Your Caffeine Addiction is Destroying the Environment

Welcome back to The Innovation Armory! Today’s piece is on a hot [ or cold :) ] emerging area of the green food substitute industry: COFFEE. I interview Andy Kleitsch, CEO of Atomo Coffee, a developer of molecular coffee made without use of coffee beans. I am a certified coffee addict and before my chat with Andy, I did not realize both a) how bad the traditional coffee supply chain is for the environment and b) how strained our legacy coffee supply chains are from the impacts of global warming. I also outline the future link between your morning coffee and personalized medicine achievable once we lift the natural constraints of current coffee production methods.

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It has become mainstream for consumers to acknowledge the significant carbon footprint of beef and dairy products. This has driven much of the investment into plant-based and lab-grown meat businesses such as Beyond Meat, Impossible Foods and Mosa Meat as well as into milk substitutes such as Oatly which recently went public. There is substantial investor interest in the space as the world’s consumers become increasingly environmentally conscious. The capital flowing to the space is betting that we are reaching an inflection point where it will become table stakes for consumer brands to differentiate through a green focus in order to appeal to millennial and Gen Z consumers. From 2019-2020, capital allocations into the space have nearly tripled:

However, much of the initial investment has been concentrated in the protein space, particularly on beef, dairy, poultry and fish. These categories contribute particularly high emissions, so the initial focus there is understandable from both a social impact and demand generation perspective. However, I believe numerous other consumer categories have been under-allocated on a relative basis vs. their carbon footprint per Kg of product consumed / shipped. Coffee substitutes are one category in particular with regular, high volume and ritualistic consumption that has seen relatively less investment. However, Coffee is approximately #6 on the list of top 10 highest greenhouse gas emitting food groups per kilogram. Coffee’s production process emits 17 Kg of CO2 equivalents per Kg of coffee product including from the farming, harvesting, land use, transportation, processing and distribution of coffee. Note this study was done based on data across 38,700 commercially viable farms across 119 countries.

There are about 2 billion cups of coffee consumed each day across the globe. Plus coffee is highly popular in many rural / less documented communities so the number is likely much higher. Here’s some quick math that gets us to greenhouse gas emissions per year from coffee consumption:

In 2016, we emitted ~50 billion metric tons of CO2 globally. If we convert the Kg equivalents into metric tons we get 2.8 billion metric tons of CO2, which means coffee touches nearly 5% of global CO2 emissions whether it be the production, distribution, processing, transport, packaging or retail of coffee. According to Our World in Data, a majority of that relates to the production process including tied to farming practices and land use change related to coffee. These impacts are exclusive to coffee. The remaining processing (energy use), transport, retail and packaging components are not necessarily unique to coffee, but some of those emissions crossover with the production, transportation and processing of other CPG and agricultural goods. What remains clear though is that relative to other CPG and food categories, coffee is a big contributor to emissions. And its consumption is rising: in the US in 2020, its consumption grew by nearly 5% and demand is increasing specifically for exotic coffees from farms in emerging markets which only increases the footprint further through a) greater transportation costs and b) lower agricultural process technology sophistication in these parts of the world.

This got me wondering, what is it about traditional coffee production that is particularly bad for the environment vs. other food and consumer categories? The environmental degradation and emissions are largely caused by over-reliance on nitrogen fertilizers driven by changes in farming practices, deforestation to create coffee farms, wastewater runoff, energy use in the roasting process and outsized transportation costs.

For all of you coffee addicts out there who also care about the environment, I’m sorry to drop this bomb on you about how bad coffee is for the environment. I know what you’re thinking:

Fortunately, there are some awesome innovators out there creating molecularly and lab-generated coffee without beans. Lab-developed coffee innovations have the potential to solve the nitrogen, deforestation and wastewater issues by eliminating reliance on traditional farming constraints for coffee production. Since lab-made coffee is beanless, there is an opportunity to generate a roasted flavor through synthetic chemistry without overuse of energy from the traditional bean roasting process. Lastly, because this coffee is created in a lab vs. grown in very precise conditions, production facilities can be constructed closest to areas with the most coffee demand vs. produced in far away markets and shipped with massive transportation costs.

To learn more about lab-made coffee, I spoke with Andy Kleitsch, CEO & Founder of Atomo Coffee, the leading producer of molecularly-produced coffee created through reverse engineering and without the bean. Thank you Atomo for letting me do my part to save the environment without being forced to face down my caffeine addiction!

