STiR coffee and tea magazine

STiR coffee and tea 33 users. Beverage outlets that were closed to walk-in custom- ers teamed with delivery services, including Alibaba (ele. me), Meituan Dianping, and SoftBank-financed Didi Chux- ing. Thousands of out-of-work restaurant employees were redeployed as delivery workers. The to-go lessons learned in China are now evident in the US, where Starbucks closed its dining rooms and is partnering with Uber Eats to expand delivery to 48 states before May. • Rather than layoffs, companies engaged in aggressive marketing on WeChat by enlisting idled-at-home employees. Workers increase sales by engaging customers and sharing special offers via WeChat and other social circles. • Smart IoT (internet of things) coffee makers and so- phisticated vending machines, some robotic, are sterile, en- closed, and do not require consumers to interact with po- tentially contaminated surfaces or people. Chains are racing to install the latest versions which feature facial recognition technology while lowering payroll, rental fees, and overhead. • Per capita consumption at 0.08 kilos is low in China, less than 5 cups per person per year compared to the av- erage 240 cups consumed by coffee drinkers in western countries (the US average is 400 cups, Finns drink 1,495). Chinese consumers currently spend only $6.31 per person per year on coffee. Expect that average to climb due to in- home preparation that spiked as 500 million people learned to cope with rigidly enforced stay-at-home curfews. In China, the immediate threat has ebbed, but economic recovery will take time. Industrial output dropped 13.5%, and retail sales declined by 20.5% in 60 days. Demand for electri- cal power decreased by 20%, and joblessness rose to 6.2% in February. China Daily reported that the economy contracted by 3.9% during the first three months of 2020. China was running at about 70% capacity by March, but the manufacturing sec- tor will soon encounter soft demand as the rest of the world combats the contagion. Exports that plummeted 17% during January and February have yet to recover. Lockdown The impact of the lockdown on the $4.2 billion (RMB30 bil- lion) coffee industry is far-reaching. In March, Kamen Depth, a beverage industry research company, surveyed 2,000 coffee shop owners operating 10 or fewer locations, a subset of Chi- na's 222,914 coffee companies. Seventy-five percent of shops were closed during the lockdown, according to Kamen founder Lu Wenbing. Revenue, compared to the same period in the previous year, declined to zero at 65.9% of the shops surveyed. Sales declined by 50-80% at 19% of the shops. Asked to evaluate the loss, 66% of shop operators described the event as devastating; another 31% described the impact as painful but "controllable." Only 3.1% reported minimal impact. The Chinese government has since announced subsidies, low-interest loans, and relief from taxes for retailers in the vicinity of Wuhan. The majority were most worried about the wave of clo- sures (75.2%) followed by concerns about declining foot traf- fic (74.8%) respondents indicating they feared paralysis of cash flow (56.6%), according to a report shared with STiR titled "Epidemic Impact" that cited Kamen data. Chains fared no bet- ter. During this period, Starbucks closed more than 2,000 of Freezing temperatures destroyed 3,300 hectares of ripe cherry and lowered yields on 20,000 hectares, but growers in Yunnan were opti- mistic in December as coffee prices rose to a two-year high. Yunnan arabica can be superb, but a combination of logistics and inconsis- tency forces growers to sell their crop at 15-25% below commodity rates published daily on the Intercontinental Exchange (ICE). At $1.35 per pound, growers envisioned a fair profit after a drought in 2019 and several years when the cost of production roughly equaled returns. Prosperity has been elusive for China's coffee growers. Do- mestic consumption will reach 80,718 metric tons this year, generating $1.35 billion (RMB9.45 billion), according to Euromonitor International. But not much of that bounty reaches growers. On Feb. 15 Nestle was offering $1.05 per pound (RMB16.44/kilo) for grade 1 arabica, down from $1.29 per pound (RMB20.03/kilo) two months prior. "It is very hard for Yunnan farmers to cover their cost for any coffee they produce, and that does indeed cause a fast increasing number of farmers to cut down their coffee trees and plant a different cash crop in their place," writes Eric Baden, one of the founders of the Coffee Commune in Pu'er and a China resident since 1998. By Dan Bolton China's Coffee Growers Survive a Difficult Year China ordered a lockdown during the middle of the arabica harvest Arabica prices on the NY "C" exchanges fluctuated wildly in 2019. Graphic by Markets Insider Photo courtesy of Jenny Tong at SP Specialty Coffee, in Guangzhou, China

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