European Coffee Giant Targets Starbucks, Peet’s in U.S. Foray

© Bloomberg. BERLIN, GERMANY - JANUARY 08: Pedestrians pass by a Tchibo coffee shop on January 8, 2018 in Berlin, Germany. According to government statisticians, nominal revenue grew compared to the previous year and growing online sales have enabled German retailers to achieve record growth in 2017. (Photo by Michele Tantussi/Getty Images)

(Bloomberg) -- Tchibo, one of Europe’s biggest coffee purveyors, is betting that more than 70 years of industry experience will help it take on the likes of Starbucks Corp (NASDAQ:SBUX). and Peet’s Coffee in its first U.S. foray.

The Hamburg-based company is introducing its roast and ground coffees to the U.S. in the coming weeks in the latest initiative by Chief Executive Officer Thomas Linemayr, whose previous experience in the U.S. included overseeing Lindt & Sprungli AG’s American division. Tchibo coffee is already sold across Europe and its CEO now aims to woo U.S. coffee aficionados.

“We will cater toward more affluent, younger consumers and coffee connoisseurs,” Linemayr, 59, said in a phone interview from New York. “We want to establish our company as a quality leader.”

Tchibo’s coffee will be distributed by Rainmaker Food Solutions and will be available at a broad selection of retailers in the Midwest markets of Illinois, Indiana, Iowa, Ohio, Michigan, Minnesota, Missouri and Wisconsin. The products include roast & ground, and whole bean -- two categories boosted by lockdowns -- and a coffee machine with grinding capacity will also be offered.

Tchibo, founded in 1949, has annual sales of “just under” $4 billion, with coffee comprising about half of that, Linemayr said. The company has coffee farms in Brazil and Tanzania, and has more than 1,000 retail stores, where it sells home appliances including coffee machines. The company aims to compete against the big U.S. national retailers and, to some extent, Starbucks and Peet’s, Linemayr said.

Tchibo is entering a roast-and-ground coffee market that generated about $4 billion in sales last year in the U.S., according to James Watson, a market analyst for Rabobank in New York. That market is experiencing a push toward a more refined product.

“There is significant premiumization occurring, which we think is due to consumers moving from coffee shops to grocery,” Watson said in an interview. “Companies that are gaining market are the largest and most premium.”

Coffee grinder sales and coffee subscription services are also growing in a period when the Covid-19 pandemic has changed consumer behaviors -- implying that consumers are building new infrastructure to support at-home consumption, Watson said. The shift may not last, though, once consumers feel more comfortable returning to coffee shops.

Premium Opportunity

“Americans are drinking far less coffee at the office than they once did, and a large portion of that is shifting instead to roast & ground in an at-home setting,” said Matthew Barry, the Chicago-based beverage consultant for market researcher Euromonitor International. “There is opportunity in more premium coffee designed for at-home consumption.”

As consumers spend more time at home and save money by not going out for coffee, Barry said there’s good reason to think that a significant amount of drinkers will look to splurge more on coffee than they did before Covid as long as the pandemic is around.

Tchibo will face competition from Illycafe SpA, the European roaster that sells premium products and has been expanding in the U.S. Covid-19 has been blow for the company’s sales, 60% of which comes from restaurants, cafes, airlines and transportation, chairman Andrea Illy told Bloomberg TV earlier this month. The Trieste, Italy-based company responded by boosting its focus on at-home consumption and e-commerce, helping counter some lost sales.

Linemayr is tapping into his U.S. experience to help Tchibo gain an American foothold. He had gained success when heading Lindt & Sprungli’s U.S. business from 1999 to 2016, helping the chocolatier rise to the No. 3 brand in the country based on sales.

“We tried to understand the consumer and carefully built the brand -- it was quite a ride,” he said. “What I learned is that you must really forget what made you successful in Europe -- you need to learn how to conduct business in America.”

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