The Coffee Exporter's Guide - International Trade Centre

ADDING VALUE – AN OVERVIEW
Downstream processing is often seen as a way of adding
value to a raw product at origin. Unfortunately, this is not as
straightforward as it at fi rst appears if it were, there would be
a far greater trade in processed coffee products from origin
than there is today.
In 2010 (calendar year) just 7.6% of all coffee exports from
producing countries were processed coffee. This is almost
40% higher than 10 years ago, but given the low starting point
this is still fairly slow progress. The bulk (97%) of this export is
instant coffee, as roasted coffee exports have never exceeded
0.3% of total coffee exports from producing countries.
The consuming market for coffee is dominated by a few
very large companies, mainly multinationals, which sell their
product by promoting their brand name and image through
large-scale advertising. Normally advertising expenditure is
equivalent to between 3% and 6% of sales revenue.
Most coffee is sold through supermarket chains, which
generally, stock a relatively limited range of brands that
meet their criteria for sales per unit of shelf space. In that
environment it is diffi cult and costly for new brands and new
suppliers to penetrate the market, but it is not impossible as
there are always some openings for new suppliers.
Smaller packers and roasters, however, have managed to
secure a place in practically every consuming country to a
greater or lesser degree, often selling coffee under either their
own brand names or providing supermarket chains with own
label (also known as private label) coffee to be sold under
the brand name of the supermarket. Own label or secondary
brands generally sell at a substantial discount and are not
usually advertised in the media. Instead they are promoted
in store.
In the past such brands were usually considered to be inferior
in quality, but that is no longer the case and as a result, own
label coffees have been able to capture a signifi cant share
of the market. The own label area offers the best opportunity
for coffees processed at origin because such coffees cannot
afford large advertising expenditure. But with increasing
concentration at the retail level the scope for new entrants is
becoming more limited. Furthermore, the own label market is
fi ercely price competitive.
Soluble coffee packed for supermarkets retails at a discount
of typically 10%–30% on the price of the leading comparable
brands. For spray-dried soluble coffee the retail market is not
only oversupplied, but is also shrinking as consumers switch
to better quality freeze-dried and agglomerated soluble
coffees.
SOLUBLE COFFEE
The soluble coffee market is dominated by two multinational
fi rms: Nestlé and Kraft Foods. One or the other or both have
a presence in every main consumer market and probably in
CHAPTER 2 – THE MARKETS FOR COFFEE 29
many producing country markets as well. In addition there is
often a third large supplier in each main market. For example
in the United States Procter & Gamble enjoys a reasonably
large share of the market, while the Ueshima Coffee
Company (UCC) is of some signifi cance in Japan. The larger
companies manufacture soluble coffee in their own plants
and rarely obtain soluble coffee from outside suppliers.
Nestlé also operates a small number of soluble processing
plants in producing countries, primarily aimed at supplying
the domestic market, but also nearby regional markets.
The scope for outside manufacturers lies in supplying
product for:
� Secondary (own label) brands that have no manufacturing
facilities (although this market tends to be rather
sluggish);
� Specialist packers of own label coffee in consuming
countries.
Most supermarket chains prefer to buy from a specialist
packer rather than direct from origin, and usually insist that
bulk supplies are repacked in retail jars. For all practical
purposes, an origin supplier seeking to enter the own label
market would be best advised to trade through a specialist
packer in a consuming country, especially as in most cases
the fi nished retail product is a blend of coffee from several
sources.
There are several specialist packers of soluble coffee for own
label product in consuming countries. Some operate their own
processing plants, but also often purchase soluble coffee for
blending from other sources to fulfi l contracts that are beyond
their capacity, or when imported soluble is cheaper than their
own product. Other specialist packers have no processing
capacity of their own and merely blend and repack products
from other sources.
The retail market for soluble coffee has three general
segments:
� Premium brands of freeze-dried soluble. Nestlé and
Kraft Foods dominate in this segment, but there is some
signifi cant participation by other brands, particularly
supermarkets’ own labels. Both Brazil and Colombia
supply freeze-dried soluble coffee to this market, which
is still growing. Although not the most popular form of
soluble coffee, in general freeze-dried is gaining market
share in every consuming country at the expense of other
types of soluble coffee. It has obtained 40% to 45% of the
soluble coffee market in Japan, the United States and
the United Kingdom and a little over 30% in Spain and
Australia. Extra premium blends of freeze-dried coffee
composed solely or mainly of arabica and sometimes
from a single origin are also marketed in this sector.
� Standard brands of spray-dried soluble. These
generally consist of coffee that has been agglomerated.
Agglomeration is a process that not only improves
solubility, but also transforms the coffee powder into
more attractive granules. Agglomerated coffee is the
most popular form of soluble coffee. It accounts for more