Janice Anderson | The State and Future of the Business of Coffee | Re:co Symposium 2018

This is the second episode of “The State and Future of the Business of Coffee,” a session recorded at Re:co Symposium this past April. This session gathered business leaders in Specialty Coffee to discuss the ways that the specialty coffee trade has changed in the past decade, the challenges businesses face today, and how we might prepare for the future. If you haven’t watched the preceding video, we strongly recommend going back to watch before you continue with this episode.

We are pleased to welcome Janice Anderson, CEO of Premium Quality Consulting, LLC. At Re:co Symposium in April, Janice Anderson shares her research into the future of specialty coffee consumption, with a particular focus on the up-and-coming Generation Z.

Special Thanks to Toddy

This talk from Re:co Seattle is supported by Toddy. For over 50 years, Toddy brand cold brew systems have delighted baristas, food critics, and regular folks alike. By extracting all the natural and delicious flavors of coffee and tea, Toddy Cold Brew Systems turn your favorite coffee beans and tea leaves into fresh cold brew concentrates, that are ready to serve and enjoy. Learn more about Toddy at http://www.toddycafe.com.

Full Transcript

0:00 Introduction

Hello everybody, you’re listening to the Re:co podcast, a special episode of the SCA podcast. I’m Peter Giuliano, the SCA’s Chief Research Officer. The Re:co podcast is dedicated to new thinking, discussion, and leadership in Specialty Coffee, featuring talks, discussions, and interviews from Re:co Symposium, SCA’s premier event dedicated to amplifying the voices of those who are driving specialty coffee forward. You can find videos of these talks on our YouTube channel – just follow the link in the show notes.

This episode of the Re:co Podcast is supported by Toddy. For over 50 years, Toddy brand cold brew systems have delighted baristas, food critics, and regular folks alike. By extracting all the natural and delicious flavors of coffee and tea, Toddy Cold Brew Systems turn your favorite coffee beans and tea leaves into fresh cold brew concentrates, that are ready to serve and enjoy. Learn more about Toddy at toddycafe.com. Toddy: Cold brewed, simply better.

I want to give you a head’s up that the Re:co Symposium and the Specialty Coffee Expo are coming to Boston this April. To learn more or to purchase tickets, visit recosymposium.org.

Today, we’re very happy to present the second episode of “The State and Future of the Business of Coffee,” a session recorded at Re:co Symposium this past April. This session gathered business leaders in Specialty Coffee to discuss the ways that the specialty coffee trade has changed in the past decade, the challenges businesses face today, and how we might prepare for the future. If you haven’t listened to episode #36, we strongly recommend going back to listen to it before you continue with this episode.

On this episode of the Re:co Podcast, we are pleased to welcome Janice Anderson, CEO of Premium Quality Consulting, LLC. While Jan jokes that she started in coffee at a time when you had to spell out “e-s-p-r-e-s-s-o” to restaurant owners, she has had a long and successful coffee career: she led three start-up companies, including a coffee distribution and service company in New York City, an equipment rental company, and an upscale lifestyle brand of home espresso machines. She also held various creative, marketing and business leadership roles for a major global coffee company. As a partner at Premium Quality Consulting, she leads the team as strategic visionary, operations expert and outcome realist. As a longstanding coffee entrepreneur, she underwrites the quality of the PQC name.

At Re:co Symposium in April, Janice Anderson shares her research into the future of specialty coffee consumption, with a particular focus on the up-and-coming Generation Z.

Also, to help you follow along in this podcast, I will chime in occasionally to help you visualize what’s being displayed up on screen.

2:30 Who are Generation Z, the generation after Millennials? And what should we call them?

Janice Anderson: Hello everyone. Thanks for being here today.

Things change over generations. It’s an obvious statement. Everybody here knows that. But the question is: how did they change? And what does that mean for us?

Specialty coffee industry and the consumer has been on an exciting journey for over 30 years. A journey of quality and innovation. “Hot black and in a cup?” stands in stark contrast to the well-curated cup of single origin coffee that we enjoy now.

And the journey isn’t over. Coffee will continue to change and evolve because consumers change, either generationally or because of ideas changing.

