Coffee -
Australia
HEADLINES
- Coffee achieves off-trade current value growth of 5% to
reach A$892 million in 2009
- Taste continues to be the key factor when consumers
pick their choice of coffee
- Unit prices rise as more consumers are willing to pay
more for taste, quality and sustainable coffee products
- Nestlé Australia Ltd leads coffee with a 62% current
value share in 2009
- Coffee is projected to achieve an off-trade constant
value CAGR of 1% over the forecast period
TRENDS
- Fresh coffee beans experienced the most robust
off-trade current value growth of 7% in 2009. With the economic recession,
many consumers had to cut back on numerous forms of indulgences such as
fine dining or a vacation getaway. As opposed to such costly indulgences,
having a wonderfully brewed of coffee is an affordable way to pamper
oneself. Therefore, consumers demonstrated an increasing willingness to
purchase fresh coffee beans in 2009.
- For the element of convenience, instant coffee also
continues to be favoured amongst consumers. A healthy off-trade current
value growth of 5% was achieved in 2009, encouraged by numerous new
product developments. An example is Cerebos Australia Ltd’s Riva, which
introduced three new instant coffee products, namely Riva Mocha, Riva
Cappuccino and Riva Latte in the last quarter of 2008. This was promoted
with a A$1.5 million campaign, where every week for six months until March
2009, the first 500 consumers who purchased this product could claim a
pair of free movie tickets.
- In 2009, coffee experienced 5% off-trade current value
growth, reflecting a half percentage point increase when compared to the
current value CAGR of 4.6% achieved over the review period of 2004 to
2008. This was contributed by the highly penetrated café culture, which
has led coffee machines to become a more common fixture in households. As
a result, more consumers trade up to more premium offerings, such as fresh
coffee beans. Therefore, 2009 enjoyed a healthier growth in comparison to
the review period of 2004-2008.
- Unit prices have increased in coffee as raw material
costs continue to rise and manufacturers are unable to absorb all of the
increases in their production costs. On top of this, rising affluence in
consumers has also driven their willingness to purchase more premium
coffee products. Similarly, consumers are willing to pay a little more for
an added touch of convenience, such as 3-in-1 instant coffee products
which are starting to appear in the supermarket aisles. Whilst 3-in-1
instant coffee products were still especially niche in 2009, this type of
coffee is growing in popularity due to its ease of use. An example is
Cerebos Australia Ltd’s Riva, which introduced three 3-in-1 instant coffee
products, namely Riva Mocha, Riva Cappuccino and Riva Latte in the last
quarter of 2008.
- Due to the economic slowdown, more consumers are
trading down from consuming coffee at specialist coffee shops to making
their own coffee at home. As a result, off-trade volume growth of coffee
stood at 4% in 2009, a two percentage point increase over 2008.
Conversely, on-trade volume growth of coffee registered 4% in 2009, a
slowdown of two percentage points when compared to 2008. This demonstrates
a significant trade-down from the more costly on trade to the more
affordable off-trade arena.
- Pertaining to manufacturers that supply consumer
foodservice channels that serve coffee, they range from niche and small
coffee bean roasters to global companies such as Luigi Lavazza SpA, which
distributes its Lavazza brand. With regards to the off-trade distribution,
supermarkets/hypermarkets continues to be the dominant channel with a 92%
off-trade volume share.
- There is little presence of vending of coffee products
in Australia, partially because consumer foodservice players such as
specialist coffee shops are conveniently located. Therefore, consumers
tend to either buy a coffee at such outlets or conveniently grab a cup for
takeaway. With this, there leaves little room for vending of coffee
products to be developed in Australia.
- In 2008, there were 13,300 cafés/bars outlets, of which
2,700 are accounted for by specialist coffee shops such as McCafé.
McDonald’s Australia Ltd rapidly expanded its chained specialist coffee
shops by introducing McCafé at many of its McDonald’s chained burger fast
food stores. In 2008, there were 516 McCafé outlets in Australia. The
presence of these consumer foodservice players continued to help secure a
positive on-trade volume growth of 4% in 2009.
- In 2009, coffee pods remained niche, accounting for a
minor 5% off-trade volume share of fresh ground coffee. However, it
demonstrated a good increase of one percentage point as compared to 2008.
It continues to be perceived as expensive in consumers’ eyes. Therefore,
moving forward into the forecast period, it is still expected to retain a
minor off-trade volume share of fresh ground coffee.
COMPETITIVE LANDSCAPE
- Nestlé Australia Ltd remained the leading player in
coffee with a 62% off-trade current value share in Australia in 2009. This
is due to its significant dominance of instant coffee, where it held a 73%
off-trade value share in 2009, due to its strong fleet of brands – namely
Nescafé and International Roast. Ranked second is Douwe Egberts Pty Ltd
with a 15% off-trade current value share of coffee in 2009, also
contributed by an established brand portfolio of Moccona and Harris.
- In 2009, Nestlé Australia Ltd increased its off-trade
current value share of coffee by one percentage point over 2008 to reach a
62% share. Other than increasing its efforts to tap into the rising fresh
coffee scene, Nestlé Australia Ltd also concentrated on its core strength,
which is instant coffee. In 2009, Nestlé Australia Ltd improved its range
of Nescafé Gold instant coffee products by switching the entire range to Arabica
beans, to enhance its flavour profile and provide consumers with a richer
taste. This was well received by consumers and in 2009, Nescafé’s value
share of instant coffee overall increased by two percentage points over
2008 to achieve a significant 67% off-trade share of current value sales.
