Coffee demand is growing, thanks to increasing consumption by millennials.
Millennials, a demographic between ages 19 and 34, are pushing U.S. demand to historic records, according to Bloomberg. Because the United States is the biggest consumer of coffee, world demand is growing as well.
“Coffee demand is robust and growing at about 1.5 percent per annum,” said Carlos Mera Arzeno, a commodities analyst with Rabobank International in London.
He said there are two trends at work that are increasing coffee demand.
“One is the expansion of coffee culture, in particular the expansion of coffee shops and capsule systems,” Arzeno said in an email. “The other trend is the urbanization processes in emerging countries. Many people migrate from the countryside to the cities, say in countries like China, try coffee for the first time and start consuming it.”
The tightening in supplies is pushing bean prices for certain varieties to their highest levels since early 2015. It is not clear that tighter supplies are pushing up the cost to consumers, although Starbucks increased its prices in July. It isn’t stopping Peet’s from a major expansion in the number of its stores in the Washington region.
Harish Sundaresh, portfolio manager and commodities analyst for the Loomis Sayles Alpha Strategies team, said he expects retail prices to increase because stores typically pass along higher bean prices to consumers. “Coffee demand in the U.S., China and India has been running well above expectations, thereby tightening coffee markets significantly,” Sundaresh said.
Bloomberg said investors are anticipating more gains. World consumption outpaced demand for the year ended Sept. 30, Bloomberg reports. The Bloomberg Commodity Index said coffee prices have the fifth-highest return this year among 22 raw materials it follows.
Arzeno expects demand over the next year to outstrip supply. “Brazil, by far the largest producer and responsible for about one third of all coffee, is likely to produce a lower crop next year due to the cyclical nature of the coffee trees,” he said. Robust U.S. stockpiles appear to be providing some relief.
Bloomberg’s report cited research that says millennials consume 44 percent of coffee in the United States:
Daily consumption among 18- to 24-years-olds rose to 48 percent from 34 percent, while it climbed to 60 percent from 51 percent among those aged 25 to 39, according to the National Coffee Association in New York. At the same, adults 60 and older saw a drop to 64 percent from 76 percent, and there was also a decline for the 40-to-59 age group.
The coffee craze is also starting earlier in life. Younger millennials, born after 1995, started drinking coffee at about 14.7 years old, while older millennials, born closer to 1982, began at 17.1 years, data from the association show.
“It’s no wonder millennials fell in love with caffeine at an early age,” said Gabrielle Bosche, a consultant who advises companies on how to hire and sell to millennials. “Soda is unhealthy, and coffee offers the same jolt without the socially unacceptable soda addiction. Coffee has everything millennials love: status, experience and personalization.”
“It’s very trendy to drink coffee,” said Chris Choi, 23, who works for KPMG in downtown Washington. “You will never be judged going out and getting coffee. You find more people into that.”
Choi was grabbing his Veranda Roast grande (he takes it black) at an L Street NW Starbucks on Monday morning, his first of the day. He said he works with a group of millennials who head to Starbucks or Au Bon Pain every morning before work to drink their java.
“It starts when we are very young,” he said of millennial coffee consumption. “I started in high school. The thing to do when we had free time would be to go out and go to the local Starbucks.”
Referring to his millennial age group, he said, “we have more accessibility. I drank it at Pennsylvania State University. In the Paterno Library, there was a Starbucks in the bottom floor.”
Choi said it would take a pretty big price hike to knock him off his daily fix: “It’s so habitual at this point, I don’t think a price increase would affect me unless it was drastically changed.”