So today we want to look at the next generation, after Millennials. They’re pretty young, but we’re going to look at them anyway. And see what this might mean as our next group of consumers. So in order to contextualize this generation, we’re going to look back at a few generations. Simply because history stands on firmer ground than the future. We’re going to look at some coffee data, we’re going to speculate a bit about what young consumers might want from coffee brands. And then we’re going to show you what these young consumers are saying about coffee. First generation baby boomers born between 1946 and 1964. They are currently between 54 and 72. Gen X, the Next Generation, born between 1965 and 1980. 38 years of age to 53. The famous Millennials, born between 1981 and 1996, between 22 and 37. And then the next generation, born between 1997 and 2011. This next generation is between 7 years old – that’s third graders – and 21.

Jos Bromwich in his article in the New York Times in January took exception to the attempt of social scientists and marketers to start naming this generation already. “Homeland generation”, “I-Gen”, “Gen Z.” He said, “they’re too young. We don’t even have an accurate count of how many there are.” And he also said, “and I don’t like any of the names.”

So he made the offer, to anyone 22 and under, to name their own generation and he got over 3,000 responses, mostly from in the 22 and under age range. And one from a 91 year old woman who dared him not to use her idea. The responses were literally nothing. For example, “don’t call this anything, the whole idea of cohesive generations is ridiculous” to the inspired. And a lot of them were inspired by memes. We had the “meme Lords”, “the meme generation”, “Meme-mennials.” So if you don’t know what a meme is, go ahead and Google it now. “Generation fix it”, because these young people feel like there’s a lot of things that need to be fixed that are left over from previous generations. “Generations Snap” named for their favorite app.

But I think the one that – besides “girl power”, I always loved that – but there was one young woman, she was 22, who proposed Delta Generation. And she described her generation as being people who are actively changing things. Not people reacting to things.

7:00 How generational groups (Baby Boomers through to Generation Z) are shaped by social, political, economic and technological changes

So here are the four generations laid out over 69 years and I thought it would be interesting to map our data over the top of this. We count brands by what wave they’re in. So here you see from about 1945 to 2016, all the brand starts that are still in business, we’ve color-coded them: orange is first wave, green is second wave, blue is third wave and the yellow stripe we refer to as the European Invasion and that’s when a lot of Italian companies came over and showed us what espresso could be.

Peter Giuliano: Janice has a graph showing how different generations – from Baby Boomers, Gen X, Millennials and Gen Z – all intersect with different coffee “waves” – the second wave, third wave, etc. The point to note here is that, starting in the early 70s, there’s a huge increase in the number of brands in the coffee market, all of which are classified as “second wave.” The graph suggests the Baby Boomers are powering this growth. And then, from the late 90s, there’s another huge increase in coffee brands, this time classified as “third wave.” The graph suggests this second huge increase in coffee brands is powered by Gen Xers. And then, from 2007 onwards, the third wave grows especially quickly, suggesting the Third Wave is now being supercharged by Millennials. Janice nicknames this the “Tidal Wave.” Finally, taking a step back, the graph suggests there are many more coffee brands today compared to 50 years ago, and they’re much more diverse.

Janice Anderson: I put some markers in here so we can see that in the early 70s, there were enough brands in our cataloging system to say that this is probably the beginning of the second wave, according to our data. And you can see that the second wave is predominantly a product of baby boomers.

The third wave, we have marked at 1995, that would be predominantly a product of Gen-X. And then we have in 2008, the Tidal Wave. The tidal wave was a period of rapid brand acceleration – So if we were getting 35 brands a year, suddenly we’re getting 2x that, 2.5x that.

And we also saw a change in the brand. The brands were a little purer, they were a little more focused. They were maybe a little more militant. So we call that “the tidal wave”, and the tidal wave, we believe, is the millennial reinterpretation of the third wave.

All generations are affected by social, political, economic and cultural realities and events that happen. And these events shape the world view, the values and the expectations of those young people, especially young people coming of age. For the Baby Boomers, the moon landing in 1969 was one of those. 600 million people watched the moon landing, watched Neil Armstrong became the first man on the moon in 1969.

Gen X saw the end of the Cold War, the collapse of Communism, and in 1989 they watched as people with pickaxes and shovels and their hands, tore down the Berlin wall. And tens of thousands of people passed over into West Berlin.

All but the youngest Millennials were in school on September 11th, 2001, when terrorists hijacked for commercial airliners and crash them into the Trade Towers and the Pentagon. Nearly 3000 people died. It was a terrifying moment. This was also the generation that was coming of age when the US elected its first African-American president. So what will shape the views and the values of Generation Z?

