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COFFEE PLUS LTD.<br />

CONFIDENTIAL INFORMATION MEMORANDUM<br />

DIVESTITURE » SUCCESSION » EXIT PLANNING » SELL<br />

1.888.859.5388 | www.pavilionservices.com


Table of Contents<br />

Business Summary 3<br />

Facilities and Business Premises<br />

5<br />

Administration and Operations<br />

6<br />

Current Sales and Marketing Efforts<br />

9<br />

Sales Statistics<br />

10<br />

Opportunities<br />

11<br />

Appendix A: Current Franchise Locations<br />

12<br />

Appendix B: Franchise Menu Items<br />

13<br />

Appendix C: <strong>Coffee</strong> and Tea Industry Overview<br />

14<br />

Appendix D: Works Cited<br />

24<br />

The information contained herein is based on sources that are believed to be reliable. Pavilion Business Services nor any of its<br />

directors, officers, employees or agents, make any representation or warranty as to the accuracy or completeness thereof, take any<br />

responsibility for any errors or omissions which may be contained herein or accept any liability whatsoever for any consequences<br />

arising from any use of or reliance on the contents hereof. Each prospective purchaser or investor acknowledges and agrees that<br />

he or she and his or her professional advisors are solely responsible for evaluating all information contained herein.<br />

Contact Pavilion Business Services<br />

To learn more about the various exit options you have as a business<br />

owner and how we can help you successfully sell your company –<br />

call us to arrange an exploratory meeting and discuss your options<br />

in a confidential manner.<br />

1.888.859.5388<br />

www.pavilionservices.com<br />

2


Business Summary<br />

General Business Information<br />

Name of Business<br />

Doing Business as<br />

Type of Business<br />

Year Founded<br />

<strong>Coffee</strong> <strong>Plus</strong> Ltd.<br />

<strong>Coffee</strong> <strong>Plus</strong><br />

<strong>Coffee</strong> franchisor and roasting plant<br />

1994<br />

Address<br />

5986 84th Street Calgary, Alberta, Canada<br />

Head Office Hours<br />

Mon- Fri 8am 4pm<br />

Shareholders<br />

Property<br />

Brendan Wicks (33.3%); Jess Wicks (33.3%);<br />

John Mills (33.3%)<br />

Available for sale<br />

Number of Employees:<br />

(not including shareholders)<br />

Reason for Selling<br />

18 - Full Time<br />

06 - Part Time<br />

Retirement<br />

Website<br />

www.<strong>Coffee</strong><strong>Plus</strong>.com<br />

Financial Statement Highlights<br />

Consolidated Figures: <strong>Coffee</strong> <strong>Plus</strong> Ltd.<br />

2012 2013 2014 2015 2016F 2017F<br />

Revenue $8,383,587 $7,743,165 $7,720,698 $7,563,549 $8,546,811 $8,974,152<br />

EBITDA (adjusted)<br />

$844,551 $2,706,150 $993,720 $2,212,485 $2,500,107 $2,625,114<br />

The company’s year-end is September 30th.<br />

3


Business Summary<br />

Opportunity<br />

<strong>Coffee</strong> <strong>Plus</strong> is headquartered in Calgary, Alberta. The<br />

company was founded in 1994. <strong>Coffee</strong> <strong>Plus</strong> has 23 franchise<br />

locations throughout Canada. The current shareholders are<br />

all in agreement with the sale of <strong>Coffee</strong> <strong>Plus</strong>. They will be<br />

leaving behind long-term employees that possess a great<br />

deal of experience. Brendan Wicks and John Mills are willing<br />

to remain in the business after the sale for up to one (1) year<br />

to ensure a smooth transition.<br />

Included in the sale:<br />

• <strong>Coffee</strong> <strong>Plus</strong> Ltd. (dba <strong>Coffee</strong> <strong>Plus</strong>), also referred to as CP<br />

• <strong>Coffee</strong> <strong>Plus</strong> Bakery No. 1, Inc., herein referred to as CPB#1<br />

• <strong>Coffee</strong> <strong>Plus</strong> Inc. (Franchise Advertising Management co.),<br />

herein referred to as CP<br />

• Other cafes included, if available at the time of sale (*Note:<br />

not included in the financials):<br />

• Three corporate wholly-owned franchise locations:<br />

1. Calgary , BC<br />

• 0876743 BC LTD Franchise Store (#17 – Calgary)<br />

• Corporate training centre, generates income, used as<br />

write-off, asset value only<br />

2. Vancouver, BC<br />

• CP19 COFFEEHOUSE INC Franchise Store<br />

• Asset value only<br />

3. Ontario, BC<br />

• 0815689 BC Ltd Franchise Store (#03 – Ontario)<br />

History<br />

1994<br />

<strong>Coffee</strong> <strong>Plus</strong> Ltd. founded by Brendan Wicks Jess Wicks John Mills<br />

