PESTEL analysis of the coffee industry
This is a detailed PESTEL analysis of the coffee industry which has drawn examples from many coffee-producing and coffee-consuming countries. The global coffee industry is growing at a rapid pace. It is a massive industry which offers interesting opportunities to both suppliers and retailers. It contributes very well to the global GDP.
Though there are multiple players operating in the coffee industry globally, there still seems to be enough room for new entrants to come in and target specific niches. Therefore, entrepreneurs and organisations should explore and understand the current dynamics and challenges so that they can formulate an effective strategy if they were to invest in this industry or launch a new product.
Political factors that influence the coffee industry
The key political factors that affect the coffee industry are trade restrictions, and political unrest. Trade restrictions could have a major impact on the coffee industry, especially in countries where coffee is produced. Producers and exporters of coffee could be affected if trade barriers are imposed between the coffee-producing countries and coffee-consuming countries.
Political unrest in coffee-producing countries could disrupt coffee supply, thus affecting the business of coffee roasters and retailers. For instance, hundreds of thousands of people’s livelihood in Nicaragua depends on the coffee industry. However, political crisis and violence in the past had caused a decline in the international coffee purchasing community’s will to visit the country which in turn reduced the sales of coffee beans.
Brazil, Vietnam, Colombia, Indonesia, Ethiopia, Honduras, India, Uganda, Mexico, and Peru are some of the top coffee producing countries in the world (Shahbandeh, 2022). The coffee industry along with others would have benefitted more if some of these countries did not face certain political challenges.
Economic factors that influence the coffee industry
The economic environment is major area of study in this PESTEL analysis of the coffee industry. The economic factors that have a significant impact on this industry include interest rates, inflation, unemployment, and currency exchange rates.
Coffee is the second most popular drink in the world after water with around two billion cups being consumed every day (British Coffee Association, 2022). Hundreds of millions of people around the world work in coffee farms and retailers. Therefore, if the demand for coffee goes down, many people will be at risk of losing their jobs.
Economy oscillates between growth and contraction. During contraction, consumers are more careful about their spending which could negatively affect coffee sales as coffee is usually more expensive than tea. On the other hand, the demand could easily increase during economic growth.
By per capita, Finland, Norway, Iceland, Denmark, and the Netherlands are the top coffee consuming countries in the world. However, these countries need to import coffee beans from other countries such as Brazil, Vietnam, Colombia, Indonesia, Ethiopia, Honduras, India, Uganda, Mexico, and Peru. As transactions are taking place across borders, they are regularly affected by currency exchange rates.
Social factors that influence the coffee industry
Social factors that affect the coffee industry are demography, culture, and health and wellness trends. Demographic changes in coffee-consuming countries could have a significant impact on the coffee industry. For example, an aging population or a declining birth rate could decrease the demand for coffee. On the other hand, a growing youth population could increase the demand.
Cultural factors could also affect the coffee industry. There are variations in the preferences for coffee across cultures. For instance, in some cultures, coffee is treated as a luxury item, whereas in others, it is an everyday drink item.
Health and wellness trends could also affect the coffee industry. For example, people are becoming more health conscious and are substituting their coffee with healthier options like tea. A study by the University of Surrey in the UK reveals that coffee drinkers find it harder to sleep at night.
According to a study by Journal of Marketing, cited in Waters (2022) coffee drinkers spend 50% more and buy 30% more items, particularly if they consumed a cup of caffeinated coffee just before starting their shopping. Therefore, many people may avoid drinking coffee before buying groceries, and/or reduce their coffee intake in general due to the immense pressure of soaring costs of living.
Technological factors that influence the coffee industry
Technological environment in this PESTEL analysis of the coffee industry also needs a detailed assessment. The key factors that affect the coffee industry are adoption of new technologies, and investments in research and development. Coffee producers in countries such as Brazil and Vietnam have started adopting automation in different stages of coffee production.
Coffee retailers have also used technology many ways. Mobile pay, mobile order taking, self-service kiosk, and data analytics are now very common. In the future, autonomous vehicles could be used to ship coffee beans from the coffee-producing countries to the coffee-consuming countries. Likewise, scientists in different countries are also researching on developing new technologies to make coffee farming more efficient.
Environmental factors that influence the coffee industry
Environmental factors that affect the coffee industry are the availability of water, sustainable production practices, and climate change. For example, the availability of water in coffee-producing countries could be one of the major challenges for the industry. Inadequate rainfall could turn out to be an extremely challenging factor. In such a scenario, coffee retailers could face a shortage of coffee beans.
Climate change is also a major challenge facing the coffee industry. For instance, torrential rains in Columbia, droughts in Indonesia, and different funguses affecting coffee bean leaves in some countries have become causes of concerns.
Legal factors that influence the coffee industry
Legal environment is an important component of this PESTEL analysis of the coffee industry. The major legal factors that affect this industry are compliance with laws, changes in laws, and lawsuits. The roasters and retailers of coffee could face legal challenges due to their product offerings. For example, they could face lawsuits if they do not specify the caffeine content in their product labels.
Mano (2021) reports that Brazilian authorities launched raids to crack down on coffee companies accused of evading taxes. Similarly, governments could impose taxes on coffee, thus increasing the coffee prices.
Summary of PESTEL analysis of the coffee industry
This article has given an insight into the conditions that affect the coffee business. The global coffee market is growing. Particularly, the demand for specialty coffee has risen rapidly, with consumers willing to pay a higher price for a cup of coffee that tastes better and is ethically sourced. These two trends have forced the coffee industry to change the way it operates.
Coffee production has always been a labour-intensive process due to the number of manual tasks involved in harvesting, processing, and roasting green beans. As such, companies have sought new ways to optimise production while reducing costs and environmental impact.
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Last update: 03 August 2022
British Coffee Association (2022) Coffee consumption, available at: https://britishcoffeeassociation.org/coffee-consumption/ (accessed 30 July 2022)
Mano, A. (2021) Brazil cracks down on coffee firms for alleged tax fraud, available at: https://www.reuters.com/article/us-brazil-coffee-fraud-idUSKBN2B82KU (accessed 01 August 2022)
Shahbandeh, M. (2022) Global coffee production by country, available at: https://www.statista.com/statistics/277137/world-coffee-production-by-leading-countries/ (accessed 01 August 2022)
Waters, L. (2022) New study finds coffee makes people more likely to impulse buy, available at: https://www.standard.co.uk/news/uk/study-coffee-people-impulse-buy-b1007754.html (accessed 01 August 2022)
Author: M Rahman
M Rahman writes extensively online and offline with an emphasis on business management, marketing, and tourism. He is a lecturer in Management and Marketing. He holds an MSc in Tourism & Hospitality from the University of Sunderland. Also, graduated from Leeds Metropolitan University with a BA in Business & Management Studies and completed a DTLLS (Diploma in Teaching in the Life-Long Learning Sector) from London South Bank University.