Russian coffee lovers brace for tough times
Image: Pexels/Olof Nyman
Ruble’s crash, coupled with the continuing logistics nightmare, keeps fueling the upward price rally in the Russian coffee market. Like three decades ago, in the first years after the Soviet Union collapse, premium coffee became a luxury for the lion’s share of the Russian population.
In 2022, the Russian coffee market experienced a price shock, as the average price per cup jumped by 27% to 36%, the Russian issue of Forbes reported, citing local analysts. Although the price had steadily grown since 2019, last year’s hike was outstanding.
Russia consumes 1.5kg of coffee per capita, importing around 230,000 tonnes of coffee beans per year, estimated Marina Petrova, CEO of Petrova Five Consulting, a Moscow-based think tank.
Over the past several years, the consumption growth has been secured by multiple coffee-to-go chains, said Albina Koryagina, partner with a Moscow-based consultancy NEO-Center. These companies put a lot of effort into waking up the market – working on the brink of profitability for years – and eventually succeeded, introducing a coffee-to-go culture to large masses of the Russian population, she explained.
As a result, coffee has become a vital product for Russians, historically perceived as tea lovers, Koryagina said. For ordinary citizens, the price of coffee is an essential indicator of food inflation and the general state of play in the country’s economy. The Russian federal statistical service Rosstat calculates the monthly food inflation ratio valuing the coffee as high as gasoline, sausages and hot water supply.
Almost half of the coffee beans imported to Russia come from Vietnam, and nearly a quarter from Brazil. Both countries have not joined Western sanctions against the Russian economy, but imports suffered nonetheless.
Price matters
As Russia does not grow coffee, the price dynamics on the market are usually tightly linked to the Russian ruble’s exchange rate. In 2022, however, the correlation between these trends surprisingly disappeared, and they even went in the opposite direction. Between February and June 2022, the Russian ruble strengthened from 84 to USD $1.00 to 58 to USD $1.00, while coffee prices skyrocketed.
To some extent, this was associated with a hike in global prices, said Ramaz Chanturia, head of the Russian tea and coffee association Roschaicoffee. Low coffee harvests in Vietnam, Brazil and Indonesia contributed to this trend, he added.
A logistics crunch was another, likely much more important factor. Before 2022, almost all coffee was imported to Russia from Europe. Last year, the sanctions blocked this route, forcing importers to seek alternative supply schemes. Some options were found, but they reportedly appeared to be way more expensive, especially since leading global cargo carriers suspended working with Russia, and almost the entire country’s banking system is disconnected from the SWIFT network.
This year, imports are sustaining new blows. The Russian ruble has weakened by 26% this year as a result of a collapse in export revenues and growing budget spending, making it the third worst-performing global currency this year. During the last 12 months, the Russian ruble lost nearly half its value against the hard currency, notching a psychological barrier of 100 per USD.
As a result, in the next few months, Russian analysts anticipate a new price jump of around 20% to 25%.
Coffee changes taste
In this background, Russian retailers and coffee chains have to seek cost-saving solutions in order to keep their prices as low as possible.
Petrova said that the Russian coffee market is undergoing some big changes. She said that even Russian retailers like Azbuka Vkusa, normally focused on selling premium food, started selling blends with a 50% to 80% share of robusta, while in the previous year, this figure was never higher than 20%. There are also signs that Russian importers have abandoned arabica owing to low demand.
“Distributors’ stocks of high-quality raw materials are running out, and consumers will soon experience changes in the taste of their usual coffee-based drinks,” Petrova said.
The daily morning cup of quality coffee may well become an unattainable dream for a large portion of the Russian population in the near future, admitted Nikolay Vavilov, senior analyst of Total Research, a Moscow-based think tank.
In addition, a mass exodus of Western brands from Russia continues. Recently. JDE Peet’s announced plans to remove its tea and coffee brands: Jacobs, L’Or, Tassimo, Douwe Egberts, Pickwick and Senseo from the country.
The worst part is that all the negative trends hurting the Russian coffee market seem only to gain steam. Alexander Miller, a Russian independent economist, assumed that the Russian ruble could plummet to 130 by the end of the year, owing to an overall gloomy economic outlook. At the same time, Russian logistics companies complained that the external conditions remain harsh for their business, and they must be increasingly creative to keep the imports running.
It is yet to be seen whether the current crisis will lower the Russian coffee consumption figures, but this scenario also should not be ruled out.
- Vladislav Vorotnikov is a Batumi, Georgia-based multimedia B2B freelance journalist writing about the tea and coffee industry since 2012.
Interesting perspective! It’s insightful to learn about how Russian coffee lovers are preparing for challenging times. Thanks for sharing this unique angle on the impact of current events on coffee consumption!