1997<br />

Vancouver BC franchise location opened, the first outside AB<br />

2015<br />

2015 Ontario location open. First in the East Coast<br />

4


Facilities & Business Premises<br />

Alberta<br />

Alberta is a province in Western Canada. Its landscape<br />

encompasses mountains, prairies, desert badlands and vast<br />

coniferous forests. It has more than 600 lakes, and rich mineral<br />

deposits. In the west, the Canadian Rocky Mountain Parks<br />

have glaciers in the Columbia Icefields. The Waterton Glacier<br />

International Peace Park is a biosphere reserve that straddles the<br />

southern border with the USA.<br />

City of Calgary<br />

Calgary, a cosmopolitan Alberta city with numerous skyscrapers,<br />

owes its rapid growth to its status as the centre of Canada’s<br />

oil industry. However, it’s still steeped in the western culture<br />

that earned it the nickname “Cowtown,” evident in the Calgary<br />

Stampede, its massive July rodeo and festival that grew out of<br />

the farming exhibitions once presented here.<br />

Property<br />

The company owns the corporate head office location property.<br />

The mortgage payment is currently $2,910 per month.<br />

• Roasting plant: 2,500 sq. ft.<br />

• Warehouse: 1,200 sq. ft.<br />

• Office: 1,200 sq. ft.<br />

• SB#1: 1,200 sq. ft.<br />

The head office property is included in the sale.<br />

5


Administration & Operations<br />

Company Structure<br />

Shareholders<br />

Table 1: Shareholders<br />

Name Position<br />

Age Shareholding %<br />

Brendan Wicks<br />

President/Chief Executive Officer (CEO)<br />

55<br />

33.3%<br />

Jess Wicks<br />

Chief Production Officer (CPO) 60 33.3%<br />

John Mills<br />

Chief Information Officer (CIO)<br />

52<br />

33.3%<br />

Brendan Wicks currently works on a part-time basis,<br />

approximately 25-30 hours per week. Brendan Wicks’s<br />

responsibilities include managing the general direction of the<br />

business and expanding the business through franchising.<br />

Brendan Wicks is willing to remain in the business after the sale<br />

for up to one (1) year to ensure a smooth transition.<br />

Jess Wicks’s retired September 1, 2015, position is not being refilled.<br />

John Mills works on a part-time basis, approximately 25-30<br />

hours per week. John is willing to remain in the business after<br />

the sale for up to one (1) year to ensure a smooth transition.<br />

7


Administration & Operations<br />

Staff<br />

<strong>Coffee</strong> <strong>Plus</strong> head office has eighteen (18) full-time and six (6) part-time employees. These individuals will ensure a smooth<br />

transition for new ownership. Table 2 below outlines <strong>Coffee</strong> <strong>Plus</strong>’s key staff:<br />

Table 2: Key Staff<br />

Name Position<br />

Age Length of Service<br />

Employee 1<br />

Purchaser / Bakery Supervisor<br />

32<br />

8 Years<br />

Employee 2<br />

Master Roaster<br />

50<br />

5 Years<br />

Employee 3<br />

Executive Assistant / Project Coordinator<br />

48<br />

8 Years<br />

Employee 4<br />

Payroll, Accounts Payable/Receivable<br />

47<br />

8 Years<br />

Employee 5<br />

Graphic Design / Marketing<br />

59<br />

3 Years<br />

Lisa Brown negotiates with suppliers and handles the bakery and food menu. Lisa currently works on a part-time basis,<br />

approximately 25-30 hours per week. Lisa’s position can be trained over a six (6) month period.<br />

The Master Roaster roasts coffee and supervises warehouse employees.<br />

Suppliers<br />

<strong>Coffee</strong> <strong>Plus</strong> is not vulnerable to any suppliers. Lisa Brown<br />

negotiates with suppliers to get the best price.<br />

Lead Times<br />

<strong>Coffee</strong> is roasted only when ordered by a franchisee and then<br />

delivered the next day.<br />

Legal<br />

The company is not currently involved in any legal proceedings.<br />

8


Administration & Operations<br />

Franchises<br />

There are 42 <strong>Coffee</strong> <strong>Plus</strong> Franchise locations, 28 franchise<br />