My Conversation With Andy Kleitsch (CEO of Atomo Coffee)

SN: Could you tell me more about the founding story of Atomo?

AK: Approximately 2.5 years ago Jarret Stopforth told me about his idea of creating coffee without the bean and I was immediately hooked. We both love coffee, yet with the troubles coffee is facing with climate change, we wondered if we could re-engineer coffee to be better for the planet and better tasting. Jarret is a food scientist and PhD in microbiology and has been innovating in food science for 20 years - so we started this project where all great projects start, in his garage. After several months we felt confident enough to share our early prototype with University of Washington students, and based on their encouraging feedback, we created a Kickstarter campaign and raised our Seed Round from Horizons Ventures. Over the past two years, we have been experimenting at our lab at Pike Place Market to really understand how to create the compounds that contribute to coffee: the aroma, taste, texture, bioactives, color. In our efforts to ‘do no harm’ and minimize our carbon footprint, we have focused on reacting upcycled materials like stems, seeds and pits to create our coffee.

SN: Could you say more about how you transitioned to experimenting from hot coffee to cold brew?

AK: We create coffee grounds every day in our lab, and usually we drink the extraction warm. One day, almost by accident, we took a bunch of extractions and put them in the refrigerator and tried them the next morning. It really blew our mind. Our coffee tastes amazing cold. An investor once told us ‘let the technology lead you’ and we felt this was a strong indication that we should lead with cold brew and follow quickly with hot coffee. We are now building a limited production pilot facility to scale from our laboratory formula to a production formula. This fall we will launch a Classic cold brew, and an Ultra Smooth cold brew where we specifically remove the bitter compounds to produce a better tasting cold brew.

I was particularly excited to hear about the early cold brew launch as I am a freak and consume cold brew no matter the weather, even in sub-zero temperatures.

SN: It seems like you have a dual-pronged approach to your green strategy: a) Climate change is causing problems for the conventional coffee industry so you solve supply constraints and b) beanless coffee can also help reduce the carbon footprint of the existing coffee supply chain. Could you give more detail on each of these pillars and how they interconnect?

AK: Coffee does have many challenges including continued deforestation from climate change, water use, pesticides, underpaid labor and transportation (to get the bean across the world). The coffee industry has known about these problems for decades, yet it’s been difficult for the incumbent participants to substantially change these issues or address the large carbon footprint attributed to coffee. When we first announced Atomo, we thought the conventional coffee companies might hate us. But, it’s been the opposite. The traditional coffee companies know that climate change is reducing the consistency of coffee and increasing coffee prices – and they are searching for innovative solutions to solve these problems.

Regarding carbon reduction, we are inventing a portfolio of products in the food space that will further help reduce the carbon footprint attributed to coffee and adjacent categories.

We believe consumers want to make better choices for the planet every day, especially if they don’t have to sacrifice taste or enjoyment. Overall, we look at how we can reduce carbon creation in everything we do, and we view ourselves as a carbon-busting food company with the goal of giving humanity more time on the planet. We don’t preach a doomsday scenario to consumers, but internally we realize there is a clock counting down on climate change and our mission is to extend that clock by innovating in every part of our process for our planet.

SN: Are there certain other products you are most excited about innovating in outside of coffee?

AK: Milk is an interesting category. Coffee and milk are inseparable. We have formulated many molecular lattes from milk alternatives, and we’ve found that alternative milk doesn’t taste like milk at all. Oat milk tastes like cereal juice, and many alt-milks flocculate (separate) when you add coffee. The tase of alt-milk also tends to suffer when creating shelf-stable ready to drink coffee beverages. For example, the heat applied during the canning process tends to elevate strong off-notes found in alt-milks. We’ve conducted a lot of research in this space to optimize taste, texture, shelf life, nutrients, etc.

SN: Given the heavy R&D focus of the business, how do you manage your recruitment strategy in terms of how you engage with academia and more technically focused researchers?

AK: We do a lot of work with the University of Washington, and it’s where we first publicly sampled our prototype. They have an amazing program in environmental science, entrepreneurship and a great lab for experimentation. We are also working in partnership with Zhaw, an applied life science group out of Zurich. They are a leading university program for coffee science. They do what’s called a “Coffee Audit” and work with most major coffee companies in the world to analyze coffee composition. We have another student group we work with out of Berlin which is probably the second leading coffee university program. When we started conducting research on coffee compounds, we discovered two professors who are leaders in this space, and now we are working with both of these professor’s programs and their students.

