Is the tide is pulling back on 3rd Wave

I’m a speciality coffee barista, enthusiast and I thank The Pioneers who built the Third Wave coffee movement. Such proponents as Intelligentsia in Seattle and St ALi in Melbourne created direct-trade coffee (ever increasing returns on quality paying “at least 25% more” than Fair-trade) for the first time back in around 2004 when coffee farms were at one stage receiving 42 cents per pound.

Through education of both the end consumer and the farmer the bounty and glory we enjoy today was created. Fuelled by passion and vertical integration of the supply chain for the first time Third Wave coffee plagued the earth like a zombie virus of passion and tastiness.

The third-wavers created the market, often roasting on 1 kilogram roasters and roasting small batches of estate coffees that were so rare they only appeared and disappeared like a vapour. The huge success of this early entrants in to the Melbourne, Sydney and now global markets created an unquenchable thirst for growth and the inevitable competition.

I could give a business lesson in maturing markets and how economics of growth, supply and demand work (I am first of all a businessman and then a passionate coffee enthusiast after-all) however suffice to say…

The success of the early pioneers of the Third Wave movement created an overwhelming surge in competition.

Now we have far too many cafes (see my earlier post here) and I predict 30-50% of them will close in the next 2 years, especially those not selling restaurant priced meals.

While we created Third-wave and enjoyed and imbibed in the quality – better for everyone – we did not add many more customers to the market. The fact is (and this is probably another blog post) Second-wavers like Starbucks and Gloria Jean, and Coffee Club are the ones recruiting and discipling and conditioning the average Australian (and American) to drink specialty.

Australian coffee consumption is 75% instant coffee and we rank 42 in the world for only drinking 3 kilograms per year per person which is quite low – The Article, SMH

The fascinating development (excuse the pun) is that Third-wave pioneers like Veneziano and St ALi and Di Bella and others are acting more Second-Wave again.

  • They are roasting darker (more soluble) moving back towards a traditional Italian profile and away from single origins only in blends.
  • They are expanding into International and Interstate Markets to maintain declining market share due to new entrants, rather than focusing locally.
  • They are diluting their distribution to include the sale of Pods for Nespresso type machines and a plethora of other products
  • Many are being acquired by massive multinational corporations and FMCGs rapidly.
    • Veneziano acquired by Minor DKL (Malaysia) is now supplying ALDi, Coffee Club and is said to be roasting a massive 40,000 kilograms per week.
    • There are rumours of a Malaysian buy-in of another prominent roaster. Di Bella sold recently for $47million to a FMCG retail umbrella company.
    • There are many more in the States.

While all these decisions are good for business, and are adding value in their own way, they are moving away – miles away – from the pioneering values of traceable micro lots, intimate education of the end user, a  hands-on small business approach to growth and passionately discipling a new generation of coffee drinkers all the while feeding value back up the supply chain. It seems Third-Wave is becoming more Second Wave again. Which may not be a bad thing!

Larger companies are able to recruit and train a new generation of coffee drinkers with larger bank accounts and promotion opportunities. Asian countries looking on to Australia, NZ and the US can start to enjoy direct-trade-like coffees and quality and the consumer can access specialty at more places. The problem for me however is when we lose sight of the relationship side of Third Wave; the consumer journey. For example in 2010 a “single origin” briefly appeared on the blackboard as a special limited edition treat that was actually rare, scarce and amazing, now “specials” are on a rotating menu of tonnes of coffee that appears more for marketing reasons that the original purpose of transparency and education.

Fourth-wave coffee, built on the platform of the original Third-wave, is a scientific, objective and engineering approach to coffee that ultimately adds value to the cup.

Baristas and entrepreneurs alike coming out of Third-wave have built for themselves a new Forth tier you could say to the specialty coffee evolution. This tier values extraction, evenness and efficiency. It sits atop of the third-wave and is similar in some ways to the maturing of the traditional Italian roasters such as Ily who have continued to pioneer and change the way they buy and roast coffee – Andrea Ily and his father inventing nitrogen packed coffee for infinite storage of freshness and scanning every single beans with light to find defects! It’s all getting a bit neat and cost and the tides are combining! Example of fourth-wave science and efficiency tier atop of third-wave passion and education:

  • 2013 Matt Perger with his EK-43 at the WB competition
  • 2008 Vision Systems with their VST baskets and refractometry
  • Uebermilk with their efficient automated milk frothers
  • Super-automatic espresso machines coming soon according to Barista Hustle
  • Promised Land Coffee with it’s filter delivery combining much of the above science.

Undoubtedly the specialty coffee experiment is still growing. I feel the fifth wave (heaven forbid another wave!) will be about automation as discussed late in this episode of PodcastCA.

Similarly traditional second-wavers like Lavazza and Starbucks are now very much considered specialty and are operating as such.

So specialty coffee has matured. Early entrants and pioneers are now larger companies fighting to maintain and grow their marketshare. New entrants are doing things differently like my Promised Land Coffee – heaven forbid a Top 10 cafe could serve coffee that was brewed and delivered from 3km away! Such as Matt Holden review of Square and Compass serving batch brew from my Promised Land Coffee.

Further reading Jim Hoffman has written a lot on this subject and here is a podcast where Geoff Watts and others are speaking on similar trends in the overall market in Australia and overseas.

In conclusion I’m excited to see second and third and forth and fifth waves grow together in parallel and look forward to more exciting times ahead.


Discussion:

Can large-scale roasters offer the same quality as small-batch thirdwavers? Is largescale possible in thirdwave, forthwave?

Taken from the Barista Hustle, “Large scale roasters need a consistent product in gargantuan volumes. To keep some semblance of consistency, they buy a constant stream of many coffees and blend them together to mitigate change. Seasonality is less of a concern because there are enough coffees and flexibility in the blend to buffer any seasonal changes in flavour. The downside of this method is the lack of transparency and character displayed by the blend components. To be honest, in a blend of 8 components, it really doesn’t matter how floral that Yirgacheffe is”

Discuss.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s