Big coffee faces economic pressures on western markets

Major global coffee companies, including Starbucks, Nestlé, and JDE Peets, are grappling with rising costs, tariffs, and weakening demand in Western markets, prompting a strategic pivot to emerging economies.

The global coffee sector, valued at $400 billion, is under pressure as inflation-driven cost increases, tariffs, and weaker crop harvests raise the price of coffee. In the U.S., a pound of ground coffee has hit a record $9, doubling since 2021, while overall coffee prices have risen 9% in just one year, far outpacing general inflation. Rising labor and operational costs further squeeze profit margins, leaving companies like Starbucks and JDE Peets struggling to maintain profitability on established markets.

Investment strategies are shifting. Starbucks is closing about 1% of its stores as part of an expensive turnaround, while Coca-Cola explores selling its Costa Coffee unit. JAB, which owns JDE Peets and Pret A Manger, is restructuring its portfolio to focus on higher-margin sectors, indicating a broader market recalibration. Nestlé appears better insulated due to its at-home coffee products, which carry lower production costs and are less exposed to inflationary pressures.

Companies are increasingly looking to emerging markets for growth, targeting China and Latin America, where coffee consumption is still expanding. However, low average incomes and high local competition present significant challenges. Analysts warn that while expansion offers potential revenue increases, it will require substantial investment in marketing and infrastructure, potentially further pressuring margins in the near term.