INDUSTRY PANEL FORESEES SPECIALTY COFFEE DRIVE

BOB BAUER

CHICAGO -- The coffee industry is gearing up to respond to the fast-growing but hard-to-define market for specialty coffee, according to a panel of coffee suppliers and analysts assembled here.

The panel, which met last month, said supermarkets will have a continuing role in the expansion of the market as sales and varieties of specialty coffees continue to increase.

"There's coffee, which is the past; and there's a brand-new business that a lot of us are fumbling to understand that we're calling specialty coffee," said Tom Pirko, president of Bevmark, New York, a worldwide food and beverage consulting firm. Pirko was one member of a panel discussion, which was sponsored by Millstone Coffee, Everett, Wash.

Pirko said the new business is still being developed.

"It has a whole other set of values. It has something to do with taste and flavor and higher quality. But it has a whole lot more to do with lifestyle and lifestyle values and perceptions of fashion, all the things that have driven a lot of the other beverage categories for a long time."

Panelists said the category is experiencing tremendous growth. Grady Saunders, president of Heritage Coffee, Juneau, Alaska, and president of the Specialty Coffee Association of America, said his trade group's membership has increased from 345 members a few years ago to 1,700 today.

"When I founded my company in 1981," said Phil Johnson, president of Millstone Coffee, "I did so under the premise there was a certain segment of the population out there more concerned with the quality of the coffee they were going to buy, rather than the price of the product. I just didn't realize how many of those people were out there.

"Coffee had been on the decline for years and years, and it's on the upturn now, and I think it's the specialty coffee industry that's done it. It's not going to stop. It's going to continue to grow 20% to 25% annually," Johnson said.

Panelists said the soaring popularity of specialty coffees has them working hard at defining their potential customer base. It also has farmers in coffee-producing nations changing their growing habits.

"We used to think the consumer was a person who was fairly affluent, between the ages of 25 and 45," said Johnson. "When I first started, that was the consumer we targeted in our advertising and marketing. Today the consumers range in age from the high teens to however old the population is. It seems to cross all demographic lines and income levels."

Supermarkets play a key role in the continued popularity of specialty coffee, according to Pirko. He said stores that feature specialty coffee in places like delis and bakeries, in addition to a section of its own, have the most success.

Saunders referred to chains such as Larry's Markets in Seattle, which put a beverage bar in the store and added cup holders to its shopping carts. Stores such as Larry's are simply responding to customer wishes, said Tom Kilty, executive vice president of M.P. Mountanos, an international coffee broker based in San Francisco. "What we're seeing on the consumer level is that the consumer wants a better cup of coffee. What we're seeing on the grocery level is a wholesaler-retailer customer that wants to deliver that product. Globally speaking, producing countries are now looking at their farms, and they're actually adjusting their coffee production and distribution to meet demand," Kilty said.

"Farmers in producing countries are extensively beginning to realize what the specialty market is and they're beginning to plant, prune, fertilize and prepare more specialty coffee," added Saunders.

Pirko said specialty coffee sales are affecting other categories as well.

"Specialty coffee is taking some of its share right out of the hide of cola," he said. "Cola is flat or declining and the cola companies are sitting back saying, 'Well, it's all these new-age beverages.' But point of fact, specialty coffee is digging into their sides."

Will there be enough beans to go around?

"I believe there will be," said Kilty. "I think there will be tightening in some producing countries as far as availability is concerned. But I think as long as the roaster, brokers and actual producers get together and understand what the consumer wants, there will be enough to go around."

Dan Cox, president of Coffee Enterprises, a Burlington, Vt.-based firm that develops and manages private-label coffee programs, said the move toward specialty coffee has to do with America's changing taste.

"We've basically been a sweet-based society," he said. "That's changing. Because coffee was always considered a bitter beverage, it lost a lot of the youth population. Nowadays, starting on the college campuses, students are being introduced to coffee earlier."