SN: You are using molecular chemistry to improve the coffee production process, but how do you think about the opportunity on the consumer side to create custom and personalized coffee blends either tied to personalized health or niche taste preferences?

AK: We think there’s a lot of consumer interest in ‘better for you’ products including functional coffee, i.e. coffee enhanced with vitamins & minerals. We also hear from many consumers looking for low-acid coffee, zero caffeine, or coffee for pregnant women. Overall, there’s a long list of functionality we’d like to bring to the coffee market. Second, in terms of personalization, we have created a coffee dashboard enabling us to tweak many attributes with each brew we make. Everything from roast, bitterness, ash, smoke, fruit or butter… there are nearly infinite notes we can adjust to craft a customized profile.

The (Non)Viability of the Traditional Coffee Supply Chain

As Andy mentioned, lab-based coffee is not only about reducing coffee’s carbon footprint but it is also about preserving coffee’s viability as an affordable and accessible consumer category. Former CEO of Starbucks, Howard Schultz, has even acknowledged “climate change is going to play a bigger role in affecting the quality and integrity of coffee”. About half of the land that is currently used to create coffee is forecast to become unproductive by 2050 due to drought and increased range of disease with the figure potentially being as high as 88% in Latin America! This is a big problem when you think about the rapid growth in coffee consumption we are experiencing paired with these future supply constraints. Even if lab-made coffee costs marginally more today as the technology is still earlier stage, with scale, I expect the marginal cost per cup to decline over time through additional production process innovations. However, as global warming impacts continue to take hold, coffee produced through traditional means will have a substantial rising cost base due to the need to relocate farms higher up in the mountains, lower farming yields, obsolescence in existing farms and the impact of potential implementation of carbon taxes.

Therefore, I expect lab-made coffee over the medium-to-long term will benefit both from a demand advantage (more millennials and Gen Z consumers wanting to reduce carbon footprint) and a lower relative cost structure which will allow these providers to pass on cost savings to customers in the form of lower prices per coffee cup.

The Power of Personalized Coffee

When I first heard of the nearly limitless spectrum of personalized coffee Atomo could create, I thought about potential applications into the higher end hospitality space. At premium dining experiences, consumers are willing to pay large premiums for wine, sake and beer pairings with higher end meals. This has enabled the fine dining industry to increase margins on meals and elevate the dining experience for patrons. These pairing combinations are generally not enjoyed with morning meals but are more of a dinnertime affair. I think there is an interesting opportunity for restaurants to create personalized coffee and latte flights to pair with popular brunch dishes. Especially amongst millennials, there has been a cult-like rise in the popularity of brunch as a meal category. Particularly on weekends, many Americans have a ritualistic tendency to go out for brunch as evidenced by this Google search interest chart:

Coffee is often the drink of choice, but most restaurants don’t elevate it to a truly gourmet experience and I think coffee flight and food pairing combinations leveraging the food science approach of Atomo could be a great way to do so.

More importantly, outside of the dining space, personalized coffee could have really important implications for personalized health and medicine.

First, as it relates to the core act of consuming coffee, there are multiple conditions people have that limit their ability to consume coffee and decrease their enjoyment / willingness to pay. These include:

• Acid reflux and GERD due to the high acidity of most coffees -- for reference, acid reflux disorders have ~20% prevalence in the US, which can often be triggered by coffee consumption.

• Pregnant women - there are multiple studies that link coffee consumption during pregnancy to higher infertility rates so it has become commonplace for women not to drink coffee while pregnant. For reference, slightly fewer than 4 million babies are born in the US each year.

• General Anxiety Disorder (GAD) - caffeine can induce worse symptoms in those with anxiety disorders. For reference, an estimated 6% of Americans experience GAD at some point in their lives and the number is likely materially higher as many mental health disorders still go unreported.

• High Blood Pressure - multiple studies show that caffeine can cause spikes in blood pressure with consumption, which limits the intake that those with high blood pressure can have of caffeinated coffee. For reference, nearly 45% of adults in the US suffer from hypertension.

• Our genetics impact our sensitivity to caffeine and how we taste and either enjoy or dislike the bitterness from natural beans. 

