Sunday Brunch: premiumisation as a sustainability strategy?

Your premium brand had better be delivering something special, or it's not going to get the business.- Warren Buffett

Can a premium coffee brand help the farmers ?

People who know me know that I love coffee. But, we have to accept that as an industry, it has some sustainability issues. One is climate change, which could impact where good coffee can be grown. The other is poverty among the coffee growers. Don't think that the price of your cup of coffee in New York or London reflects what the farmers get paid. For this second aspect to change, we need to rebuild how industry profits are split. or in finance speak - we need to change the value chain.

One question I have been pondering is - could creating local/regional premium coffee brands help the industry with it's sustainability issues? And could this act as a template for other agricultural/natural capital challenges?

Our view - A vast industry exists that takes agricultural products and turns them into food and beverages. Many of these are commoditised - with limited differentiation. And in many other cases the branding value is held by the end retailer or the processor. As a result, the farmer or grower often only sees a small percentage of the final retail price. And this can make it difficult for them to raise the capital they need to invest in more sustainable production methods, higher yields, or to improve the quality of their production. Which in turn creates a negative feedback loop.

Premiumisation can be part of the solution - creating a product that can be sold at a higher price, with the farmer capturing a higher share. But as Warren Buffet says, to be premium the product needs to offer something special.

One crop that seems to offer potential in this regard is coffee. Premium coffee, grown in specific regions, is very different from the mass market product. Could this be part of the solution to improving the livelihoods of the farmers? If this is an idea you would like to explore further - get in touch and we can introduce you to some experts.

Can we create coffee premium brands to help the farmers?

We all know about the pricing power of premium brands. How customers pay up for everything from luxury handbags, through alcoholic beverages such as cognac, scotch and champagne, to premium foods such as Parma ham, truffles, and wagyu beef. Having spent many years analysing what makes a premium brand truly valuable, I wanted to explore how premiumisation could potentially work in coffee.

At a high level, it looks encouraging. As a lover of good coffee, I know that the best coffee from specific regions has very distinctive characteristics. It's materially better than mainstream coffee. This gets us over the first hurdle, what we could call the Warren Buffet test. Does it deliver something special? Yes it can.

Before digging down a bit more, it's important to be honest. Creating a premium coffee brand will not, on it's own, solve the problems. And, it would not be easy. But, when taken together with all of the other actions being taken by industry groups, it will positively contribute. As always, there is not a simple single silver bullet.