For many consumers across South Africa, their morning ritual will not be complete without a cup of coffee: at home, on-the-go or during a business meeting at an upmarket pavement café. Coffee is the second most consumed beverage in the world after water. It is, however, significantly more than just a beverage. In fact, it is a global commodity that is one of the world’s most traded products, second in value only to oil.
If you are thinking of starting your own Coffee Shop, then the invaluable insights below will provide you with a detailed overview of the Global and South African Coffee Industry.
Globally, the coffee market is worth an estimated US$100 billion and is projected to grow at 4.7% per annum up to 2019. Global coffee consumption for 2015/16 increased to 155.7 million 60kg bags, up 2.6% on 2014/15. The four key markets for coffee include the European Union, USA, Brazil and Japan. In terms of consumption, the European Union is responsible for the highest consumption of coffee worldwide with 42,3 million 60kg bags between October 2015 and September 2016.
Global coffee consumption reached 157.4 million 60kg bags in the 2016/17 period, which is an increase of 1% over the 2015/16 period. This is slightly lower than the production total of 158.9 million 60kg bags in the same time period. However, it is possible that some of this change can be attributed to increases in pipeline stocks which are not officially recorded, rather than actual consumption. This difference could put pressure on coffee pricing, but as the deficit is not as pronounced as the previous year, the impact should be relatively small. Europe is predicted to remain a highly lucrative market for coffee with European cultural influences driving consumption of coffee-based beverages globally.
- Changing Lifestyles Offering Benefits to Coffee Industry: South African consumers are constantly changing their lifestyles according to global trends. In the Coffee industry specifically, there has been an increase in popularity of coffee shops amongst millennials in South Africa. In addition to this, coffee pod machines have become part of SA consumers’ everyday lifestyles. As it is only fresh ground coffee used within the pods, consumers can have a cup of fresh coffee in less time without added sugar or creamer.
- Coffee On-the-Go is more Popular than Ever: Coffee franchise outlets are situated, and now more visible than ever, at the service station forecourts on every major road route in South Africa, ensuring that the South African coffee drinker can get their daily caffeine fix while traveling.
- Changing Market Demands and Demographics: There is increasing demand for better quality coffee made from ethically sourced products, as well as growth in Café culture in South Africa. Also, the general profile of the coffee drinker in South Africa has been changing, with an increase in young, black consumers making coffee their beverage of choice.
- In 2017 coffee records retail volume growth of 4% to reach sales of 6,917 tonnes
- Private label expands its range of Nespresso-compatible capsules
- Coffee volume sales in the foodservice channel rise by 9%
- Nestlé South Africa maintains its leading position with a 38% share of retail volume sales
- Over the forecast period coffee will register a retail volume CAGR of 5% to exceed sales of 8,630 tonnes in 2022
As consumers change their lifestyles in line with global trends, more millennials are expected to embrace the coffee culture. Likewise, increased volume sales of Nespresso machines will continue to boost demand for fresh ground coffee pods. Going forward, Nestlé South Africa is expected to face increasing competition, with companies like Jacobs Douwe Egberts predicted to gain further ground in regular instant coffee. In standard fresh ground coffee, the expansion of private label will force brand manufacturers to increasingly focus on the B2B channel. In response to consumers’ rising awareness of product ingredients, innovation is expected to be focused on health and wellness. Hence, more organic and decaffeinated variants will likely be launched, with packaging and flavour remaining a key tool of differentiation.
Nespresso-compatible pods on the rise. The range of Nespresso-compatible coffee capsules continued to increase in 2017, with this trend driven by rising demand for Nespresso machines and mid-income consumers seeking suitable capsules at more affordable prices. Jacobs Douwe Egberts effectively took control of its Douwe Egberts and Jacobs brands from Incolabs and Kraft Foods South Africa in 2017. This move was followed by new marketing and multimedia campaigns, aimed at increasing awareness of the brands. National Brands continued to gain ground in instant coffee mixes with its Hug in a Mug brand. The brand’s success can be attributed to its innovative flavours, which include variants such as Toast Marshmallow and Hazelnut, as well as its eye-catching packaging.
- Cafés/bars in South Africa remained a highly fragmented consumer foodservice channel in 2016. Several international brands, such as Starbucks, have entered the local market while domestic players, such as Vida e Café, have also expanded. Famous Brands continued to lead sales in cafés/bars, recording a value share of 3%. The company’s value share is driven by its Mugg & Bean cafés. The company continues to benefit from continuous product innovation and the offering of large meal portions. In addition, the brand continues to expand its network by increasing its presence in tourist locations, such as the Kruger National Park. Famous Brands also operates a wide variety of brands in cafés/bars, such as Tashas, which is a boutique café concept that is becoming increasingly popular among local consumers.
