Brewing success in the coffee market

Who doesn’t love the smell of freshly brewed coffee in the morning? Coffee is an essential part of the morning routine for many millions of people worldwide.

With over 437 million posts on TikTok related to coffee, it’s no surprise that coffee demand has been soaring over the last couple of years. According to the National Coffee Association, 67% of Americans consumed a cup of coffee every day; this is more than any other beverage of choice. Much of the growth is driven by younger generations who have embraced coffee as part of their daily routines. As these generations enter the workforce – specifically Gen Zers – they are estimated to hold USD360 billion of disposable income and coffee companies around the world have been harnessing their spending power. Some of the key elements that differentiate the winners and losers in the coffee market is product innovation, creativity and connecting with consumers.

Both Europe and North America are big consumers of coffee – in fact, Finland is the country that consumes the most coffee globally. The average Finn consumes about 12 kg of coffee per year, which is the equivalent of 4 cups of coffee a day. In the United States, the average American consumes about 4.2 kg of coffee per year. Global coffee production in 2023 reached a staggering 178 million 60 kg bags. These production volumes cumulate to USD473 billion.

De’Longhi

One of Global Alpha’s holdings, De’Longhi S.p.A. (DLG MI), is significantly benefiting from the latest growth in the coffee market. A well-known Italian manufacturer and distributor of small domestic appliances, De’Longhi primarily sells all kinds of coffee machines for personal use. In addition to capitalizing on the at-home coffee market generating over 50% of their revenue from this segment, De’Longhi recently acquired two additional companies that specialize in the professional markets: La Marzocco and Eversys. This will allow the company to also benefit from coffee consumption outside of the home too.

The company saw an acceleration in sales in 2024, with organic revenue growth up 14% versus the previous year. The mid-teen growth in sales was mostly driven by at-home coffee machines. Its professional segment will be an interesting growth driver for many years ahead.

To maintain a competitive edge, the company has a strong track record of fostering innovation and driving new product development. De’Longhi spends 2.4% on average* of sales on R&D annually. This commitment not only enhances De’Longhi’s market position, but it also enables it to respond effectively to evolving customer needs and industry trends. The most recent example would be the launch of its Rivelia automatic coffee machine which features a cold coffee extraction feature to cater to the growing popularity of cold coffee beverages. As the company navigates the continuously changing landscape of the industry, its dedication to product innovation will undoubtedly lead to sustained growth and solidify its position as a leader in the market.

*Geoffrey D’Halluin, “What’s brewing?’’, BNP Paribas, 19 September 2024.