Coffee -
Algeria-Market Report
HEADLINES
- Off-trade volume growth of 2% and current value growth
of 10% from 2009 to reach sales of 53,000 tonnes and DZD28 billion in 2010
- Domestic players drive growth through improved
marketing and distribution
- Instant standard coffee sees strongest off-trade
current value growth of 14% in 2010 while fresh coffee beans sees
strongest volume growth of above 2%
- 8% current value growth in unit price in 2010
- Eurl Facto gains almost four percentage points and
overtakes Café Boukhari Sarl to lead with 14% off-trade value share in
2010
- 2% off-trade volume CAGR and 4% constant value CAGR
expected over forecast period
TRENDS
- Coffee sales were boosted in 2010 by the efforts of
domestic producers such as Eurl Facto, LaBelle and Café Aoued. These
players increased their production volumes and broadened distribution.
They also crucially invested in effective marketing campaigns, with a
focus on TV advertising. This boosted consumers’ trust in these players’
products, with many previously being concerned about the quality of
domestic coffee and also about the presence of counterfeit products.
Consequently, coffee maintained good sales growth in 2010 despite higher
prices and the impact of the economic downturn.
- Coffee saw off-trade volume growth of 2% in 2010 over
the previous year, with this representing an improvement in comparison to
a review period CAGR of 1%. Stronger growth towards the end of the review
period was thanks to widening distribution for affordable domestic brands.
This encouraged consumers to opt for packaged coffee rather than
unpackaged variants. This shift was also due to consumers becoming
increasingly concerned about the hygiene and quality of unpackaged
variants. Growth was also underpinned by the ongoing expansion of
supermarkets/hypermarkets across the country, with this channel offering
consumers access to a wider range of packaged coffee.
- The strongest product category is fresh coffee, with
this accounting for 95% of off-trade volume sales and 76% of value in
2010. This product area dominates, partly due to its more affordable
pricing in comparison to instant coffee but also due to consumers’ focus
on quality and a strong tradition for fresh coffee in the country. Coffee
is widely and frequently consumed in Algeria by all income groups,
generally being prepared using stove-top coffee makers and served with
milk. As domestic production offers reasonable quality and affordable
prices, this product area also saw the strongest off-trade volume growth
in 2010 over the previous year.
- Instant standard coffee meanwhile witnessed the fastest
growth in off-trade current value terms in 2010 over the previous year
with 14% increase. Volume growth of 2% in this area was supported by a
general increase in coffee consumption, along with the convenience offered
by instant coffee. Volume growth was also underpinned by widening
distribution for domestic brand Café Facto and stronger TV marketing.
- The main reason for instant coffee area seeing the
strongest current value growth in 2010 was however unit price growth. This
product area is led by strong global brands, such as Nescafé and Maxwell
House. These brands chiefly target high-income consumers and expatriates
and thus felt confident in increasing prices in line with rising
production and import costs in 2010. Due to the high income levels of
these brands’ consumer bases, they were able to increase prices without
jeopardising volume sales. Most consumers are reluctant to trade down to
domestic brands, believing these to be of lower quality than imported
brands.
- Instant decaffeinated coffee meanwhile saw the worst
performance in 2010 over the previous year, with volume sales declining by
1% and current value sales growing by less than 6%. Most consumers have
little interest in instant decaffeinated coffee, either drinking standard
coffee for its caffeine content or drinking other hot drinks if they wish
to avoid caffeine. Sales continued to decline towards the end of the
review period as distribution diminished for this unpopular product area.
2010 for example saw the withdrawal of Café Boukhari’s decaffeinated
coffee range due to poor sales and supply issues.
- Unit prices strongly increased by 8% in current value
terms in 2010 over the previous year. This increase was linked to the
rising cost of imports, following legislation introduced in July 2009 on
both imported end products and raw materials. From this time, imports could
only be made by companies at least 30% owned by Algerians and with a Tax
Identification Number, with a fee of DZD10,000 being imposed on each
import transaction for finished goods.
- On-trade sales of coffee are significant, accounting
for 27% of total volume sales in coffee in 2010 and a considerably
stronger value share due to high mark-ups. However, on-trade sales
registered slower growth than off-trade sales in volume terms in 2010.
There was an increasing trend of meeting friends in on-trade outlets for
an afternoon coffee and the presence of chained coffee shops continued to
expand, with these outlets accounting for 8% of on-trade volume sales in
2010. However, this trend remained limited to large cities and
higher-income consumers at the end of the review period, with interest in
on-trade coffee further being softened due to the impact of the economic
downturn. Consequently, the majority of consumers generally go home to
drink coffee with their family and friends, while coffee shops with a
takeaway service are not present in Algeria.
- Both independent small grocers and
supermarkets/hypermarkets gained off-trade volume share in coffee at the
end of the review period. Independent small grocers dominates, accounting
for 52% share in 2010. This channel lost share for much of the review
period. However, the impact of the economic downturn and widening
distribution for domestic coffee brands via this channel boosted its share
in 2010. Supermarkets/hypermarkets meanwhile benefited from ongoing outlet
volume expansion across the country. Coffee is limited to a handful of
distribution channels, with no presence for channels such as vending, for
example.
- Coffee sales continued to be dominated by basic
products at the end of the review period, with little presence for
speciality coffee. All instant coffee sales were for example derived from
instant standard and decaffeinated coffee, with no presence for coffee
mixes or speciality variants such as cappuccino. There was also no
presence for coffee pods during the review period.
