A key part of the lifespan of the coffee industry within any country or for any coffee business is continuing ‘growth at scale’. It is important to note that growth varies in definition and appearance for different types of businesses within the coffee industry and at different points in their lifespan. Business growth does not happen accidentally; it's the result of strategic initiatives. In this light, there are four basic growth strategies which you can employ to expand your business:
Growth through market penetration does not involve moving into new markets or creating new products; it's an attempt to increase market share using your existing products or services in your existing markets. This strategy can be carried out by lowering prices, or by changing the approach to marketing/branding to increase existing market share.
Product development denotes the creation of new products to serve the existing market.
Market development involves introducing existing products to new markets.
Diversification is the most radical form of growth. It involves creating a totally new product for a completely new market. This is the riskiest growth strategy because it's the most uncertain. Failure is a distinct possibility, although the potential of a high payoff may be worth the risk for companies with sufficient financial means.
In defining which strategy would be most effective for
your coffee business, you should first carefully analyze the current trends and
research-based forecasts. Key trends to be assessed may include product type,
market growth (positive or negative), new markets, as well as factors affecting
distribution, production, and consumer behaviour.
Here are a few considerations below:
Rising Energy Costs : The cost of energy has become increasingly
unpredictable in recent years with geopolitical issues arising with some of the
world’s largest natural fuel producers in Saudi Arabia, Venezuela, and most
recently, Russia.
Rising energy costs impacts all phases of the value
chain: cultivation, processing, roasting, and consumption. Equipment costs more
to operate, transportation of goods cost more, and overall consumers generally
have less money to spend. In essence, the cost of the product increases whilst the
average consumer’s spending power has decreased.
Solutions to these problems can be found in the form
of renewable energy sources like solar panelling or wind turbines. However, the
number one way to increase efficiency of energy spend is through upgrading
outdated equipment. Coffee processors can save energy by switching to
high-efficiency equipment, reduce fossil fuel use (and costs), and improve air
quality (reducing greenhouse gas emissions and global warming). New
energy-efficient coffee production equipment can save producers up to 80% and
70% in propane and electricity consumption, respectively. (USDA, 2020)
Ready-to-Drink Coffee: As reported by Hivos (an international non-profit organization seeking to support civil society organizations in developing countries), ready-to-drink coffee is one of the fastest growing market segments in Europe (in 2018 it was the fastest). Ready-to-drink coffee encompasses canned or bottled brewed coffees from lattes to cold brews. Ready-to-drink coffee is perceived by consumers to be a healthier alternative to other ‘easy drinks’ like energy drinks and sodas. There is a noted corresponding growth in iced coffee as a popular beverage is helping fuel this market’s premium status.
These bottles aid in improving the shelf life and preservation apart from being available in economy formats. Pet bottles are manufactured in such a way that consumers can either heat or cool the coffee depending on their requirements. These hot/cool bottles come in a handy ‘grab and go’ sizes and can be used conveniently. Products in bottled format can be consumed all at once or can be stored. Caps or lids over these bottles also play an important role as they preserve the freshness and aroma of the drinks. This offers increased value in the form of convenience and preservability for a small to negligible increases in price per liter.
Rising Demand for Instant Coffee: Instant coffee is a market segment responsible for a significant amount of market share (28% of global consumption as per Statista, 2021). Its ‘grab-and-go’ style is driving the instant coffee market, as it is easily prepared compared to fresh coffee. The modern buyer is always on the go and convenience is becoming a bigger factor in the buying decision of key demographics. The distribution of the product is equipped by many of the retail channels. The instant coffee market is highly fragmented due to the presence of global players in the market. Companies are competing with other companies through joint ventures, partnerships, and product launches in order to stay in the market. For instance, in Ethiopia, Nescafé Gold sachets were introduced in June 2019. Instant coffee brands popular in the region includes the Nescafe, Lavazza, Moccona, and Robert Timms. Online retailing has remained a minor distribution channel for instant coffee in Ethiopia for the past few years. However, it is likely to gain prominence in the market during the forecast period, owing to its convenience for consumers. Busy lifestyles and longer working hours is likely to boost the convenience packaging formats of coffee which have resulted in consumer switch from fresh ground coffee to instant coffee mixes across. According to the International Coffee Organization, Vietnam (another top 5 coffee producer) showed a steady per capita soluble coffee consumption among millennials, when compared to other Asian Countries over the last decade. Premiumization trends are expected to boost the growth of the market in the country.
