2024 has been a turbulent year for coffee so far amid concerns about supplies and pricing.
Figures from GlobalData, Just Drinks’ parent, showed a hike in coffee future prices in March and April. While typically cheap Robusta beans were valued at around $3,700 per tonne, premium Arabica beans came in $2.10 per pound, the highest price seen for the bean in more than a year and a half.
Go deeper with GlobalData
The surge in prices followed a mixture of long heatwaves and intense rainfall that disrupted supplies in Brazil and Vietnam – two of the most important coffee-growing regions worldwide.
GlobalData suggests prices stablised in June but are still “at still-high levels”. It says the supply of Arabica beans is in “surplus”, although “another Robusta deficit” looks likely.
As questions mount about the impact the climate crisis is likely to have on coffee, a clutch of start-ups developing alternatives to the conventional bean have entered the limelight, including US-based Atomo and Minus, Singaporean Prefer and the Dutch group Northern Wonder.
Their products are principally sold online in their domestic markets (Northern Wonder also ships globally) and via the on-trade, though Minus, Atomo and Northern Wonder are also sold in retail, through independent stores and a small number of supermarkets.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataThey make their coffee alternatives from a mixture of upcycled ingredients, such as chicory, dates, barley, and legumes. The caffeine for their beanless coffee is sourced in different ways. For example, Atomo and Minus both use caffeine sourced from tea leaves, while Northern Wonder’s caffeine is synthetically sourced.
To combine their ingredients, Minus and Prefer use fermentation, while Atomo uses a patented technology based on the Maillard reaction (a chemical process between amino acids that gives browned foods a distinctive taste). Northern Wonder has two patents pending for its process, which focuses on fermenting, blending, and roasting non-tropical plants.
Though the market size is minute, investor interest is growing. Prefer bagged $2m in seed funding in February, while large drinks producers are also starting to take a stake in the sector, with Atomo receiving a cash injection from Suntory Holdings in December 2023. The Seattle-based group has raised $53.2m to date.
On paper, alt-coffee provides a solution to the challenges large coffee producers face, but questions remain around how open the coffee industry is to change, whether this new alternative could get to a big enough scale and, ultimately, the extent to which consumers will switch away from their favourite brews.
Investor interest
Better Bite Ventures, an investor in early-stage climate and agri-food start-ups in the Asia-Pacific, backed Prefer earlier this year. For Michal Klar, Better Bite Ventures’ funding partner, bean-free coffee is an important investment as climate change is likely to force coffee companies to adapt.
“Coffee is one of the foods with the highest carbon footprint per kg and water footprint (single cut of coffee = 140 litres of water). At the same time, coffee as a crop is threatened by climate change,” Klar tells Just Drinks. “We believe food companies sourcing and selling coffee will be looking for more stable supply [chains], with more predictable prices. Bean-less coffee might meet that need.”
Beanless coffee start-ups are also generating more investor interest today due to their novelty. “It’s a new tech innovation. We don’t get a ton of tech innovations in beverages all the time, certainly not on the brand and product front,” Jim Watson, executive director of beverages research at Rabobank, says.
According to Watson, investment is likely to come from the supporters of meat alternatives. “Anybody who invested early in the Beyond Meat category, [in] plant-based meat, probably is looking for other places where somebody else can steal that kind of market share, even though I know those categories have stalled out but they still gain[ed] real market share”, he said. “I think once you have a playbook, you’re looking for other places that you can use that playbook.”
While unable to disclose the companies with which Atomo is in talks, CEO Andy Kleitsch, says: “We’ve…either met with, talked with or provided samples to the largest coffee companies in Japan, Italy, Germany, UK, Netherlands … there’s been a groundswell of interest in what we’re doing because of the known supply chain issues that coffee is going to be facing over the next 30 years.”
Path to collaboration
As with many producers of “alternatives” in food and drink, the long-term goal for some beanless coffee makers can be to work with larger companies to bring their products to a wider market.
