The term specialty coffee was coined in 1974 to signify coffees that reflected their terroir. Fifty years later, it’s hard to think of a beverage trend that has been more enduring or impactful. Specialty has transformed the coffee landscape for producers, business and consumers. And the world is all the better because specialty coffee exists.
The majority of coffee is blended, making it tradable as a commodity. Lots from multiple farms are mixed to create uniform shipments for export. This approach maximises efficiency by ensuring consistent flavours and pricing. It simultaneously keeps costs low for consumers and allows the export houses to buy and sell future coffee contracts.
By contrast, specialty coffee prioritises distinctiveness and traceability. Coffees are kept separate throughout the entire supply chain, from crop to cup. Brokers, roasters, and consumers can identify the producer, the varietal and the specific parcel of land where the coffee is grown. Lot sizes are a constrained by agricultural production, processing and quality grading. Some lots are as small as 100 kg.
Fifty years ago, specialty coffee’s viability was far from certain. It faced two interdependent challenges: infrastructure had to be built to enable distinct lots to move concurrently through the supply chain and consumers would have to be willing to pay a premium to cover the additional production and supply chain costs. Furthermore, specialty’s proponents hoped that farmers would be paid more based on the quality of their crop.
How it started, how it’s going
Specialty has succeeded because it pairs a product that consumers value with a sophisticated supply chain. It’s a wonder of our age that the beans in a cup of specialty coffee typically cost a consumer less than a pound.
Annual specialty sales exceed all original expectations. Specialty is estimated to account for over 40% of sales in mature markets such as the United States and parts of Europe, that’s equivalent to approximately 15 percent of total green coffee production.
Growth has been driven by rapid consumer adoption. Specialty coffee both attracted new customers to coffee and converted drinkers from commodity-grade coffee. Two frameworks have defined specialty coffee as it grew. The flavour wheel facilitated communication between farmers, brokers and roasters, as well as clarified marketing communications for consumers. The second framework is the quality grading system, which scores lots on a 100-point scale. Coffees scoring 80 points or higher qualify as specialty-grade. The most common grades of specialty coffee are 80 to 83 points.
Recent decades have seen remarkable growth. In 2010, London had fewer than a dozen specialty coffee shops; today, specialty coffee shops outnumber Starbucks outlets. Nationwide, the number of specialty roasters has grown from a handful to nearly 1,000. This pattern is mirrored across the United States, Europe and Australasia as well as parts of the Asia and the Middle East.
Additionally, specialty coffee is now widely available outside of coffee shops. It is also consumed in offices, restaurants and at home. Global green procurement has had to race to keep up. To meet demand, independent specialty brokers have metamorphosed into key divisions of major trading houses, which can leverage their advanced export, logistics and warehousing capabilities. Specialty has retained its craft ethos but is now supplied with industrial efficiency.
How big is the specialty coffee industry in 2024?
While speciality’s global growth is self evident, quantifying it is challenging. Reliable market data is scarce, and existing figures are often dubious. Neither the International Coffee Organization (ICO), which compiles the coffee industry’s trade statistics, nor the Specialty Coffee Association (SCA), the industry’s trade organisation, collect or segment specialty coffee data.
Ironically for an industry that champions transparency, specialty coffee farmers, brokers, roasters and retailers navigate in a fog of uncertainty. Essential metrics such as specialty’s size, growth rate and market share are largely unknown. Even fundamental objectives, like paying farmers on the basis of quality, went unmeasured until 2018.
The Specialty Coffee Transaction Guide
One of the most useful specialty coffee datasets is managed, not by an industry organisation, but the Goizueta Business School at Emory University. Each year it publishes the Specialty Coffee Transaction Guide a snapshot of specialty coffee’s free onboard prices.
Trading houses that have signed up to the programme supply price, size and origin information about the lots they have purchased. The data is anonymised and aggregated by Goizueta before being published on their website. Chad Trewick, an instigator of the project, explains that specialty coffee buyers require a “source of pricing information that is more relevant than the commodity market price”.
As well as providing insight on specialty coffee’s pricing dynamics and guide has enhanced supply chain transparency. Anyone working in the coffee industry, including farmers, brokers, roasters and baristas, can request a copy.
Specialty Coffee Transaction Guide
In another hallmark of specialty’s success, the aggregated data reveals the amount paid for specialty coffee is significantly higher than the commodity market. And, it highlights that specialty is fulfilling its central premise: prices increase with coffee quality.
In the guide’s analysis, coffee lots are bracketed by both quality and size. For each tier of quality, farmers are paid more for higher-scoring coffee. Within each quality bracket, smaller lots command higher prices – not only because of their exclusivity but because smaller lots must absorb the same administrative and selling costs.
The data empowers both buyers and farmers, explains Peter Roberts, a professor at Emory and the academic director the guide. “It helps buyers settle on prices that compensate producers for what they actually care about, and helps coffee producers think about the investments they want to make.”
Specialty works, but better market data is required
While specialty makes a significant financial contribution to the wider coffee industry, it isn’t perfect. It’s focus on quality means that it doesn’t work for all parties in all situations. And more problematically, there are cases where the pricing structure and supply chain fail to work. For example, it can be difficult for farmers to gain access to the most profitable markets. There are instances of fraud. And financial reward across the supply chain can be uncorrelated with risk and unevenly spread. Additionally, with thousands of producers, brokers and roasters acting in a low-information environment, there is often duplication of work and inefficient business practises.
In short, specialty is buckling under the weight of its own success. Specialty’s current green volumes are far in excess of the original proponents’ aspirations. Small lots and supply chain efficiencies lowered the threshold new companies must surmount to enter the coffee industry, leading to a proliferation of roasters and coffee shops. The result is a large, very competitive market – especially for businesses at either end of the supply chain. Consequently, coffee shops and farmers operate on thin margins and typically achieve limited profitability.