locations throughout Western Canada and 14 on the east coast.<br />

Three locations (Calgary, Vancouver, and Regina) are corporate<br />

wholly-owned locations. Many locations provide a catering<br />

service and feature comfortable seating, fireplaces, free parking,<br />

free Wi-Fi, great local art and outdoor seating/patios. Three<br />

franchise locations have a drive-through. The cafés have varying<br />

hours of operation.<br />

Several locations have bike racks and/or are located near bus<br />

stops. A few locations have a meeting spaces, book swap, board<br />

games or open mic nights. Current franchise locations and<br />

an overview of menu items can be found in Appendix A and<br />

Appendix B, respectively.<br />

Franchising highlights<br />

West Coast sites:<br />

• Initial franchise fee: $25,000<br />

• Franchise renewal fee:<br />

$2,500<br />

• Two-week training period<br />

• Royalty fee: 4%<br />

• Advertising fee: 2%<br />

Administration & Operations<br />

East Coast sites:<br />

• Initial franchise fee:<br />

$35,000<br />

• Franchise renewal fee:<br />

$3,500<br />

• Two-week training period<br />

• Royalty fee: 6%<br />

• Advertising fee: 4%<br />

9


Current Sales & Marketing Efforts<br />

Current Efforts<br />

Online Marketing<br />

Company Website<br />

(www.<strong>Coffee</strong><strong>Plus</strong>.com)<br />

Twitter<br />

(@<strong>Coffee</strong>plus)<br />

Facebook<br />

(/coffeeplus)<br />

YouTube<br />

(/coffeeplus)<br />

Picasa<br />

(/coffeeplus)<br />

FourSquare<br />

(/coffeeplus)<br />

Word-of-mouth/network of<br />

satisfied, past customers<br />

11


Sales Statistics<br />

Figure 2: <strong>Coffee</strong> plus Historical and Projected Revenues<br />

Consolidated Figures<br />

Consolidated Historical & Projected Revenues<br />

$10,000,000<br />

$9,000,000<br />

$8,500,000<br />

$8,383,587<br />

$7,720,698<br />

$8,546,811<br />

$8,974,152<br />

$7,000,000<br />

$6,000,000<br />

$5,000,000<br />

$4,000,000<br />

$3,000,000<br />

$2,000,000<br />

$7,743,165<br />

$7,563,549<br />

$0<br />

2012 2013 2014 2015 2016F 2017F<br />

*Consolidated figures: CP and CPB#1<br />

12


Opportunities<br />

Competitive Advantages<br />

There are a number of competitive advantages that make<br />

<strong>Coffee</strong> plus a unique acquisition opportunity, some of these<br />

advantages include:<br />

• Well-established reputation and brand awareness<br />

o Over 20 years in the industry<br />

o Considered a major franchise brand on Vancouver<br />

Island<br />

• Known for high quality, fresh coffee<br />

o Just-in-time roasting: only roast the coffee when a<br />

franchise/café has made an order and the coffee is<br />

delivered the next day<br />

• Strong relationships with suppliers<br />

• Excellent relationships with franchisees<br />

• Well-documented and operated franchise model<br />

o 42 franchises<br />

o Some franchisees operate more than one <strong>Coffee</strong> plus<br />

franchise<br />

Recent/Future Developments<br />

The following are recent or future developments planned or<br />

underway by <strong>Coffee</strong> plus:<br />

• Mobile app for online ordering<br />

Growth Potential<br />

There are numerous avenues of growth that can be explored<br />

by a new owner, some potential areas of growth include:<br />

• Sell more swag/retail items to consumers<br />

• Price increases to chain with long-term planning in place<br />

for retail price increases<br />

• Grocery store wholesale growth<br />

• Franchise the coffee roasting plant or bakery<br />

• Sell master franchise areas<br />

• International growth potential<br />

• Every single cafe opened will increase sales from a<br />

wholesale plant. The current owners believe this number<br />

will rise off-island, given the stronger population<br />

demographics versus Vancouver Island population<br />

demographics. Increasing the chain size should be<br />

relatively easy given the company’s history, trained staff<br />

in place and available procedures information.<br />

For example, say 60 cafes opened at $550K yearly sales per cafe<br />

= $33,000,000.00 net sales<br />

• Expect<br />

o $540,000.00 in Royalties / $360,000.00 in Advertising<br />

o and approximately $1,500,000.00 in manufacturing<br />

sales or more at a 26-28% net of gross sales<br />

• Take-out menu<br />

• Custom bags sizes are developed and in stock, sizes are<br />

250G, 400G, 2270G with a 800G coming soon<br />

13


Appendix A: Current Franchise Locations<br />

<strong>Coffee</strong> plus Current Franchise locations<br />

<strong>Coffee</strong> <strong>Plus</strong> has 24 franchise locations, of which 13 franchise locations throughout Western Canada and 11 on the east coast.<br />

