposite is true. Too much coffee is being grown by farmers, and he has been in discussions with suppliers in Brazil, Guatemala, Peru, Nicaragua and Kenya, as well as farmer advocacy nonprofit De La Genta, to slow down purchasing, store unroasted coffee beans and find new buyers so that the farmers can maintain quality of life.
Augusto Carneiro carries a bag of coffee beans in Brazil. Photo: Nossa Familia Coffee
Carneiro says that in times of economic hardship, ethical companies have to step up the most.
“We have offered to import the green beans and store it in our facilities free of charge,” says Carneiro. “We slowed down buying from larger suppliers so we could focus on smaller farmers.”
Carneiro has since had to retrain himself to do deliveries during the pandemic, as the initial shock forced heavy losses and layoffs. Sales declined between 40% and 60%, with cafes and corporate buyers like Nike and Intel being the first to dry up.
Like other coffee vendors, online sales skyrocketed to the tune of 400%. Despite economic hardship, Nossa Familia invested $10,000 in a new digital marketing campaign and is migrating its website to a better platform to support all the online sales.
“We can’t take too much credit for that huge online sales increase,” he says. “It’s just a sign of the times.”
To subscribe to Oregon Business, click here.