The Russian invasion of Ukraine has overturned every facet of life in this corner of Eastern Europe, including its coffee community. Global Coffee Report speaks to Ukrainian roasters about the impact of war and their ongoing recovery.
Gemini Espresso CEO Anton Mianovskyi had just returned from a business trip on 24 February and had only slept for two hours before he and his family were woken by the sound of missiles.
“You can imagine the confusion and panic of waking up and looking out your window to see rockets shooting from the sky. We fled to my parents’ house, who lived 30 kilometres outside of Kyiv. Once we realised the severity of the situation, I knew I needed to rescue the business and move our production to Western Ukraine,” Mianovskyi tells Global Coffee Report.
“We had 23 trucks that could carry 20 tonnes each, which we used to move our equipment to Lviv. We also brought about 40 of our employees with us, provided housing and work for them. We worked in Lviv for two-and-a-half to three months, but it became hard to travel as the Russian army destroyed all petrol warehouses, so we returned our production to Kyiv and have been working there for a month or so.”
According to Mianovskyi, Gemini Espresso is one of the largest and fasted-growing roasting companies in Ukraine. With a 2500 square metre facility and 192 employees, Gemini Espresso boasts a huge production line that has been put under pressure as a result of the war.
“We have an IMF roasting machine that roasts 250 kilograms per batch. Before the war, we roasted around 250 to 260 tonnes of coffee every month, now we roast 160 to 180 tonnes per month. We had a strong position in the Ukrainian market, working with brands such as Slayer, Victoria Arduino and Nuova Simonelli so we could have the best machinery in our stores” he says.
Gemini Espresso has continued to operate throughout the conflict, even assisting with transport of food and medical supplies to Eastern Europe.
Premium café chain itis.cafe is another Ukraine company that despite its own challenges related to the war, has devoted time to distribute food, and support those impacted.
“We were specifically donating desserts and drinks to Ukrainian soldiers and to people who are donating blood in the country. We started collecting portions of our revenue and donating it to the Ukrainian forces as well,” says Nikita Balzhyk, Managing Director of itis.cafe.
“When effected civilians would walk into one of our stores and get a cup of coffee, they’d see our staff being positive as normal, and it would remind them what normal life is. They were really thankful for that.”
itis.cafe still in operates in Ukraine’s capital, persevering despite the Russian army’s attempts to besiege the city.
“We currently operate across 13 cafés in Kyiv and the city where we’re originally from, Odessa. We originally valued the market of Ukraine at around 50 stores. Because of the war, that market potential is now completely out the window, and we need to re-evaluate our expansion strategy in Ukraine,” says Balzhyk.
Balzhyk says itis.cafe has faced many challenges across its lifetime, including a messy currency devaluation and financial economic crisis, which in some ways has helped the business build resilience to survive the current conflict.
“While we’re facing issues because of the war, we were well prepared to deal with these issues. We have crisis management plans in place to deal with various crises,” he says.
According to Balzhyk, the most devastating blow to Ukrainian businesses as a result of the war, has been a massive decrease in sales. Balzhyk says itis.cafe’s turnover is in a stable place thanks to the café chain continuing to operate, but unfortunately others in the market haven’t been so lucky.
“Ultimately, we’re still profitable, even though our sales have dropped by about 35 per cent across the whole chain. Before the war, itis.cafe’s Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA) was roughly 21 to 22 per cent. At the moment, we’re sitting at about 10 to 12 per cent, which is still pretty good and shows that we’re able to manage our costs as well,” he says.
“Most of the players in the industry have faced around 50 to 60 per cent drops in sales since February. While the situation is recovering now, nobody has recovered to 100 per cent sales, or back to where they were before the war.”
Balzhyk says because itis.cafe has maintained relationships with its suppliers, the business has been able to negotiate costs and find ways to decrease them.
In the months since the invasion, according to the United Nations High Commissioner for Refugees, over eight million civilians have fled the country because of the invasion.
“That’s quite a big challenge in itself because it impacts our sales as we have less customers in the country. This affects the hospitality community heavily because it means highly talented people are leaving the country as well. It makes the employment processes much harder,” Balzhyk says.
While the Ukrainian government has blocked overseas transactions in an attempt to save the currency exchange rate, Balzhyk says it has also made the Ukrainian hryvnia currency extremely volatile.
“Prices we used to pay for importing or transporting goods have become much more expensive. We also need to pay our suppliers abroad, but we physically cannot because the Ukrainian government has blocked any payments leaving the country. So, we had to really think outside of the box on how to balance our costs and pay our suppliers,” he says.
A few weeks before the war started, itis. cafe had a shipment full of products worth more than US$200,000 scheduled to arrive from Japan. While it was on the water, the Russian army began its invasion, stopping the container from reaching Ukraine.
“We worked with our shipping company MSC to relocate the shipment to Turkey. From Turkey it went to Romania where we picked it up and transported it via road to Ukraine, because there is no other way to get to Ukraine. The ports were closed and some of them were destroyed, and there was no way to fly because the airports were also closed or destroyed,” Balzhyk says.