West Coast<br />

1. Vancouver<br />

2. Surrey<br />

3. Burnaby<br />

4. Calgary<br />

5. Regina<br />

6. Saskatoon<br />

7. Edmonton<br />

8. Whistler<br />

9. Banff<br />

10. Kamloops<br />

11. Medicine Hat<br />

East Coast<br />

1. Thunderbay<br />

2. Winnipeg<br />

3. Ottawa<br />

4. Montreal<br />

5. Quebec City<br />

6. Saguenay<br />

7. St John<br />

8. Kingston<br />

9. Torronto<br />

10. Hamilton<br />

11. London<br />

12. Weyburn<br />

13. Kindersley<br />

* Corporate wholly-owned location<br />

15


Appendix B: Franchise Menu Items<br />

Franchise Menu Items<br />

<strong>Coffee</strong> <strong>Plus</strong> franchises carry the following menu<br />

items:<br />

Hot<br />

Cold<br />

• Drip<br />

• Iced Americano<br />

• Decaf<br />

• Frappe<br />

• Americano<br />

• Iced Latte<br />

• Cappucino<br />

• Frappe Mocha<br />

• Espresso<br />

• Iced Mocha<br />

• Latte<br />

• Frappe Maccha<br />

• Mocha<br />

Latte<br />

Teas<br />

Edibles<br />

• Hot Chocolate<br />

• Chai Latte<br />

• Maccha Latte<br />

• Tea Misto<br />

• Steamer<br />

• Iced Maccha<br />

Latte<br />

• Iced Tea<br />

• Italian Soda<br />

• Smoothies<br />

• Black<br />

• Chai<br />

• White<br />

• Green<br />

• Maccha<br />

• Breakfast Options<br />

• Bagels<br />

• Quesadillas<br />

• Brioche<br />

• Granola<br />

• Gluten & Sugar<br />

Free<br />

• Chilli & Stew<br />

• Soups & Bisques<br />

• Cookies & Bars<br />

• Hot Apple Cider<br />

• Yerba Mater<br />

• Wraps<br />

Beans<br />

• Mild<br />

• Organic<br />

• Medium<br />

• French Roast<br />

• Smoky<br />

• Bold<br />

• Aribica Intense<br />

• House Blend<br />

• True North Blend<br />

• Veranda Blend<br />

• Rooibos/Herbal<br />

Merchandise<br />

• Reloadable Card<br />

• <strong>Coffee</strong> Related<br />

Items:<br />

• Travel Mugs and<br />

Tumerblers<br />

• Muffin & Scones<br />

• Lunch & Light<br />

Dinners<br />

• Rolls<br />

• Sandwiches<br />

• Paninis<br />

• Ethiopian<br />

16


Appendix C: <strong>Coffee</strong> & Tea Industry Overview<br />

Introduction to Canada’s <strong>Coffee</strong> Industry<br />

Although Canada does not have the appropriate climate for growing coffee, Canadian-based firms do import raw materials for<br />

processing and resale into domestic and export markets. <strong>Coffee</strong> manufactured for retail and foodservice markets has been an<br />

important component of food and beverage processing in the country for many years.<br />

<strong>Coffee</strong> is believed to have arrived in North America in 1607 and has been enjoyed by North Americans for centuries. However the<br />

first reference to coffee being drunk in North America was in 1668.<br />

<strong>Coffee</strong> is the most popular hot beverage in Canada with a total of 14 billion cups consumed annually. An estimated 64% of<br />

Canadians drink coffee each day. <strong>Coffee</strong> is also the top beverage in the Canadian foodservice category.<br />

Over 30 developing countries export coffee to Canada and those coffee shipments are still an important source of foreign<br />

exchange and job creation in 10-12 Latin American and African countries in terms of their total trade and connection to Canada.<br />

• Internationally – <strong>Coffee</strong> businesses are involved in a multitude of sustainability initiatives around the world involving<br />

important initiatives in environmental, economic and social arenas and the coffee sector serves as a role model for the breadth<br />

of these initiatives aimed at connecting the many elements of a valuable and complex supply chain.<br />

• Domestically – <strong>Coffee</strong> businesses drive important sustainability initiatives in store design, recycling and operating practices as<br />

well as supporting many charitable activities.<br />

An Important Social Connector & Quintessential Canadian Activity<br />

• Common social connector at home, at work and in café and restaurant settings<br />

• Most popular beverage other than tap water amongst adult Canadians (16+)<br />

• Two-thirds of adult Canadians enjoy at least one cup of coffee a day<br />

• Of the traditional importing markets for coffee – North America, Europe and Japan, Canada is showing, by a considerable<br />

degree, the fastest sustained growth in the last decade<br />

1<br />

3<br />

2<br />

1<br />

2<br />

3<br />

The Canadian <strong>Coffee</strong> Industry, Sub-Sector Profile, Agriculture and Agri-Food Canada, Government of Canada, October 2010<br />

<strong>Coffee</strong> and tea industry trends from the Canadian <strong>Coffee</strong> and Tea Show, Agriculture and Agri-Food Canada,<br />

Government of Canada,October 2011<br />

The Role of the <strong>Coffee</strong> Sector in Canada, <strong>Coffee</strong> Association of Canada<br />