They are already the most diverse generation. The US Census in 2015 said that Generation Z, which is just a placeholder, is 48% diverse. Just to give you a comparison, the Baby Boomers are 28% diverse. So tremendous progress in this area. And I think it’s almost a situation where they don’t see, they don’t think about, diversity. It’s just how it is.

They’ve also been raised – and I mean they are young – but they’ve seen so much protest and so many powerful moments. And they’ve been activated for causes and for their own cause in the recent tragic events. Their voices lend gravity to the conversation. It’s really quite eloquent and their message is strong: “This must change.”

Of course, every generation has an economy and they also get to participate in everybody else’s economy. But if we look at the period between 1973 and 2008, 36 years the US economy experienced five recessions. In three of those recessions, the unemployment rate was above 8%. In 2008, 8.7 million people lost their jobs just as Millennials were entering the workforce.

And of course, every generation has a technological experience. So what was the technology for Boomers? Color TV, shared by the family. And look at all those Gen X-ers enjoying the first portable and personal music device. I’ve never seen a happier group. That’s the Sony Walkman. Facebook was created by Millennials for Millennials. And as often happens in technology, technology reaches back and pulls other generations along. Because Millennials are not the primary source of users for Facebook. It’s actually Gen-X, and there are over 2 billion people globally that are active on Facebook.

So what will this be for Gen Z? Gen Z is more private than the Millennials were. They actually say Millennials post too publicly. I don’t want to be caught in any beer bong incidents, something that will hurt my chances to get a good job when I’m older. They like what is referred to as ephemeral apps, like Whisper and Snapchat. When you send a snap, which is a picture, a text, a video, as soon as all the recipients that you’ve sent it to have seen it, it disappears. I don’t know if it leaves no trace, we’ll find out.

Coming of Age movies are fabulous. They capture all the pain and emotion of growing up, and not feeling like you don’t fit in, feeling like you don’t have a chance, pulling yourself away from your parents. These are really poignant movies – that are actually almost always comedies – that tell what that experience is for each generation. So we would say most baby boomers would agree that The Graduate – even though it’s right after Benjamin gets out of college – is their coming of age movie. And probably most of Gen X would agree that The Breakfast Club represents their generation. It’s a little harder to pick a movie for Millennials. We don’t have enough distance from that generation, but we think it might be Napoleon Dynamite or Clueless. And gen Z for sure is quite young but there have been several movies that have really captured the psyche of this younger generation. I think Ladybird is one and The Florida Project. So I’m going to recommend to all of you to have a marathon coming-of-age movie weekend and watch all of these in succession because they are fabulous.

Everybody who studies generation, watches behaviors, observed behaviors, thinks about them psychologically and then attributes behavioral characteristics to them. So now I know you’re all individuals and I respect you but we’re going to talk about generalities. So baby boomers are said to be independent, optimistic and competitive. Gen X: independent, ambitious, over-educated. That can’t be a bad thing. They’re also the generation that puts a bigger focus on family-centric values. And the theory is that these were the kids, the first generation, where a high percentage of the parents both worked outside the home. So for them maybe holding the family together becomes an important value. Millennials are connected, confident and they’re often described as disruptors. But what does that really mean? Disruptors innovate. So I think it’s better to say they’re innovators.

Yes, big beverage companies were surprised when Millennials didn’t drink as much carbonated soft drinks as previous generations. And a surprise for a big company like that is a dramatic loss in sales. But they’ve also changed the business model in so many ways and they’ve given us so many new tools that we can use to make things better. They’re really disintermediators in the way they work. They change business models. Lots of retail space is available if you want it, but they have come up with a model that is very efficient. Product goes from producer to end-user, order on your phone. They know what they’re doing. They can target their consumer. So it’s just going to be the next business model.

I’m thinking of last week when Mark Zuckerberg was interviewing with Congress for two days and one of the late-night Comics said it was incredible to watch, almost painful, as Mark was explaining his business model to a roomful of grandpas.

Gen Z, we said they’re more private. We said they’re activists. They’re also more cautious. The CDC released a study in 2013 that said that Gen Z is 21% less likely as a high school student to have had a drink of alcohol, ever.

They’re also 60% more likely to wear a seatbelt in a car driven by someone else. They’re pragmatic. They report that they make their college major decisions, a lot of them, based on job prospects afterwards. Not maybe on the thing they were most interested in. You can think of accountancy over design. They’re concerned about the future. That’s why “Generation Fix-It” came out in the study. And they’re somewhat anxious. And it probably is because they haven’t yet experienced a long period of stability. It’s been a very busy life for them and they’re moving fast.

