Coffee industry history

Coffee has been not only one of the most valuable imports into the United States for a century and a half, but it has also become one of the most valuable industries in the United States. From a very simple commodity chain involving delivering green beans to the end users, coffee became surprisingly complicated and industrialized. Wholesale and retail grocers were the innovators in reshaping the trade. From being simple middlemen as merchants, they increasingly became industrialists, though the revolution was as much one of distribution as of production.

Coffee has had diverse appeals. Sometimes it has been a drug, other times a hospitality drink or a prestige item. It has attracted consumers on three major gradients: taste, price, and convenience. It faced various competitors (tea, alcohol, cereal substitutes, soft drinks), some of which caused coffee manufacturers to produce better coffee and others that caused market segmentation based more on price and convenience than on quality. What is meant by “coffee” has varied considerably over time. Coffee enjoyed some unusual characteristics, starting as a luxury drink and becoming a national necessity, as the federal government recognized during the two world wars. Though coffee was a mass drink, it required a good deal of effort to turn it into a mass produced and marketed product. The U.S. market was unusual, and because of its wealth and great size, it began to shape the world coffee business. Coffee in the United States was consumed mostly in homes, not in cafés as was common in much of Europe. Drunk in the home, it was the housewife who decided what coffee to purchase and serve. Hence, wholesalers and retailers have been oriented much more toward women consumers than men. With the grocery store, not the café, as the site for choosing the product, large roasters and brand names first appeared in the United States.

The United States underwent a revolution when, by the middle of the 19th century, Americans were each drinking more than five pounds of coffee a year, one of the highest amounts in the world. By 1880, the per capita total reached 8.4 pounds, and by the end of the 19th century the United States was consuming 13 pounds per capita and importing more than 40 percent of the world’s coffee. (This would grow to more than 60 percent after World War II.) The U.S. population’s 15-fold explosion in the first century of American independence meant that total coffee imports grew 2,400 percent. Half of the growth in world consumption in the 19th century was due to increased U.S. purchases.

With the Civil War, coffee moved slowly away from being simply a domestic drink and purely a breakfast beverage. War, combined with the growth of major cities such as New York and the spread of industry, led ever more people to drink coffee outside the home, in the field and at hotels and train stations. The Civil War also modernized production and distribution of provisions. For coffee, the timing was good. The Austrian Max Bode had invented the spherical roaster in 1851, which improved control over even oven temperatures. More important for American troops was the pull-out roaster produced by the New Yorker Jabez Burns in 1864, allowing more regular roasting and on a much larger scale. Grocers began to roast coffee for their customers and sometimes grind it. This business seems to have grown rapidly after 1874. It is estimated that there was a 20- fold increase in roasted coffee sold in the 20 years after the outbreak of the Civil War.

The fact that the United States had by far the most developed railroad system in the world helped spread coffee drinking to the country’s interior without making the beverage prohibitively expensive for the working class. The railroad also helped bring down the price of essential staples for consumers, providing greater discretionary income with which to buy former luxuries such as coffee.

The creation of the New York Coffee Exchange in 1882 institutionalized access to information. Prices and grades thereby became more generalized. Middlemen such as importers and jobbers were reduced, while the trade became more industrialized. In 1883, 90 percent of the coffee business was in green coffee sales and only 10 percent was for roasters. By 1913, the numbers were the reverse: 95 percent of the buyers at the exchange represented roasters and only 5 percent green beans.

The first packaged roasted coffee was Osborn’s Celebrated Prepared Java Coffee, which started in 1860. A technological problem, as well as a lack of consumer trust and differences in consumer taste, kept large roasters from quickly dominating the national industry in the way that giant refiners dominated sugar. Although green coffee keeps for years, roasted coffee loses its aroma and taste quickly. Ground roasted coffee dissipates even faster. Consequently, roasters had to have regional distribution sites.

The packaged brand coffee spread after a major technical breakthrough came in 1898, when Edwin Norton invented vacuum packing, which allowed roasted, ground coffee to retain its flavor. This was part of a general revolution in the food industry. In 1903, Hills Brothers was the first coffee company to commercially adopt vacuum packing, though it was not yet perfected. The notion of an impersonal, distant brand was still not accepted by most housewives at the beginning of the 20th century. Distribution channels were still locally based, and most shoppers had personal relationships with their grocers, who offered them credit and premiums but not much choice.

The ability to preserve roasted coffee in vacuum packages and the creation of grocery CHAIN STORES allowed emerging national brands to occupy an ever larger place in the trade in the United States. The GREAT ATLANTIC & PACIFIC grocery chain, which began by selling tea and coffee, went the furthest in vertical integration. A & P was providing fully 15 percent of all coffee purchased in the United States by World War I and was the fifth-largest industrial corporation in the United States.