17


Appendix C: <strong>Coffee</strong> & Tea Industry Overview<br />

Global<br />

<strong>Coffee</strong> competes with a variety of other non-alcoholic beverages including tea, soft drinks, energy drinks, milk and dairy<br />

beverages, fruit juices, bottled water, sports drinks, vegetable juices, soya beverages, hot chocolate, and low alcohol wine coolers<br />

and ciders.<br />

Figure 2: Global Beverage Market, Total Liquid Volume, 2014<br />

350<br />

300<br />

250<br />

200<br />

150<br />

100<br />

50<br />

0<br />

Bottled Water<br />

Tea<br />

Carbonates<br />

<strong>Coffee</strong><br />

Juice<br />

Concentrates<br />

Other Hot Drinks<br />

Sports Drinks<br />

Energy Drinks<br />

<strong>Coffee</strong> is among the most consumed beverages by volume globally. In 2014, Canada ranked 9th in retail value with $2.1 billion.<br />

Table 3: Top Markets Globally in Retail Value in 2014<br />

Rank<br />

Country<br />

Value ($ billion dollars)<br />

Rank<br />

Country<br />

Value ($ billion dollars)<br />

1<br />

United States<br />

$12.8<br />

6<br />

Russia<br />

$3.7<br />

2<br />

Brazil<br />

$6.4<br />

7<br />

United Kingdom<br />

$2.5<br />

3<br />

Germany<br />

$6.4<br />

8<br />

Italy<br />

$2.4<br />

4<br />

Japan<br />

$4.6<br />

9<br />

Canada<br />

$2.1<br />

5<br />

France<br />

$4.2<br />

10<br />

Mexico<br />

$1.8<br />

Canada has a highly developed away-from-home coffee market and is second only to Italy in highest percentage<br />

of total cups of coffee consumed outside the home.<br />

18


Appendix C: <strong>Coffee</strong> & Tea Industry Overview<br />

Industry Structure<br />

<strong>Coffee</strong> and tea represent 1.1% of total food and beverage sales of manufactured goods in Canada.<br />

In 2008, 112 establishments (plants) in the tea and coffee industry shipped $917 million worth of product and employed 2,240<br />

people. Canadian tea and coffee exports totalled $251.2 million in 2008. The Canadian market absorbed the remaining $666<br />

million in domestic shipments and a volume of imports worth $785.2 million. This industry continues to be a net importer.<br />

Figure 3: Tea and <strong>Coffee</strong> Imports, Exports and Sales of Goods Manufactured, 2008 and 2012<br />

4<br />

Canadian Market Sales of Goods Manufactured<br />

2008: $1,451M<br />

2008: $917M<br />

2012: $1,893M<br />

2012: $1,290M<br />

$1,143M<br />

$785M<br />

$666M<br />

$750M<br />

$540M<br />

$251M<br />

Imports Domestic Shipments<br />

Exports<br />

2008 2012<br />

The Canadian market for tea and coffee was valued at $1,451 million and sales of goods manufactured were valued at $917 million<br />

in 2008. In 2012, the market for tea and coffee was valued at $1,893 million and sales of goods manufactured were valued at<br />

$1,290 million.<br />

4<br />

The Canadian <strong>Coffee</strong> Industry, Sub-Sector Profile, Agriculture and Agri-Food Canada, Government of Canada, October 2010<br />

19


Appendix C: <strong>Coffee</strong> & Tea Industry Overview<br />

The majority of tea and coffee processing takes place in Ontario (42 establishments in 2010), Quebec (36 establishments in 2010)<br />

and British Columbia (26 establishments in 2010) as seen in the table below.<br />

Table 4: Number of Establishments (plants) in the Tea and <strong>Coffee</strong> Industry, 2004-2010<br />

Location 2004 2005 2006 2007 2008 2009 2010<br />

Nova Scotia<br />

New Brunswick<br />

Quebec<br />

Ontario<br />

Manitoba<br />

Saskatchewan<br />

Alberta<br />

British Columbia<br />

Canada<br />

2 2 3 3 2 2 4<br />

3 3 2 2 2 2 2<br />

27 47 36 34 37 36 36<br />

38 41 37 41 35 34 42<br />

1 1 1 2 3 3 3<br />

1 •• •• •• •• •• ••<br />

9 9 7 9 10 9 9<br />

22 23 25 26 23 24 26<br />

103 126 111 117 112 111 122<br />

•• Data not available<br />

2010 is the most recent data available from Statistics Canada<br />

<strong>Coffee</strong> is an age-driven rather than a gender-driven industry. It is the second most consumed beverage, after water, by people<br />

25 and older, and the top beverage of choice for adults, especially those in the 25 to 49 age group. The greatest consumption of<br />

coffee is found in the 50+ age group.<br />

The quick service coffee market in Canada is currently estimated at $3 billion and continues to grow. In 2010, Canadians consumed<br />