So why do we care? Well, this is the 2016 US Census Bureau giving us the size of these Generations. They’re big. They’re big groups of people. And Gen Z is going to be 74 million people. That’s going to be our new coffee consumer. So let’s look ahead 12 years.

In 12 years, all baby boomers will be retirement age. And what will the workforce look like? Well, it will be 44% Millennials, 14% Gen Z and Gen X will be in charge. If you all still plan to be in business in 12 years, this is something to think about.

20:45 An overview of the different drinking habits for different generations, with a particular focus on Generation Z.

So let’s look at some coffee data. And this is from the 2018 National Coffee Drinking Trends Report, which is really I think the Bible of the coffee industry. The report tells us overall 64% of all adults 18 and over in the United States drink coffee every day. This is based on past-day penetration. So the question is: what did you drink yesterday? And then there are a lot of qualifiers, like “when? Where? How is it prepared? Did you put something in it?”

So I wanted to take that overall data and look at it according to age groups. So I’ve overlaid the NCA age groups on there so we can be completely accurate in reporting this part of their data. But you can see that past day penetration of coffee drinkers, meaning people who drink every day, is 72% for the 60 and over crowd. For Gen Z, it’s 48% and you can see that it declines over time. So that can put you in a little panic. I went back and looked at the last four years of data and it seems to be around 48% to 51%. So a lot of it can be that they haven’t really developed their taste in coffee? But I also looked at what does have high past day penetration for Gen Z. And it was unflavored bottled water.

Now we can see that non-gourmet Coffee in the 60 over group has a 42% past day penetration. And that decline is steeper, that’s down 50% in Gen Z. Which means 19% of Gen Z would have drunk non-gourmet coffee yesterday. But the news is good for specialty. Specialty coffee is now reported to be 58% of all cups of coffee. It didn’t used to be that way.

So, as Nick was saying, congratulations to us. And you can see that gourmet coffee peaks with the Millennials. 48% of Millennials report that they drank gourmet coffee yesterday. Now as a subset of Gourmet Coffee, espresso-based drinks and non-espresso based drinks, you see that espresso-based drinks really go up especially for Millennials. And they’re probably pushing up the category. And non-espresso-based drinks – cold brew, nitro, Ice-blended – is also increasing as the consumer gets younger.

So I also wanted to take you through just one slide of SCA data. In 2016 the SCA did a Specialty Coffee Consumer Report. And this was really interesting because they split Millennials into younger and older groups. So we have 18 to 25 Millennials, then we have 26 to 35 millennials. I didn’t look at the older data – we I did, but I’m not going to talk about it.

I looked at the 18 to 25 because I think we’re trying to reach down as far as we can into the younger generation. When they had that group – and this group all drank five to seven cups of coffee a week – so the changes in and the differences that we’re going to find in this study, is really attitudinal. So what’s their relationship with coffee? What do they want the experience to be? Where did they drink it?

So I’ve broken this out into young adopters. And adopters are the ones who love coffee. And Young supers are the ones who “think coffee.” Now I also saw on the data that “thinking coffee” also correlates pretty nicely with having more coffee knowledge.

Peter Giuliano: Janice has a slide up showing two types of people from the survey. They’re both 18-25 years old and drink coffee. One of these types is called Young Adopters, meaning these young people drink coffee but don’t think too much about it. And then there are the Young Supers, meaning these young people not only drink coffee often, but they also think it about their coffee a lot too.

Janice Anderson: So I think the first question they ask them, besides name and where you live, was “how much do you love coffee?” Rate your love of coffee on a scale of 1 to 10. I just looked at 9 plus because these people were all feeling pretty good about coffee. 94% of Supers rated their love of coffee 9+. 79% of adopters, so a little less love. Then they asked them if they agreed that “coffee is a sensory experience to be savored.” The Young Adopters, zero said that they agreed with that statement. While 53% of Young Super’s agreed with that statement. So that’s a pretty big gap. Young Adopters drink more coffee at home. 100% of both groups said they drink coffee in cafes. So the interesting thing is what kind of cafes? The Young Adopters, 79% of them said they drink in large national chain cafes. It’s almost the inverse of the Young Supers, for whom 29% of them drink in large national chain cafes. Then they like local high-end cafes, local friendly cafes. And then what they referred to as “midsize nationals” which would be like Blue Bottle.

