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Caught in the coffee crossfire

Nicole Lim and Jovi Ho
Nicole Lim and Jovi Ho • 6 min read
Caught in the coffee crossfire
Following the outbreak of the Israel-Hamas war in October 2023, a handful of multinational corporations like Starbucks and McDonald’s have come under fire for their perceived American ties. Photo: Bloomberg
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With inflation remaining sticky at elevated levels, consumers worldwide have adjusted their spending accordingly. But there is one thing they cannot seem to give up — coffee.

A 2023 year-end report on consumer spending in Singapore by United Overseas Bank U11 -

(UOB) found that cardholders spent over $47 million on heartland “kopi” and more premium brews, with close to 4.5 million transactions in total.

UOB cardholders consumed the most coffee in October 2023, all while core inflation averaged 4.2% in 2023, up from 4.1% in 2022.

Even a hot war could not dampen demand for coffee. When Russia invaded Ukraine in February 2022, Food Empire Holdings F03 -

, a Singapore Exchange S68 - -listed coffee and tea manufacturing company, saw its sales take an initial hit.

The group has factories on both sides of the border and is one of the biggest manufacturers and distributors of a coffee mix in the two countries.

Yet, Food Empire’s results for that half of the year saw a 4.8% y-o-y increase in sales while revenue from Ukraine and other former Soviet states surged by 17.2% y-o-y, a sign that the ongoing conflict had no material impact on business. In fact, it appeared to have helped boost sales.

See also: Too much froth? Coffee chains keep entering Singapore despite Flash Coffee's exit

As the war rages on, Food Empire’s share price has steadily increased, gaining some 135% to close at a near-record high of $1.14 last November, valuing the company at $605.3 million.

The world’s seemingly unquenchable thirst for coffee is apparent in its steady growth over decades of consumption. Coffee consumption has almost doubled over the past three decades, while Asia experienced a 6% y-o-y growth in demand for coffee between 1992 and 2017, three times faster than the rest of the world.

Coffee today is grown in more than 70 tropical countries, and ranks as one of the most commonly exported commodities in the world, together with crude oil and other metals.

See also: Swifties made over 23,000 transactions over three-day period for Singapore concert ticket sales: UOB data

In 2021, Finland consumed the most coffee, at 12kg per person annually. In Singapore, that figure stood at 2.6kg of coffee per person annually — one of the highest in Asia.

If current trends continue, global consumption is expected to double to six billion cups of coffee every day by 2050. A study by the Columbia Center on Sustainable Investment suggests 25% more coffee will be needed by 2030.

But climate change, geopolitical conflicts, trade wars and ever-changing consumer preferences mean the coming years can be difficult to predict.

Impact of boycotts

Following the outbreak of the IsraelHamas war in October 2023, a handful of multinational corporations like Starbucks and McDonald’s have come under fire for their perceived American ties.

Consumers, especially those in the Middle East, shun these brands as they believe leaders of the US and Europe are not doing enough to stop Israel’s offensive in Gaza.

McDonald’s Israel, in particular, reportedly donated thousands of free meals to hospitals and troops in the Israel Defence Forces the week after the war broke out.

See also: Brewing success: Food Empire Holdings

The boycotts appear to have hit McDonald’s topline. McDonald’s CEO Chris Kempczinski admitted in a Jan 5 LinkedIn post that “several markets in the Middle East and some outside the region are experiencing a meaningful business impact due to the war and associated misinformation”.

How Starbucks found itself mired in the conflict is a tad more complex. Starbucks sued its union Workers United in October 2023, alleging that a pro-Palestinian social media post from a union account angered customers and damaged its reputation.

Starbucks, which has no stores in Israel, released a statement on Dec 29, 2023, which reads: “Our position remains unchanged. Starbucks stands for humanity. We condemn violence, the loss of innocent life and all hate and weaponised speech. Despite false statements spread through social media, we have no political agenda. We do not use our profits to fund any government or military operations anywhere — and never have.”

In turn, Nasdaq-listed Starbucks saw sales grow at their slowest pace in a year last quarter. In results released on Jan 31 Singapore time, the chain missed earnings estimates for 1QFY2024 ended Dec 31, 2023, while same-store sales at company-operated locations open for more than a year rose 5%, lower than the 6.4% analysts had expected.

Earnings, excluding some items, were 90 US cents ($1.21) a share, while analysts had expected 93 US cents. Net revenue of US$9.4 billion fell short of the US$9.6 billion consensus forecast.

This is not the first time that Starbucks and other multinationals have faced backlash and boycotts, but the boycott over Israel is “completely different”, says Dr Samer Elhajjar, senior lecturer at NUS Business School’s marketing department.

The boycott is humanising the conflict and playing on the emotions of consumers, adds Elhajjar. “With the power of TikTok and activists on social media platforms, I think it went to another level. For consumers, they see what I call the ‘severity of perceived wrong’... I saw once on social media: ‘If you are drinking a coffee from Starbucks, you are killing one Palestinian.’ So, you can see the severity and aggression of the boycott message, which I’m not here to judge if it’s right or wrong.”

While this will “definitely” impact companies in the short term, whether the boycott can sustain its momentum is a “completely different question”, says Elhajjar. “One, we still don’t know how the war is going to end. Two, we don’t know how people will react to marketing campaigns that will be initiated by companies to counter the boycotts. Three, we still don’t know how the public will perceive the message of the conflict over social media in the long run.”

The Russia-Ukraine war, for example, ignited a firestorm of protest when it first broke out, he adds. “People were watching the news 24 [hours a day]. Everyone was on social media advocating, and talking about human rights. After one or two months, the momentum went down. Now, if I ask you what’s happening, most probably you would tell me: ‘I don’t know. Is it still happening?’”

Consumers will also seek out alternative options during the boycott, says Elhajjar. “Now, if I don’t go to Starbucks, I have plenty of options; the switching cost is very low. That’s why I think we have to look at all of these factors to try and understand what is going to happen in the future.” 

Read this week’s main cover story: Too much froth? Coffee chains keep entering Singapore despite Flash Coffee's exit

See also: Spilling the beans on the cost of Brexit

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