Jake Berber, founder of Prefer, says the group intends to “provide the biggest food and beverage companies in the world with more affordable ingredients so that they can continue to make margins while selling a product that the mass market can enjoy”. He adds: “That’s the world that I fear will not exist without what we do at Prefer.”
Maricel Saenz, founder of Minus has a similar view. “We believe that we can be allies to coffee companies that are going to be struggling on the supply side of things, to access some of their existing production farms, where we can become an alternative in that piece. That’s where I see collaboration with larger manufacturers is a key piece of our strategy.”
What we’re finding is that the taste is so similar, that consumers are not a barrier right now
Atomo CEO Andy Kleitsch
As these start-ups build a plan to establish partnerships with leading coffee players, many see their next challenge not to be proving consumers will like their products, but more whether their businesses can generate large volumes.
Minus, Prefer and Atomo say they have all received overwhelmingly positive consumer feedback. “What we’re finding is that the taste is so similar, that consumers are not a barrier right now,” Atomo’s Kleitsch says.
For Prefer, having entered the market through cafes, bars and restaurants in Singapore, its next aim is to establish distribution deals with larger on-trade locations. Earlier this year, the group secured a recurring deal with Google for its corporate pantries in Singapore.
It is also looking to establish similar agreements with large-scale hotels to boost the quantities sold. Berber says: “For some of the best hotels to use our coffee in Singapore would not only be great brand trust, but also big volumes. That’s where we want to get to next. Then, the next ladder beyond that would be your FMCGs. Hopefully, by going up that ladder we get enough de-risking for them where it’s just a no-brainer.”
Gatekeeper approval
While alt-coffee is securing plenty of investment, a significant hurdle is getting major coffee producers to commit to adding their products to their coffee ranges. As Kleitsch says: “It’s really about the coffee industry now kind of coming to grips with this new innovation and really understanding how are they going to incorporate it into their product roadmap?”
Getting the likes of Lavazza or Nestlé to take on a new coffee innovation could be easier said than done, given the huge attachment coffee has to where it’s been sourced.
“Coffee, like wine, has an origin story, what country it’s from… what type of coffee bean and how it was processed. But just knowing that the origin is a huge part of what makes coffee coffee,” Rabobank’s Watson says.
The people who generally push back the most were perhaps the ones closest to farmers
Jim Watson, Rabobank
Without naming specific companies in the industry, Watson said the number of negative responses he had received to bean-free coffee outweighed the positive. “The people who generally push back the most were perhaps the ones closest to farmers”, he said. “They took it as kind of a direct attack… I think the other people who push back were ones who just love the story of coffee, the romance of it, the beautiful beans with different terroirs from different regions.”
Explaining the risks that larger companies could see in adopting beanless coffee into their portfolio, Watson says: “The moment [as a] really big coffee player, you put out this coffee, are you saying something bad about the rest of your coffee?”
He suggests opinion could shift once larger coffee companies start investing in the start-ups. “I think early on, you’re not looking to boost this this competitive area unless you really think you have to. That’s the growth that makes you think: ‘Okay, I have to because I’m afraid my other coffee competitors are going to snatch up the best player in the space.’”
With the industry still hesitant, Watson believes alt-coffee could see the most success first by working with the on and off-trade. “Some of the big gatekeepers in the industry will be buyers for big retail chains, or a big cafe group… if, in order to meet their own sustainability goals, a big grocery store chain decides that this has a much better offering than coffee, then that’s a big deal, so I think a lot of the battle may play out on that front.”
Picking the right product
To entice companies, alt-coffee producers have had to prove their products perform in multiple formats.
Minus has two RTD coffee varieties as well as a cold brew concentrate, while Prefer is experimenting with caffeinated and decaffeinated ground products and RTDs.