Controversies over purity in coffee as well as in other foods threatened to retard the expansion of the packing and distribution industries. The same crusade that would bring Prohibition in 1919 brought in 1907 the United States Pure Food and Drug Act. It decreed that imported coffee be marked according to its port of exit and be free of additives. Decaffeinated coffee was invented in Germany at the turn of the century as an outgrowth of the pure food campaign. The decaffeinated coffee companies such as Koffee Hag and the cereal-based substitutes such as Postum challenged traditional coffee. There was a continued advance of consumption from 8.4 pounds per capita in 1880 to 18.4 pounds in 1949, the high mark in U.S. history. A new coffee product, instant soluble coffee, also stimulated consumption.

The expansion was largely due to a Swiss company, Nestlé, which started marketing Nescafé in 1938 and quickly dominated the market. By the 1960s, as much as one-third of homeprepared coffee was soluble. Unfortunately, the convenience of instant coffee undermined the quality of the brew. Instant coffee mostly employed robusta coffee, a faster growing but more bitter species than the arabica. The growth of the coffee market continued in the 20th century because of the rise of supermarkets in the 1930s, which led to a great increase in advertising. Selling a vastly larger number of goods, the supermarket depended upon small margins but large volume. Ever more coffee companies competed on price rather than the quality of their blend and relied ever more on advertising.

As supermarkets began covering the country, General Foods (evolving from Postum) and Standard Brands (which had been Royal and Fleischmann Companies as well as Chase and Sanborn) created enormous food CONGLOMERATES. Success in the postwar mass food processing industries depended upon market power, that is, capital and access to supermarket shelves. Giant food conglomerates such as General Foods, COCA-COLA, and Ralston Purina bought up smaller successful coffee companies. They sold nationally with little attention to regional preferences. A result of the growth of conglomerates and supermarkets was that a small number of roasters dominated that trade. By the 1950s, the five largest roasters in the United States roasted more than one-third of all coffee and held 78 percent of all stocks. By the 1990s, three companies were responsible for 80 percent of the U.S. coffee market—General Foods, Proctor and Gamble, and Nestlé—and dominated much of the international market as well. Nestlé alone bought 10 percent of the world’s coffee crop annually. They used market power and advertising to dominate the coffee market. By 1996, two enormous companies, Phillip Morris ($135 million) and Procter and Gamble ($95 million), spent twothirds of the America’s $354 million coffee advertising budget.

As the leading brands merged into some of the largest companies in the world, they became overshadowed by more global corporate strategies. The parent companies are not coffee concerns. Phillip Morris owns Kraft Foods, which bought General Foods. It owns Maxwell House, Sanka, Brim, Yuban, and General Foods’ International Coffee brands. Phillip Morris owns not only several competing coffee brands, but also coffee substitute brands such as Sanka and competing convenience drinks such as Kool-Aid, Capri Sun, and Crystal Light.

These companies have also expanded internationally. In 1978, the four firms’ concentration ratio for the eight largest markets was 59 percent for roasted coffee and 75 percent in soluble coffee (almost all of which was produced by Nestlé and General Foods). Since then concentration has grown. However, consumption in the United States has fallen sharply from its high in 1949 (in pounds per capita) or in the early 1960s when the measure was changed to cups of coffee a day. Per capita coffee consumption in the United States was down from its peak of 3.2 cups per day in the 1960s to less than 2 cups in 1996.

There is a countertrend as well in the growing gourmet market. Joined with the fair trade movement, coffee houses emphasize high-quality, high-priced brews with some concern about the environmental impact of production techniques and the treatment of laborers. Specialty coffeepots and espresso makers are a booming market, but they entail less than a quarter of the total market. In fact, despite popular perceptions that coffee consumption is rapidly expanding and the quality is improving, the United States is one of the few areas in the world where per capita consumption is not growing. The result of this change is that while the United States is still in gross terms the world’s largest coffee consumer, its share of imports has fallen dramatically. After World War I the United States imported almost two-thirds of the world’s coffee and in 1961 still half. By 1993, the total had fallen to less than 20 percent. Americans still consume the most caffeine, but now it is in the form of soft drinks.

Further reading

• Dicum, Gregory, and Nina Luttinger. The Coffee Book: Anatomy of an Industry from Crop to the Last Drop. New York: New Press, 1999. 
• Pendergrast, Mark. Uncommon Grounds. New York: Basic Books, 1999. 

Steven Topik