1.5 billion cups of coffee from quick service establishments. Quick service restaurants and fast food chains have recognized<br />

the potential of the upscale premium coffee market and are diversifying their coffee offerings to include more sophisticated<br />

beverages, in addition to drip coffee.<br />

Overall coffee consumption at restaurants in 2014 was 2.1 billion servings of coffee.<br />

5<br />

5<br />

The Canadian <strong>Coffee</strong> Industry, Sub-Sector Profile, Agriculture and Agri-Food Canada, Government of Canada, October 2010<br />

21


Appendix C: <strong>Coffee</strong> & Tea Industry Overview<br />

Figure 4: Per Capita <strong>Coffee</strong> Retail Value<br />

Sales (US$, 2014)<br />

Figure 5: Per Capita Specialist <strong>Coffee</strong><br />

Shop Transactions (2014)<br />

70<br />

16<br />

60<br />

14<br />

50<br />

12<br />

10<br />

40<br />

8<br />

30<br />

6<br />

20<br />

4<br />

10<br />

2<br />

0<br />

US<br />

Canada<br />

0<br />

US<br />

Canada<br />

Strong Growth despite being a mature and competitive market<br />

Figure 6: Retail Value Sales (Tons)<br />

Figure 7: Retail Value Sales (US$ Bn)<br />

90<br />

2.5<br />

80<br />

70<br />

60<br />

50<br />

40<br />

30<br />

20<br />

10<br />

0<br />

2<br />

1.5<br />

1<br />

0.5<br />

0<br />

2000<br />

2002<br />

2004<br />

2006<br />

2008<br />

2010<br />

2012<br />

2014<br />

2000<br />

2002<br />

2004<br />

2006<br />

2008<br />

2010<br />

2012<br />

2014<br />

22


Appendix C: <strong>Coffee</strong> & Tea Industry Overview<br />

Trends<br />

<strong>Coffee</strong> in Canada grew by 19% in off-trade current value<br />

terms in 2014 to reach C$2.3 billion. Meanwhile, off-trade<br />

volume sales rose by a more modest 4%. The much slower<br />

volume performance was due to already high per capita<br />

coffee consumption in Canada. In addition, Canadian<br />

foodservice is very competitive in terms of coffee and<br />

continues to expand. This inevitably affects the retail<br />

performance, as the consumption of coffee has a limit.<br />

As seen in the infographic on the right, a survey released by<br />

the Canadian <strong>Coffee</strong> Association in 2014 indicated that:<br />

• two-thirds of adult Canadians (65%) consumed coffee in<br />

the past-day<br />

• Approximately 78% of 18-79 year-olds stated that they<br />

had consumed coffee in the past week, while 84% of<br />

Canadian consumers drank coffee in the past year<br />

• On average, coffee drinkers drink 3.2 cups of coffee per<br />

day<br />

• Overall, around three-quarters (78%) of consumers who<br />

drank coffee in the past-day consumed it at-home, while<br />

37% consumed coffee out-of-home.<br />

The demand for fresh coffee beans was supported by a<br />

large number of specialist coffee shops like Starbucks and<br />

expanding grocery retailers, which are likely to remain and<br />

maintain a strong presence. For example, Second Cup has<br />

increased its retail selection of fresh coffee beans across<br />

Canada. In 2014, Second Cup added three whole bean<br />

products and three roast and ground coffees. These coffee<br />

products are popular in foodservice outlets.<br />

6<br />

6<br />

Passport: <strong>Coffee</strong> in Canada, Euromonitor International, March 2015<br />

23


Appendix C: <strong>Coffee</strong> & Tea Industry Overview<br />

Differentiation is key across all coffee categories.<br />

Buzzwords in<br />

Consumables<br />

Natural<br />

Organic<br />

Fair<br />

Trade<br />

Non-<br />

GMO<br />

Gluten<br />

Free<br />

Figure 8: Retail Value Sales of Organic <strong>Coffee</strong> (US $ millions) in Canada<br />

7<br />

250<br />

200<br />

150<br />

100<br />

50<br />

0<br />

2009 2010 2011 2012 2013 2014<br />

7<br />

Euromonitor International<br />

24


25<br />

Appendix C: <strong>Coffee</strong> & Tea Industry Overview<br />

Table 5: Forecast Retail Sales of <strong>Coffee</strong> by Category, 2014-2019<br />