For Berber at Prefer, RTDs make it easier to provide consumers with the coffee-drinking experience they want. “I think that what we’ve learned from selling coffee grounds to cafés, for example, is every barista is different, every coffee machine is different. It means the end result is different, so we get more of a mixed bag. But with the RTD, we love it because we can really control what that end experience is”.
For Better Bite Ventures’ Klar, Prefer’s preference for RTD also suits its target market in Singapore. “Most coffee, especially in Asia, is consumed iced, lightly sweetened and with milk (often plant milk) – [a] beanless variety works well in that configuration,” he says.
Watson at Rabobank also sees RTDs as a good format for alt-coffee in its early days, given they are “far more divorced from the coffee bean and where it comes from and the heritage of it”.
While Atomo made RTDs in the past, Kleitsch says the group is now prioritising other formats as it scales. “To make money in RTD, it takes volume. At the scale that we’re at right now, there are other product categories that have higher margins. [It] would be an easier approach for us to establish a business and to establish revenue in these other channels where there are more margin opportunities… Then, when we achieve the scale necessary, we can enter into RTD in a profitable way.”
Atomo makes 100% caffeinated and decaf beanless ground coffees designed for espresso under its namesake label. It also produces hybrid medium and dark roast ground coffee for drip machines, made with 50% Atomo beanless grounds and 50% ground Arabica beans. The product is designed to appeal more to mass producers, says Kleitsch. “Rather than trying to say Atomo is good, commercial coffee is bad, if we can just partner with them and say, together, we can actually create a more sustainable coffee, that would be a winning approach to building friends in the coffee industry, and actually helping create a new solution together”.
A hybrid product in Watson’s view makes the product “less startling” for consumers, too. When asked whether he thought the product would be more attractive to a larger company, he said: “Certainly, if a big coffee brand owner took a stake or had a licensing deal with them, then I would see that as a logical first step.”
Important markets
Predicting where beanless coffee will succeed is tricky when the segment is still so small. For Saenz at Minus, it will depend on consumer tastes. “If you look at how the Asian community enjoys their coffee, it’s a different flavour profile and a different format than the one that is enjoyed in Italy than the ones enjoyed in Germany and the ones in the US,” she says.
She also acknowledges that market growth is tied to “where some of those supply chain pressures will be felt first, which we can’t tell just now”.
When it comes to price, most producers in alt-coffee are some distance from hitting parity with the coffee giants. Atomo’s ground products for instance are on par with specialty coffee, meaning that, for now, they can only succeed in a limited number of markets. “To come in at that [price] point, you’re looking at markets that have big specialty [segments], and you’re going to be mostly, [the] US, western Europe, Japan… maybe in South East Asia,” Watson says.
Another important factor will also be attracting consumers that accept an alternative to coffee that has been produced in a very unconventional way. “You’re going to have to find a culture that really likes technology, because you have two opposite sides: you have something that represents the earth and the labour of a farmer, versus… something that represents somebody in a lab making a cool new discovery,” Watson says.
Waiting game
Beanless coffee makers are determined to deliver positive changes through tie-ups with major companies but it may be a while before the idea is received with open arms.
Suntory Holdings, which made its investment in Atomo in 2023, has been supportive of the idea of beanless coffee but is not willing to commit to a partnership just yet. Speaking to Just Drinks, Mikio Aoki, Suntory Holdings’ senior general manager of future business development, says the investment sits alongside the group’s “strategy to encourage innovation in the beverage industry and provide a sustainable and enjoyable coffee experience” but adds: “We have not yet decided how we will be involved and will continue to closely monitor the future of the beanless coffee industry.”
According to Watson at Rabobank, it could “be fairly slow adoption from big roasters to add something [into]” their portfolios, especially “because of what it would take to perform a licensing deal”.
He adds: “I have a feeling they’ll be waiting and watching the industry, and it would need to grow really solidly for another five years before we saw significant moves.”
Just like any good brew, beanless coffee’s future development will take time.