So I’m wondering, what’s the rule here? Once an adopter always an adopter? Or could the industry encourage adopters to become a little more invested in their coffee?

27:00 Video by Nick Cho interviewing Generation Z people on their coffee drinking habits

And I think the biggest question for all of us here is how will we connect with Generation Z? They’re big and we don’t want to have a surprise like a lot of Industries had with millennials. So I think we have to be open to questions like “what will be the new coffee Innovations? What will the coffee experience look like? What role will technology play? Will good works matter? Will transparency matter? What will be the state of coffee at origin? Will the prices go up or down?

So we wanted to know what young people thought about coffee, this Gen Z group. And so I’m going to leave you with a video introduction by the talented Nicholas Cho, to see just what they’re thinking about coffee already.

Gen Z interviewees:

Peter Giuliano: Up on screen is a video titled “2018 Street Interviews, Generation Z edition.” The voices you’re about to hear are aged between 12 and 20 and are being asked whether they drink coffee.

#1 – No because I tried it and it tasted nasty.

#2 – No. It has a weird taste. I like it with a lot of milk and sugar.

#3 – I don’t drink coffee because I don’t like the texture and it tastes really gross.

#4 – I do enjoy drinking it because it gives me more energy.

#5 – I don’t really drink coffee because I’m a little young for it. I prefer hot chocolate more.

#6 – No. I’ve heard that it can affect your growth.

#7 – I did a science experiment on it. Supposedly it doesn’t affect growth whatsoever but I mean coffee is coffee.

Peter Giuliano: The next question up on screen is “what kind of coffee do you drink?”

#1 – Iced caramel macchiato.

#2 – Black coffee, usually. Yeah.

#3 – Usually black.

#4 – Yeah I drink mostly coffee with milk or it’s mostly tea for me.

#5 – A mixture. Usually cappuccinos or flat whites. They have in London, they don’t have them here as much, I would say. But yeah.

#6 – yeah generally a flat white is what I go for. Or white filter coffee.

#7 – I usually used to drink caramel macchiatos and stuff like that. But I’ve been trying to drink it more black with just cream and sugar or something like that. I feel like it makes you feel cool.

Peter Giuliano: Now up on screen is the question “do you think you’ll drink coffee when you’re older?”

#1 – Maybe because maybe my taste buds will change.

#2 – Maybe. I mean adults drink coffee to stay awake. Coffee with milk, like a latte, that’s what Mom drinks. Looks good.

#3 – One day, probably when I get to maybe 20. Once I get to the age where I don’t grow anymore I’ll start drinking coffee.

#4 – Maybe one day. Maybe like once or twice, maybe every year or something but eventually. Possibly. Probably decaf, to be honest.

#5 – Probably yeah. I don’t know. All the coffee.

#6 – I definitely or probably drink it more like black with just cream or maybe a little bit sugar. Definitely more plain and more often like every day.

Peter Giuliano: The final question in the video is “what advice do you have for coffee?”

#1 – I don’t know.

#2 – No not really. I don’t think it’s really good for you.

#3 – Make it tastier for kids.

#4 – More sugar. More sugar in coffee would be better.

#5 – I don’t know. I think it’s great. No advice from me.

#6 – Obviously there’s decaf coffee but maybe like less caffeinated, like degrees of caffeination would be quite interesting?

#7 – Find a good medium of not being sold too expensively but still being nice. I think somewhere in between High Street chain coffee and sort of independent shop would be a good place to go.

#8 – I don’t know maybe like versions that aren’t as strong. Because all the ones I’ve tried are like super strong. And they don’t make me want to drink it more.

#9 – Coffee’s just a drink that people grow up drinking or get used to over the time.

#10 – I suggest they keep on doing what they’re doing. I mean they’re kind of industry seems to be working out so far. Keep on doing what you guys are doing.

Janice Anderson: Thank you!

31:30 Outro

That was Janice Anderson at Re:co Symposium this past April.

Remember to check our show notes to find a link to the YouTube video of this talk and a link to the speaker bios on the Re:co website.

This has been the Re:co Podcast, brought to you by the members of the Specialty Coffee Association, and supported by Toddy.

Talks, WatchSCA StaffFebruary 7, 2019Re:co 2018

Janice Anderson | The State and Future of the Business of Coffee | Re:co Symposium 2018

Special Thanks to Toddy

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