8<br />

Volume (tonnes) 2014 2015 2016 2017 2018 2019<br />

% Growth<br />

2014/19<br />

Fresh <strong>Coffee</strong><br />

Free <strong>Coffee</strong> Beans<br />

Fresh Ground <strong>Coffee</strong><br />

Fresh Ground <strong>Coffee</strong> Pods<br />

Standard Fresh Ground <strong>Coffee</strong><br />

Instant <strong>Coffee</strong><br />

Instant Standard <strong>Coffee</strong><br />

Instant Decaffeinated <strong>Coffee</strong><br />

<strong>Coffee</strong><br />

74,595.90 78,208.50 80,226.70 81,627.10 82,144.40 82,467.40 10.6%<br />

9,716.00 9,991.00 10,245.10 10,481.00 10,687.80 10,888.70 12.1%<br />

64,879.90 68,217.50 69,981.50 71,146.10 71,456.50 71,578.70 10.3%<br />

13,271.70 16,969.20 19,010.10 20,319.80 20,904.40 21,477.10 61.8%<br />

51,608.20 51,248.30 50,971.40 50,826.20 50,552.20 50,101.60 -2.9%<br />

6,116.20 5,904.80 5,682.10 5,453.40 5,236.40 5,036.50 -17.7%<br />

5,769.10 5,572.60 5,365.30 5,152.20 4,950.30 4,765.10 -17.4%<br />

347.10 332.30 316.80 301.20 286.10 271.40 -21.8%<br />

80,712.10 84,113.30 85,908.80 87,080.40 87,380.80 87,504.00 8.4%<br />

Value ($CAD million)<br />

Fresh <strong>Coffee</strong><br />

Free <strong>Coffee</strong> Beans<br />

Fresh Ground <strong>Coffee</strong><br />

Fresh Ground <strong>Coffee</strong> Pods<br />

Standard Fresh Ground <strong>Coffee</strong><br />

Instant <strong>Coffee</strong><br />

Instant Standard <strong>Coffee</strong><br />

Instant Decaffeinated <strong>Coffee</strong><br />

<strong>Coffee</strong><br />

$2,139.40 $2,485.90 $2,690.80 $2,838.00 $2,924.30 $3,007.80 40.6%<br />

$285.40 $296.40 $307.30 $317.60 $327.50 $337.90 18.4%<br />

$1,854.00 $2,189.40 $2,383.50 $2,520.50 $2,596.80 $2,669.90 44.0%<br />

$1,074.10 $1,400.90 $1,585.10 $1,709.70 $1,774.40 $1,837.60 71.1%<br />

$779.90 $788.50 $798.40 $810.70 $822.40 $832.30 6.7%<br />

$172.50 $166.20 $159.90 $153.70 $147.90 $142.60 -17.3%<br />

$159.40 $153.70 $148.00 $142.40 $137.20 $132.40 -17.0%<br />

$13.10 $12.50 $11.90 $11.30 $10.70 $10.20 -22.1%<br />

$2,311.90 $2,652.00 $2,850.70 $2,991.70 $3,072.20 $3,150.40 36.3%<br />

8<br />

Passport: <strong>Coffee</strong> in Canada, Euromonitor International, March 2015<br />

Source: Passport: <strong>Coffee</strong> in Canada, Euromonitor International, March 2015


Appendix C: <strong>Coffee</strong> & Tea Industry Overview<br />

Competitive Landscape<br />

Canada is a more competitive market.<br />

Specialist <strong>Coffee</strong> Shop Value Sales Brand Share Breakdown<br />

US Canada<br />

Others Others<br />

Starbucks<br />

Peet’s<br />

<strong>Coffee</strong> &<br />

Tea<br />

<strong>Coffee</strong><br />

Bean &<br />

Tea leaf<br />

Starbucks<br />

Cafe<br />

Depot<br />

Timothy’s<br />

Blenz<br />

Van Houtte<br />

Second<br />

Cup<br />

Important Economic Sector - Sector Size – <strong>Coffee</strong> Driven Revenue Only<br />

• Grocery / Retail (Future Consumption) estimated $900,000,000<br />

• Foodservice estimated $3.5-4,000,000,000<br />

• Office <strong>Coffee</strong> Sector estimated $325-400,000,000<br />

• Total Sector Value – estimated total $4.7-5,000,000,000+<br />

There are between four and five thousand independent cafés and coffee shop owners and nearly several thousand franchise<br />

owner-operators. Some six to eight thousand small business owners are directly involved in the coffee focused sector, generating<br />

jobs, considerable economic and community activity and paying taxes to all levels of government. <strong>Coffee</strong>-focused operations<br />

can be found in all major cities, towns, important crossroads and increasingly in smaller and smaller centres across the country,<br />

making it part of the Canadian lifestyle.<br />

Kraft Canada remains the leading player in coffee in Canada, with a 31% share of retail value sales in 2014. Market saturation is<br />

pushing major companies like Kraft Canada to be more flexible in terms of their offer to reach more consumers.<br />

McDonald’s, one of the strongest players in Canadian foodservice, is still trying to make moves in retail coffee. McDonald’s is<br />

improving its in-restaurant design to highlight the McCafé brand more efficiently and grow visibility. Different shelf designs have<br />

been created to support the different McCafé offerings.<br />

The Second Cup <strong>Coffee</strong> Co. has aggressively restructured its brand in both the retail and foodservice channels. The recently hired<br />

