In 1999, the term 'third wave coffee' was coined to describe an emerging movement that emphasized exceptional quality, transparency, and artisanal roasting techniques. This wave was, in part, a reaction against the previous coffee culture that prioritized convenience and mass production over flavor and craftsmanship.
As consumers began to crave more authentic, unique flavors and sought to understand the origins of their food and drink, the third wave emerged. It reflected a growing demand for single-origin beans, direct trade, and full transparency from farm to cup. This consumer-driven shift saw people valuing quality over quantity and viewing coffee not as a mere commodity but as a crafted product with complex flavors, much like wine.
As the aroma of artisanal roasts wafted through cafes across the United States, a seismic shift was underway in the coffee industry. Specialty coffee sales surged, captivating the palates of discerning consumers. By the late 2010s, nearly half of U.S. coffee drinkers had embraced the allure of gourmet brews, signaling a burgeoning demand for premium experiences.
So what’s driving the next wave in the coffee industry?
In recent years, coffee prices have experienced significant increases and volatility due to a combination of supply chain disruptions, extreme weather events, and rising production costs. Key factors include climate-related challenges, like droughts and frosts in major coffee-producing regions such as Brazil, which sharply reduced crop yields. Additionally, the COVID-19 pandemic disrupted global supply chains, driving up costs for transportation and labor, while political instability in countries like Colombia further impacted supply. These factors have led to record price spikes, with Arabica coffee futures seeing double-digit percentage increases in the last years.
As the cost of coffee beans climbs, savvy consumers embark on a quest for value without sacrificing quality, opting for products that provide high-quality coffee at a lower per-cup cost.
Concretely, Ready-to-drink (RTD) coffee, coffee concentrates, and multi-serve cold brews become more popular, as they provide versatility and value, allowing consumers to enjoy multiple servings per purchase. This appeals to those who want both convenience and the experience of specialty coffee without the high single-serving price. This will accelerate the RTD coffee segment further.
Coffee chains like Blankstreet, LAP or Flash Coffee are building upon the same shifting consumer expectations toward convenient, high-quality, and affordable coffee experiences. These innovative brands have mastered the art of efficiency, optimizing their operations to deliver great coffee without the premium price tag. Their streamlined approach, characterized by mobile carts, intimate stores, curated menus, and a touch of automation, allows them to keep costs in check while elevating the customer experience.
Beanless coffee presents another opportunity in the face of high and volatile coffee prices, as it provides a way to meet consumer demand for coffee-like beverages without relying on traditional coffee beans. Beanless coffee, which is typically made from lab-grown compounds or plant-based alternatives that mimic the flavor and aroma of coffee, could stabilize prices by reducing dependency on coffee-producing regions that are increasingly vulnerable to climate change, political instability, and supply chain disruptions.
While the desire for affordable coffee experiences drives trends like RTD and multi-serve options, the functional coffee segment is seeking value in the form of added health benefits.
A heightened focus on health and wellness, demand for natural energy alternatives, the convenience of functional foods all are key drivers for new emerging functional coffee products. More specifically:
Functional coffee products are enhanced with additional ingredients that provide specific health or wellness benefits beyond the typical caffeine boost. These ingredients may include adaptogens, nootropics, vitamins, probiotics, collagen, MCT oil, or CBD, each selected to promote specific effects, such as increased focus, stress relief, improved digestion, enhanced skin health, or sustained energy.
While not yet a mass-market phenomenon, the emerging functional coffee trend is finding its footing by catering to distinct consumer communities with specialized needs and preferences. This targeted approach is reflected in the sector's strong presence in direct-to-consumer (D2C) channels and online marketplaces, where brands can effectively engage with niche audiences such as:
This shift towards convenient and functional coffee highlights a broader trend within the industry—a move away from the singular focus on specialty coffee towards a more diversified landscape that caters to both value-conscious and health-conscious consumers.
As a European syndicate investing in the next generation of consumer brands, Cash & Carry has observed a recent surge in innovative coffee brands, particularly those catering to the rising demand for convenience and functionality. We are keen to connect with additional companies aligning with this trend. Reach out to us at hi@cashandcarry.cc.