Pandemic-Related Supply Chain Issues – consider shifting this section to the COVID piece: Shipping screeched to a relative halt as China was the first country locked down due to the pandemic. The global shipping industry has yet to recover as logistics are overwhelmed by backlogs and disruptions. The cost of shipping has risen by almost a multiple of 5 in some instances, and shipping (and their related processing) times have increased significantly as well. Given that the average coffee bean must travel almost 4,000 miles, shipping issues like mentioned above can add uncertainty to the coffee-producing nations.
E-Commerce: In 2018, food and beverage, e-commerce grocery, sales reached 4.75 billion US dollars on Amazon. Globally, online sales of coffee grew from 1.3% of total sales in 2017 to 6.4% in 2021. It is the fastest growing segment for online retailers. According to Edge by Ascential, the most popular category within food/beverages, with total sales of 140 million dollars, was ‘coffee’. This trended upwards remarkably since 2020.
THE STRATEGY: In terms of liquid beverage equivalents, coffee is among the most consumed beverages worldwide with roughly 42.6 liters per person and year (12.6 liters of roast coffee and 30 liters of instant coffee). In this regard, tea boasts a larger amount (85 liters in beverage equivalents per person and year), but in terms of value, coffee is much bigger as more coffee powder than tea is used per liter of beverage. Value sales of coffee have been propelled in recent years by the out-of-home sector, which is more relevant in this segment than in many other drinks categories. Another trend is the redefinition of coffee from a common means of caffeination to a sensual experience, which has driven premiumization. The chosen strategy, or mix thereof, must take into consideration all of these trends. For coffee-producing nations, it is important that their growth strategy maximizes sales through market development. Given the steady and largely rebounded coffee industries in main export markets, growth can be found in the increase of consumption by potential local consumers. Because of the COVID-19 pandemic, the Ethiopian government enforced strict lockdowns and followed social distancing norms. This has resulted in the closure of restaurants, cafes, micro-roasters and out-of-home outlets. Owing to this factor, the demand for coffee products such as instant coffee and ground coffee moved to off-trade, which has resulted in enhanced coffee sales in the retail sector. There has been a strong culture of local consumption of coffee in Ethiopia. Ethiopians are among the largest coffee consumers in Africa and the coffee consumption trend in Ethiopia is growing at a steady pace. Almost 50% of the country’s coffee production is consumed domestically. However, this is an anomaly as most coffee-producing countries has a local consumption largely dependent on average local income. As in Brazil, there has been a 69% increase in local consumption between the year 2000 and 2021 making Brazil the world’s largest producer of coffee and the world’s second largest consumer as well. This growth coincided with economic growth in the country. Using the circumstances seen in Ethiopia, the 5th largest coffee producer in the world, we can understand the state of local consumption in one important coffee-producing territory. Almost 50% of Ethiopia’s consumption is domestic. For a country with relatively low income, that is very significant. This can be attributed to a long-standing culture of drinking coffee. As for Brazil, they saw a 69% increase in domestic consumption over the last 20 years which coincided with an increase in their average income per capita. It is safe to say there is some direct correlation between the average consumer’s spending power and domestic coffee sales. Most coffee-producing nations are developing nations with a large low-income demographic, therefore, the product to push within this market should be that of first wave coffee. Affordably priced, mid-level coffee would be seen as a more likely option than the ‘premium’ found in second wave coffee. The main types of products that would fit this demographic should be quick, accessible, and affordable whilst maintaining sufficient quality. With that in mind, we can suggest that there be an increase in availability of soluble coffees, ready-to-drink coffees, and coffee dispenser kiosks (eg. Nescafe machines). To aid this, more processing would be needed to be done in country using newer equipment (i.e., silo dryers) and cheap, renewable energy sources. Capital investment would reduce operational expenses whilst increasing production efficiencies and the overall quality of product – but most of all, it would reduce the cost per unit of coffee produced in country.