COMPETITIVE LANDSCAPE
- Eurl Facto gained the lead in coffee in 2010 for the
first time during the review period with 14% off-trade value share and 16%
off-trade volume share. This domestic company is present in both fresh and
instant coffee and benefited from increasing its production volume towards
the end of the review period. The company also benefited from strong
advertising via Algerian TV towards the end of the review period, with
this having a strong impact on consumers and greatly increasing consumer
trust in its product quality. A strong focus on price competition also
boosted the company’s share, with Eurl Facto reducing its unit prices in
2010 over the previous year and thus attracting many consumers. Eurl Facto
consequently saw the strongest growth in off-trade value share in 2010
over the previous year, with the company’s share rising by four percentage
points.
- Eurl Facto also benefited from the poor performance of
Café Boukhari in 2010. This company was the leader in coffee for much of
the review period but lost four percentage points in off-trade volume
share and three percentage points in value share in the year, dropping to
second place and 14% of volume and 11% of value. The company saw a marked
drop in its volume share due to increasing prices in the year, which made
it vulnerable to competitors such as Eurl Facto.
- In addition, Café Boukhari experienced difficulties in
decaffeinated coffee in 2010. The company entered decaffeinated coffee in
2009, launching affordably priced decaffeinated coffee designed to make
this product area affordable to the majority of consumers. However, the
company experienced poor sales in this area. Most decaffeinated coffee
consumers are from high-income groups or are expatriates, with these
consumers typically having a mistrust of domestic brands and preferring
strong global brands. Consequently, the company struggled to attract these
consumers and, following issues with its Spanish supplier the company
effectively withdrew from this area in 2010.
- Domestic manufacturers dominate fresh coffee, with the
top five players all being domestic companies. These players benefit from
their lower prices, with many gaining share further towards the end of the
review period thanks to strong marketing campaigns. However, international
brands lead instant coffee, such as Kraft’s Maxwell House and Carte Noire
and Nestlé’s Nescafé. In instant coffee, there is only one significant
domestic brand, Eurl Facto’s Café Facto, with this accounting for less
than 10% value share in 2010. Instant coffee is mainly consumed by
high-income consumers, who generally believe imported brands to offer
better quality than domestic products.
- Over 2009 and 2010, several domestic manufacturers
launched strong TV advertising for their coffee. The leading domestic
advertisers in coffee towards the end of the review period were Eurl Facto
for its Facto and Café Facto brands, LaBelle for Bonal and Café Aoued for
Aoued. Advertising on national TV has a strong impact on consumers, with
these brands thus witnessing a strong sales increase in 2010.
- Coffee prices significantly increased in Algeria during
the review period for all brands. Consequently, while domestic brands used
to be considered to be economy brands they are now generally viewed as
mid-priced brands. Due to premium brands’ prices strongly increasing,
these products are meanwhile only affordable to high-income consumers.
Mid-priced brands meanwhile lead, with few economy brands being available
by the end of the review period.
PROSPECTS
- There is expected to be a further sharp rise in price
for instant coffee during the forecast period, with the possibility of
further increases in import taxes and the rising cost of raw materials.
There is also less impetus for price controls in instant coffee than in
fresh coffee, with the former being dominated by multinationals and mainly
appealing to high-income consumers. Consequently, the consumer base for
instant coffee will continue to be limited by high prices during the
forecast period, with constant value unit price expected to rise by a
further 28% in this product area.
- Fresh coffee is thus expected to continue to dominate
sales during the forecast period and will also see the strongest off-trade
volume growth of 13%. Most consumers prefer the flavour of fresh coffee
and are willing to put in the extra effort in preparation when the price
of instant coffee is so high. Fresh coffee will also benefit from the
presence of strong domestic players, with these players investing in TV
advertising and focusing on price competition as they push for a stronger
share.
- Instant coffee is also expected to see a good off-trade
volume growth of 11% during the forecast period, however. This growth will
be supported by the country’s economic growth, with a rise in disposable
income levels, and by ongoing urbanisation. Busy and aspirational consumers
will increasingly purchase instant coffee as a result, particularly young
adults and office workers.
- Coffee is expected to continue growing steadily, with
the forecast period seeing 2% off-trade volume CAGR. This represents an
improved performance in comparison to the review period, which saw just 1%
off-trade volume CAGR. Stronger growth will be underpinned by an increase
in average incomes and the development of supermarkets/hypermarkets. There
is thus expected to be an ongoing shift from informal retailers and
unpackaged products to packaged coffee purchased from
supermarkets/hypermarkets, as consumers seek more hygienic and better
quality products.
- On-trade and off-trade volume growth rates are expected
to be similar during the forecast period. While growth in the off-trade
will be driven by a shift towards packaged coffee and formal retailing
channels, growth in the on-trade will be supported by expansion in the
number of cafés/bars and restaurants. This trend is expected to be
strongest in Algeria’s largest cities, encouraging more consumers to
socialise over coffee. Growth is also expected to be boosted by expansion
in the number of chained coffee shops, with these encouraging a nascent
coffee culture in the country.
- There is expected to be a rise in sales of electrical
coffee machines during the forecast period as income levels improve and
distribution for these products widens. This will encourage a rise in
coffee consumption, enabling an easier preparation of fresh coffee. Coffee
pods are however unlikely to gain a significant presence in the country
during the forecast period, due to the high price of coffee pod machines
and also of the pods themselves.
