“This leaves plenty of room for growth which is reflected by the growing presence of local coffee shop chains such as Art Caffe and Java House,” According to Victoria Crandall, soft commodities specialist at Ecobank Capital.
NAIROBI, Kenya, Sept 29 – Coffee consumption in Kenya is projected to grow, following the entry of more players in the local coffee retail business.
A report by Ecobank Research shows that per capita coffee consumption in Kenya is still very low at 0.07/kg.
It notes that in spite of its low consumption, growth is expected due to the emerging urbanised middle class which will continue to stimulate demand for consumer goods, including coffee.
“This leaves plenty of room for growth which is reflected by the growing presence of local coffee shop chains such as Art Caffe and Java House,” According to Victoria Crandall, soft commodities specialist at Ecobank Capital.
The growth of domestic coffee consumption and of local coffee retailers could provide the impulse to revitalise Africa’s coffee sector and overcome its perennial problems.
These include weak and inefficient agricultural value chains, high production costs and the lack of a domestic market for the final product, all of which prevent African producers from extracting the full value from coffee and instead exporting the bulk raw to world markets.
Despite the situation, the region’s contribution to global coffee production is modest and it produces some of the world’s finest coffee beans.
For instance, Kenya’s fine Arabica beans grown at high elevation near Mount Kenya are prized by coffee connoisseurs.
However, with the exception of Ethiopia, Africans drink very little coffee. As a historical cash crop, coffee has been grown for export while many African producers, notably Kenya and Uganda, have predominant tea-drinking cultures. This has meant low coffee consumption in Africa, although this is changing.
To revive the industry, Crandall said that building robust value chains will be essential for ensuring that African producers capture the full value of coffee, rather than continue to export the bulk raw to global markets.
“The key to capturing the full value of African coffee will be in building robust value chains that ensure that the beans flow seamlessly from farmers to African traders and roasters, and onwards to African consumers,” said Crandall.
Indications on the ground support Crandall’s statement. For instance, prior to its shops being acquired by Artcaffe, Dormans was the standout local player, with a presence along the entire coffee value chain, from regional bean sourcing to roasting and retail.
Additionally, last week, saw Nairobi’s Café Deli restaurant embark on an expansion plan that will see the coffee house increase its branches to six by next year.
Growth and consequently competition, is not a reserve Kenya only. For instance, American coffee giant, Starbucks, is now expanding into Sub Saharan Africa with its first stop being in South Africa.
The American coffee chain announced in July that it plans to enter South Africa next year, providing a potential springboard into high growth markets in the sub-region.
Starbucks signed a deal with local franchise operator, Taste Holdings, to run Starbucks cafés in South Africa for the next 25 years.
This partnership will also allows Taste Holdings to license rights to other African markets where it is already present in the fast-food segment.
According to Ecobank, Starbucks will be a tough competitor for local brands, given its wide sourcing footprint and its financial firepower, and its strong global brand. It buys green coffee in Kenya, Ethiopia, Rwanda, Tanzania, Uganda, Zambia, Cameroon, Burundi and the DRC.
But as coffee production faces structural constraints in many East African markets owing to low productivity, susceptibility to disease and erratic internal marketing chains, domestic consumption could put further strain on the supply of beans, constraining exports.
According to Crandall, this trend is likely to favour multinationals such as Starbucks which, like the wholesale coffee buyers, Mondelez and Nestlé, have the resources to work with farmer cooperatives to boost production, and which can afford to buy more expensive beans.
“However, given that Starbucks will sell its coffee as a premium product, reflecting its emerging market strategy to position itself as an aspirational brand, it will not appeal to all price-conscious African coffee drinkers, which should leave plenty of room in the market for local coffee shop chains,” said Crandall.
Read more here >> Capital Business