You’re probably starting to get the idea. Even though coffee consumption is increasing significantly across the US, these constraints all limit the total addressable market for coffee in terms of willingness to consume, cadence of consumption and willingness to pay. In other words, consumption could be growing a lot faster if a company created specific brews to tackle some of these consumption limitations across the population. Each of these constraints impact a material enough percentage of the population, that the economics at scale could make sense to develop bespoke brews that avoid the pitfalls of traditional caffeinated coffee on each of these demographic groups. As you stack the solving of these constraints, the power of personalized food science to increase the TAM for coffee, but also other CPG categories becomes abundantly clear:

When you add TAM expansion to i) an ability to disintermediate competitor demand through a focus on social impact and ii) a superior long-term cost position, you get a true category killer.

Beyond expanding TAM, I think there is an interesting opportunity to leverage the morning cup of coffee as a vehicle to improve health and wellness in the US. 64% of Americans drink coffee and we have already established there is a material portion of the population that would like to but is constrained by pre-existing conditions from doing so. How many activities are there out there that most Americans do on a daily basis? Perhaps sleep, eat food, use the bathroom, walk outside, brush your teeth, shower and drink coffee. Coffee is a daily activity that a majority of American choose to do out of enjoyment, not necessity and view it as a core daily ritual. Eight Sleep is an interesting smart mattress business that eventually wants to improve health by incorporating body scans into the ritual of sleeping to collect durable, reliable health datasets to improve health outcomes. It makes a ton of sense to incorporate this scanning into an existing required activity in a completely frictionless, non-disruptive way.

I believe that once we lift the biological and chemical constraints of using organic coffee beans and begin to brew personalized batches of coffee with innovative food science, we can supplement the ritual of daily coffee consumption with additional health benefits. As the cost of personalizing brews decreases with scale, imagine a coffee world where:

• Your brew includes melatonin and other compounds to induce sleep instead of caffeine to help address insomnia - this also expands coffee from a morning consumption ritual to a nightly consumption ritual and increases the TAM through its cadence impact!

• You could consume a calming brew specifically meant to help alleviate anxiety or a high performance brew that structures its caffeine release to maximize your performance in sports or professionally in the workplace in a sustainable way

• You stream data from your wearables partners (potentially Eight Sleep too!) to create a bulk order of personalized coffee with mineral and vitamin balances to give you the best start to your day and keep you energized throughout the day

The opportunities are endless, but I think the idea of leveraging data inputs to create customized brews that improve your personal energy and wellness through a bespoke mixture of added compounds could be very compelling with the right data partnerships in place. It becomes even more compelling when you think about the opportunity to distribute in partnership with consumer hardware providers like Keurig or Nespresso:

Partnerships with Academia and Universities

I was really excited by Atomo’s partnership with Zhaw and its Berlin PhD student group partnership. In biotechnology investing, it has become a much more common strategy for VC and investing firms to partner with leading academics and technical scientists to source promising drug candidates or research starting points to seed businesses. VCs work with these leading PhDs to help provide capital, network and connectivity to scale drug targets and help connect these bio-scientists with potential large-scale pharma acquirers. Outside of biotech, however, this has been a much less common strategy within the investing world. One firm that has done very well using this approach of grassroots partnering with world class, technical scientists across all sectors is Lux Capital.

I believe a lot of the most pressing issues we should be looking to solve: global warming, life extension, media provenance and robotics automation, which will actually do the most good for the world require strong grassroots partnerships with academia and the highly technical research community. These are very complex problems that to solve require efficiently sourcing the most talented, technical researchers in the world wherever they may live. Unfortunately, I believe too much capital is chasing opportunities in consumer or enterprise software that of course do add value to society, but don’t tackle these more deeply complex issues. 

I believe the best investing firms and entrepreneurs over the next twenty years will take Atomo’s approach of working with and partnering at a grassroots level with the most talented technical researchers and thinkers. Higher demand for connectivity into these technical communities will benefit social networking sites that can help connect these technical experts with business leaders and financing sources to help commercialize and scale their projects. A couple of existing ones that come to mind are: ResearchGate and Academia.Edu.

As my reader base knows, I am a large fan of the creator and the passion economy, but this movement has had a very limited impact on highly technical fields that are highly entangled with traditional university and academic institutions. As a community, we should be backing more businesses that empower scientists as the penultimate creator who channel their passions into solving the world’s largest issues vs. a more traditional focus on entertainment creative pursuits. I’d like to see a world where researchers and academics become less affiliated with traditional universities and are able to advance projects outside of traditional institutions through more direct and consistent collaboration with the private market, particularly with emerging business leaders and VC investors.

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