“We had to pay at least US$17,000 to ship the container, which regularly would be around US$4000 to US$5000. Then we had to pay an additional US$3500 to transport it from Romania to Ukraine by road. You can imagine how that affects the cost of goods we’re importing.”
Not only was the purchasing power in Ukraine falling because people were scared to spend money, but sales were also decreasing while costs were increasing.
“It ended up being a blessing in disguise. When that container arrived in Turkey, we actually managed to find a potential supermarket chain partner that we started negotiations with to expand there. We’re still in the process of looking at either selling our products in their stores or partnering with them to open our cafés in Turkey,” says Balzhyk.
“Currently we are also actively working on our expansion into the United Kingdom, with an e-commerce format launching later in 2022, and a chain of cafés opening in 2023.”
While forward projections for the growth of itis.cafe are encouraging, Balzhyk has had to face the devastation of two of its coffee shops, which were bombed by Russian missiles.
“The most frustrating part was that those two cafés were the most recent ones we’d opened. They housed the newest, best equipment and trained staff, everything was prepared specifically for the new opening of the cafés. We invested a great deal of time and money into the new stores,” Balzhyk says.
“Luckily, our staff weren’t there at the time of the explosion. Those two cafés were in shopping centres in Kyiv and Odessa. There was damage done to both cafés, but we are happy that our staff are safe and unharmed. One of those shopping centres has already reopened, and we have completely renovated the café. The second one will be opening next year in stages, and we are currently working on renovating it. ”
Another Ukrainian company affected by the conflict is Fresh Black coffee roastery. The company hosts the largest coffee centre in Eastern Europe, supplying coffee all over Ukraine, to cafés, restaurants and offices.
Founder Viktor Shramenko says before the war began, the company was roasting around 50 tonnes of coffee per month.
“Once the war started in February, business stopped. After three weeks, we decided to move our production from the border of Kyiv and evacuated our production to the western part of Ukraine in Lviv. It was very difficult to organise logistics to our new location. It took us three weeks to move our production and it was a costly process,” says Shramenko.
“Another two weeks later, we tried to organise relocating our team to Lviv and rented some flats for our employees. A month and a half later, halfway through April, we conducted our first roast at our new facility. By 1 May, we started to reach our normal roasting capacity of one to two tonnes per day.”
With 80 employees to provide for, Shramenko was determined to save every member of his team and pay their salary throughout the conflict, even if it meant sacrifices to the company’s revenue.
“We decided to use 100 per cent of our profits to pay our staff’s salaries. Equipment can be replaced, you can buy it again and again, but the reason our business succeeds is because of our team, they are most important,” he says.
Before the war, Shramenko says the Ukraine coffee market was beginning to be recognised for its specialty coffee, describing the country as a high-quality coffee destination.
“To me, the most exciting coffee city in the world is London. I think Ukraine is very similar to London’s coffee scene because you’ll find a coffee shop every 50 metres in the city centre. You’ll also find each coffee shop has excellent equipment, such as Slayer, Faema or La Marzocco coffee machines,” he says.
“We need global businesses to collaborate with Ukraine so we can continue to grow our reputation as a specialty coffee community. That would be very helpful for us because we’re in such a terrible situation and don’t have enough opportunities in our country.”
Every cloud has a silver lining, and Shramenko jokes that in a small way, even the COVID-19 somehow prepared his business for war, giving his team the experience of how to conduct business during a crisis.
“We heavily dropped the price of specialty coffees that scored 86 to 89 or over. We were making zero profit but were trying to start selling coffee again to decrease stock. Before the war we were selling coffees such as a Colombia Finca Puerto Alegre Geisha for €88 (about US$86) per kilogram, now we sell the coffee for €60 (about US$58) per kilogram,” he says.
In the first several months of the war, Shramenko even gave some of his stock, such as microlots, fermentations, and Geisha varieties, to Ukraine soldiers so “they could enjoy the taste of specialty coffee again.
“We calculated that we provided around €22,000 (about US$22,566) of our coffee to the soldiers, and every month that sum is increasing. We need our army to stay strong in this war,” says Shramenko.
The Ukraine situation is one of loss and tragedy, but through the conflict are stories of hope and resilience. Gemini Espresso CEO Anton Mianovskyi says it’s been a surreal experience no business – or person – should ever have to endure.
“It’s so strange how in the 21st century we still have a crazy situation like this happening in the world. For the Ukraine coffee community, it’s very important to live and work in a safe country,” Mianovskyi says.
“Together with the global coffee community we can solve this situation faster and return to a normal life. This conflict is affecting the entire world, exacerbating the universal cost of living, even affecting global petrol prices. It just shows you that one mistake can destroy everything and create massive consequences. Together, let’s drink some coffee and bring peace.”
This article was first published in the September/October 2022 edition of Global Coffee Report. Read more HERE.