- Global manufacturers such as Nestlé Australia Ltd
continue to dominate coffee sales. The leading manufacturer, Nestlé
Australia Ltd, alone accounted for 62% of off-trade current value sales in
2009. Multinational companies tend to have much larger advertising as well
as research and development budgets. As a result, the level of brand
awareness they achieve is especially high and they always feature new
product developments to draw consumers’ interest.
- Douwe Egberts Pty Ltd also introduced a range of
premium instant coffee products, namely Moccona Reserve Colombia High
Mountains Dark Roast and Moccona Reserve Brazil Highlands Medium Roast in
2009. The uniqueness of these products is that its coffee beans are only sourced
from one specific region. These new products were supported by a
substantial A$1 million advertising campaign that covered television
commercials and in-store promotions. With this, Douwe Egberts Pty Ltd
continued to retain its second position of 15% off-trade current value
share within instant coffee in 2009.
- In 2009, smaller players were also active in running
promotions to attract consumers. Introduced in the last quarter of 2008,
Cerebos Australia Ltd expanded its range of Riva products by launching
three new instant coffee products, namely Riva Mocha, Riva Cappuccino and
Riva Latte. This was promoted with a A$1.5 million campaign, which
promised that every week for six months until March 2009, the first 500
consumers who purchased this product could claim a pair of free movie
tickets. This campaign drew consumers and promoted repeat purchases. As a
result, Riva saw its sales increase by almost half a percentage point over
2008 to reach a 3% off-trade value share of instant standard coffee in
2009.
- With intensifying competition from numerous
manufacturers such as Nestlé Australia Ltd, Douwe Egberts Pty Ltd and
Cerebos Australia Ltd, private label continues to weaken in coffee. As
consumers continue to choose their coffee products based on taste and quality,
rather than solely on price points, private label fails to capture the
hearts of consumers in coffee. Therefore, facing numerous new product
developments across established brands such as Nescafé, Moccona and Riva,
private label declined to less than a 1% off-trade current value share in
2009.
PROSPECTS
- Coffee in Australia continues to show strong growth
through both on trade and off trade. Although the flow-on effects of the
global financial crisis may have interrupted the rate of on-trade growth the
coffee shop culture is alive and thriving. Coffee in Australia is an
entrenched part of the social fabric. However, increasingly Australians
are becoming aware of fair-trade and rainforest alliance issues and these
are becoming, increasingly, a concern of consumers. Similarly, organic
products are increasingly prevalent so that the origin of the coffee beans
is an increasingly important factor.
- In 2009, 3-in-1 instant coffee saw increased presence
in supermarkets. Whilst still especially niche, new product launches help
to introduce the 3-in-1 instant coffee format to consumers. An example is
Cerebos Australia Ltd’s Riva, which introduced three new 3-in-1 instant
coffee products, namely Riva Mocha, Riva Cappuccino and Riva Latte in the
last quarter of 2008. This was promoted with an A$1.5 million campaign,
where every week for six months until March 2009, the first 500 consumers
who purchased this product could claim a pair of free movie tickets. Over
the forecast period, 3-in-1 instant coffee may move from negligible sales
to account for a larger pie of the off-trade coffee scene in Australia.
- Over the forecast period, an off-trade constant value
CAGR of coffee is projected at 1%, reflecting a slowdown against 2009’s
constant value growth of 4%. As the economy picks up and recovers
gradually over the forecast period, more consumers are expected to start
returning to consuming coffee at on-trade channels such as specialist
coffee shops. As a result, the off-trade consumption within households is
projected to experience a slowdown. With this, on-trade volume growth of
coffee is anticipated to experience a healthy CAGR of 3% over the forecast
years of 2010-2014.
- The two biggest threats to the future development of
coffee in Australia are negative publicity concerning the healthfulness of
coffee and also the prospect of retaining younger consumers in the
category. Health authorities do not support excessive coffee consumption
and younger consumers are generally not familiar with the format of
instant coffee.
- 3-in-1 specialty instant coffee sachets have really
started to take off in Australia and look certain to enjoy further strong
growth across the forecast period. Currently driven by Nestlé Australia
Ltd entrant Nescafé Café Menu range, other new entrants seem imminent.
Strong growth is also expected across on-trade fresh coffee consumption as
drive-through venues become more entrenched and the coffee culture
continues to develop.
- Whilst off-trade sales of instant coffee have
experienced a resurgence of growth, the other prospect for off-trade sales
growth remains further development of in-home fresh coffee consumption.
Off-trade penetration levels of coffee machines and pod machines are
growing but there remains considerable scope for further development.
- The global financial crisis has had little if any
direct impact on coffee development in Australia other than an
interruption to the rate of growth of on-trade fresh coffee. Restaurant
patronage, which suffered initially with the onset of the crisis, is returning
to pre-crisis levels and both the breakfast coffee and social coffee
opportunities have experienced only minor and temporary interruptions.
- Along with the development of 3-in-1 specialty coffee
sachets, the main areas of focus of new product developments has been
premium instant coffee blends, organic certification, rainforest alliance,
fair-trade certification and anti-oxidant optimisation. Hence,
environmental, exploitation and health and wellness considerations are all
proving to be increasingly important factors in consumers’ choice of
coffee products and brands.
- Nestlé Australia Ltd has a close working relationship with DeLonghi Australia Pty Ltd regarding the development of its Nespresso coffee pod business. The inhibiting factor regarding off-trade development appears to be distribution of Nespresso pods, which currently is very limited and totally outside mainstream grocery outlets. Phillips Senseo coffee pod machine is currently unavailable in Australia and this appears to be due to a change of distributor/brand owner.
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