CEO, Alix Box, has emphasized restructuring and improving below-average performing cafés. Some of its outlets have found it<br />

difficult to remain financially healthy and attract customers.<br />

9<br />

The Role of the <strong>Coffee</strong> Sector in Canada, <strong>Coffee</strong> Association of Canada<br />

9<br />

26


Appendix C: <strong>Coffee</strong> & Tea Industry Overview<br />

Prospects<br />

The concentration of major retail chains has continued to be a challenge to the coffee industry and has resulted in a higher degree<br />

of competition for shelf space. For coffee manufacturers, the domestic market will likely continue to be the most important<br />

market for the foreseeable future. The Canadian market is small, but sophisticated, and extremely well served which means that<br />

competition will continue to be strong.<br />

Restaurants and fast-food chains are major purchasing points for coffee, with some chains focussing on improving the quality<br />

of coffee served. Vending is an important component of distribution for coffee, making it available to consumers at strategic<br />

locations. The continued growth of coffee-themed restaurants will offer ongoing private label and branding opportunities to<br />

Canadian coffee manufacturers. Exposure to premium coffee products at coffee-themed restaurants has enlightened consumers<br />

about coffee quality such that consumers are now seeking these premium products at retail. Products such as iced coffees have<br />

captured the interest of the youth market and have introduced these young consumers to coffee, increasing the chance that they<br />

will continue to be consumers throughout their lives.<br />

Changing consumer demographics has resulted in changing consumer tastes and increased demand for healthy products.<br />

Numerous studies on the health and performance benefits of drinking coffee are emerging.<br />

Over the forecast period, coffee is projected to post a 6% value CAGR at constant 2014 prices to reach C$3.2 billion in 2019. Retail<br />

volume sales are expected to see a more modest 2% CAGR. Canada already has a high per capita coffee consumption rate, which<br />

presents difficulties in driving coffee volumes further. New product development and the consistent launch of new technology<br />

play a key role in encouraging consumers to trying different products. The strength of the category remains the presence of highly<br />

innovative companies, which compete strongly for sales.<br />

Tim Hortons, one of the biggest foodservice players in Canada, has already begun buying beans at higher prices due to market<br />

conditions. The trading price for coffee beans is higher and will probably continue to fluctuate as regions are affected by climate<br />

change. If prices continue to increase and Canadian importers of beans are unable to protect themselves against raw material<br />

price rises, retail/foodservice prices may be higher for consumers. If price fluctuation is temporary, shopping behaviour and<br />

patterns are unlikely to be affected significantly.<br />

Conclusion<br />

Canada is<br />

NOT the<br />

51st State<br />

Growth<br />

Persists<br />

Opportunities<br />

Exist<br />

North America is a highly<br />

important coffee market<br />

Each country has a unique<br />

coffee culture in a different<br />

stage of development<br />

Canada has distinct<br />

opportunities that can be<br />

leveraged<br />

27


Appendix D: Work Cited<br />

2014 Canadian Tea Fact Sheet & Trends. (2014). Retrieved November 2015, from Tea Association of Canada:<br />

http://www.tea.ca/about-us/media-kit/2014-canadian-tea-fact-sheet-trends/<br />

<strong>Coffee</strong> in Canada: The Role of the <strong>Coffee</strong> Sector in Canada. (n.d.). Retrieved November 2015, from <strong>Coffee</strong> Association of Canada:<br />

http://www.coffeeassoc.com/coffee-in-canada/<br />

DIG Insights. (2013). Canadian <strong>Coffee</strong> Drinking Study 2013 Highlights - INFOGRAPHIC. Retrieved November 2015, from <strong>Coffee</strong><br />

Association of Canada: http://www.coffeeassoc.com/coffee-in-canada/canadian-coffee-drinking-study-2013-highlightsinfographic/<br />

Euromonitor International. (March 2015). Passport: <strong>Coffee</strong> in Canada.<br />

Government of Canada. (2004-2012). CANSIM Table 301-0006, Principal statistics for manufacturing industries, by North American<br />

Industry Classification System (NAICS) <strong>Coffee</strong> and tea manufacturing 31192. Retrieved November 2015, from Statistics Canada:<br />

http://www5.statcan.gc.ca/cansim/a47<br />

Government of Canada. (2010, October). The Canadian <strong>Coffee</strong> Industry: Sub-Sector Profile. Retrieved November 2015, from<br />

Agriculture and Agri-Food Canada: http://www.agr.gc.ca/eng/industry-markets-and-trade/statistics-and-market-information/byproduct-sector/processed-food-and-beverages/the-canadian-coffee-industry/?id=1172237152079#footnote-4<br />

Government of Canada. (2011, October). <strong>Coffee</strong> and tea industry trends from the Canadian <strong>Coffee</strong> and Tea show. Retrieved<br />

November 2015, from Agriculture and Agri-Food Canada.<br />

29


Notes<br />

30


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