The industry is grappling with how to best harness its potential. There is a belief that specialty coffee has more to contribute to the coffee industry and that it should be more profitable. But, with businesses in mature markets finding growth more difficult and competition fiercer, some businesses question their raison-d’être and even the worthwhileness of specialty itself.
While there are clearly mounting challenges and increasing pressures, such assessments are unnecessarily gloomy. Specialty coffee is viable and vibrant precisely because it is so responsive to the market. After all, it is coffee drinkers that pay the premium that supports the entire specialty coffee supply chain. Future success will be determined by our capacity to continue delivering coffee-drinkers great value.
Data transparency can empower the industry’s future
Better market data can provide clarity on the market forces shaping the industry and provide insight into what consumers want from their cup. For example, how many bags of specialty are imported into the United States, Europe or the United Kingdom each year? From which origins? And of what grades?
The market share figures above are third-party guesstimates and are likely to be inaccurate. All the trading houses we reached out to for an estimate on the size of the United Kingdom market either didn’t know, didn’t wish to hazard a guess, or didn’t get back to us. If supplied with accurate information, farmers, brokers, roasters and retailers would be empowered to make better decisions.
Industry-level data is also agnostic to enterprise size. Specialty coffee tends towards fragmentation at both the production and retail ends of the supply chain; and consolidation in the middle. Insights from market data empowers businesses of all sizes to identify long-term trends and changing consumer preferences. Reaching coffee drinkers in a more targeted and efficient way is good for everyone across the supply chain and would serve to strengthen the industry. For example, what portion of specialty coffee is consumed in coffee shops, at home or at work? Like the market size examples, no one knows.
It’s worth noting that specialty coffee businesses operate at a disadvantage compared to other beverages, such as whisky, soda and oat milk. All have good market data that help inform business strategy. In contrast to these drinks, instead of a limited number of market-leading brands, specialty coffee has dozens of businesses operating from crop to cup. Additionally these businesses have diverse functions and are geographically distributed. The thought of getting everyone together in an attempt to agree anything is a bewildering prospect.
Maybe this is why some facets of the industry have been tempted into arguing for a strong, centralised bureaucracy to align otherwise disparate business interests. The hope is that through greater supply chain coordination, competition and prices can be managed. This view is patronising. It sees farmers and businesses as scrappy and unruly, and not to be trusted to act in their own best interest. Not only would such initiatives be impractical and likely to fail, it would also so serve to damage the industry if businesses were to shift their focus away from their customers.
Centralise the data, disseminate the power
Rather than coordinating activity or centralising authority, making good market data widely available has the benefit of empowering people and businesses from across industry. It would equip everyone to make better-informed decisions and pursue opportunities as they best see fit. If done well, good market data can facilitate experimentation, foster new ideas and lead to innovation. Even the basic, headline data examples above would be extremely useful to coffee businesses and farmers as they plan for the year ahead. So how should our market data be aggregated and disseminated?
Both the ICO and SCA have a clear stake in the future of specialty. Both are as well placed as any organisation, and better than most, to aggregate various forms of useful market data. We wish for the ICO and SCA to deploy their resources to provide better market data and insight for their members. The Specialty Coffee Transaction Guide offers a useful template, other beverage trade organisations provide relevant examples and both organisations already have established memberships and some statistical resource.
Our assessment is that coffee businesses and producers will necessarily find a route to gathering this information in the coming time, or at least identify a suitable proxy. If the ICO and SCA fail to provide this service, private enterprise will step in to fill the commercial requirement. However, it’s our belief that the industry is likely to be better off, and more successful, if this information is mutually held and widely circulated.
This is why the specialty coffee community should contribute to initiatives to gather market data and be willing to pay for the data if these organisations should pick up the task. However, it’d be inappropriate for the ICO or the SCA to operate such a programme as a profit centre. The relationship between these bodies and the specialty industry has not been reciprocal with many in the specialty community feeling unsure about the benefits either organisation offers (sorry SCA, running some competitions doesn’t cut it).
The business model that has served specialty coffee well over its first 50 years is under strain. The specialty coffee industry now requires good market data to successfully navigate towards its centenary. If the ICO and SCA were to run specialty market data programmes, it could both support their stated goals and cement their relationship with the specialty coffee community. Plus, the ICO and SCA would both be greatly impoverished without a thriving specialty coffee industry.
Neither the ICO nor SCA are well placed to provide all data the specialty community might require. But between them they can make a critical contribution by aggregating and disseminating market data that’s associated with their respective areas of expertise. With a foundational market data available, private business can then both build on the data sets and provide deeper market insights.
The future of Specialty Coffee
Specialty has grown from a niche into a significant portion of the larger coffee industry because of its market structure. Having thousands of small businesses at the production and consumer ends of the industry enables micro-targeting of coffee drinkers. It structurally equips the specialty industry to win consumers niche-by-niche. It’s been an incredibly successful model. And one that should be built upon to enable future success.
Our founding values, too, have stood the test of time and should continue to guide our future. A focus on quality has broken the link with the commodity market; a commitment to transparency had facilitated community and enabled innovation; and the belief that specialty can make a positive contribution to the world has kept the industry hungry to do more and be better.
The industry’s golden anniversary is an ideal moment to consider the coming decades. It seems foolish to set specific goals when there are so many knowable-unknowns. A prudent next step would be to invest in the infrastructure to collect, aggregate and share important industry data. Centrally collated data that is widely disseminated respects the strengths of specialty’s unique market structure and empowers businesses across the supply chain to better serve their customers.
So what’s your bold idea for the future of specialty? Whatever it is, you’ll have a better chance of realising it with the guiding light of market data.