- Since Taste Holding was granted an exclusive licence for Starbucks in Southern Africa, its first Starbucks outlet opened in April 2016 in Rosebank, Johannesburg. The Starbucks brand equity is expected to help Taste Holding expand into other African countries. Moreover, Taste expects ordering in advance through smartphones or computers to become a major trend.
- Mugg & Bean recorded the strongest growth in sales of 14% in 2016. Much of this success stems from the brand’s theme in which the restaurant chain mainly focuses on the South African shopping market, marketing itself as a “shoppers shop”. It also offers high quality coffee and hot beverages plus a wide selection of foods including breakfast, lunch and dinner options, which make it appealing to a wide range of consumers.
- Wiesenhof Coffee Holdings, which owns Dulce Continental Café & Espresso Bar, and McDonald’s Corp, which owns McCafé, among others, operate under a franchising model and lease out their brands to various franchisees which operate outlets throughout the country. As a result, the franchising model is the method through which they choose to expand.
- In an attempt to remain competitive, many industry players are diversifying their portfolios by offering a range of menus at different prices to cater to consumers across all income groups. Industry players within the bars/pubs channel are also increasingly offering food as an option on their menus to help maximise revenues. In addition, the number of cafés offering breakfast menus continued to increase over the review period. This trend is noticeable across many consumer foodservice channels. This is due to the fact that eating out for breakfast is comparably cheaper than going out for dinner, as it offers consumers a more economical way of eating out.
- Cafés/bars continued to be supported by South Africa’s growing middle- and high-income consumers during the review period. As a result of this trend, current value sales recorded growth of 9% to reach ZAR16.2 billion in 2016. The value growth recorded in 2016 was one percentage point slower than in the preceding year.
- The 9% growth in 2016 was also slightly down on the 10% CAGR recorded over the review period. Much of this stemmed from the economic conditions in the country, as declining consumer confidence led to a dip on spending on non-essentials. Nonetheless, the café culture in South Africa is growing with South Africans now able to choose from a wide variety of coffee-based drinks, such as cappuccino, espresso and cafe latte.
- Specialist coffee shops led growth in 2016, with current value sales increasing by 12%. The surge in the number of people drinking coffee and the growing adoption of Western lifestyle trends are leading to the development of a coffee culture in South Africa. Other channels, such as cafés, are also increasingly tapping into the coffee culture, despite their main focus on eating. Noteworthy is the proliferation of small takeaway outlet formats. An increasing number of regular cafés are expanding to include small outlets in high consumer footfall areas in an attempt to capitalise on the popularity of specialist coffee shops which predominantly offer takeaway coffee.
- Food accounted for only 22% of all value sales in cafés/bars in South Africa in 2016. The proportion of food served in bars/pubs is set to increase as consumers are expected to continue going out with the aim of eating a meal. In an attempt to capitalise on this trend, many industry players are expected to move towards expanding their menus to include more food options. Moreover, tea is also very popular in South Africa, with the local variety of tea, rooibos, being particularly popular among health-conscious consumers.
- Many cafés/bars are offering consumers a wider range of fresh fruit juices than would typically be available at similar prices in other Western countries. Finally, both wine and beer are also popular among South Africans, with the country having a strong alcoholic drinks tradition and culture.
- In terms of consumer bases between cafés and specialist coffee shops, specialist coffee shops continue to be popular among the country’s middle- and high-income consumers as products offered in this channel are generally too expensive for the average South African consumer. Chained cafés are frequented by consumers eating out during lunchtime, particularly for business meetings and socialising. Bars and pubs appeal to a much wider segment of the population and are characterised by a variety of establishments each of which has a different positioning to attract a specific consumer groups based on their income level.
- Overall, eat-in accounted for 95% of total value sales in cafés/bars in South Africa in 2016, with the remaining 5% accounted for by takeaway orders. However, this trend varies across channels. Channels, such as specialist coffee shops and juice/smoothie bars, are dominated by takeaway orders. Traditional cafés in South Africa are located in high-traffic areas, including shopping centres, supermarkets, office parks and airports, where they are able to benefit from the high volume of passing trade, with many consumers on the go.
- South Africa has a strong sport and drinking culture which means bars and pubs are ubiquitous in the country, from urban cities to rural areas. The bars/pubs include themed bars, historical taverns, and rough-and-tumble pubs. Due to the popularity of these channels, current value sales of bars/pubs increased by 8% in 2016.