Companies sometimes wrongly believe that mature markets no longer offer opportunities for new players. However, coffee can present excellent opportunities for innovation in different channels, formats and claims, even in mature markets where the competition is high. The study “Five Most Promising Markets in Coffee”, analyses the five largest global coffee markets – Brazil, the United States, Indonesia, Germany and Japan – and discuss growth trends in each of them.
Unlike most food and beverage categories, the coffee market has, fortunately, gone through constant cycles of reinvention. The so-called “coffee waves” indicate different stages of development, based on the level of consumers’ understanding of the product as well as category professionalization and innovation.
The first coffee wave is marked by the “discovery” of the beverage and its functional benefits. During the second wave, coffee shops gain relevance and consumers start to try out new formats, such as pods and instant coffee. The third wave is marked by the need for innovation to remain relevant in the market, considering the high level of competition. The fourth wave, finally, has no definite limits: there are many possibilities for the future of coffee, which is present at almost every point in the life of consumers.
Even more mature markets, such as Brazil – largest coffee consumer in the world since surpassing the USA in 2014-, sales continue to grow at a rate of 3 percent, above the global average, despite the internal crisis. Although the sector is dominated by standard fresh ground coffee, other formats are becoming more relevant, especially as the Brazilian coffee market moves into the third wave: marked by innovation and differentiation as a decisive attribute for consumers’ purchasing decision.
United States: Consumption outside the home boosts sales
In the case of the US, the second largest coffee market in the world and currently in the fourth coffee wave, growth is concentrated at the foodservice channel, represented mainly by coffee shops and restaurants. Although the country has a mature market in terms of sales volume and retail sales are slowing down, the main opportunities are among higher added-value products that universalize occasions of coffee consumption, such as ready-to-drink versions, which bring attributes such as premiumization and convenience.
Indonesia: Search for convenience boosts instant version
For Indonesia, the third largest coffee market in the world, the product becomes more relevant as less affluent consumers seek to reproduce at home the experience they would have in the coffee shops, still restricted to those with higher incomes. The trend of urbanization and new lifestyles are leading consumers to seek convenient products and this translates into an increased demand for instant coffee. The country, currently in the first coffee wave, still has a very dynamic path to cruise as the local consumers discover not only the functional benefits of coffee, but how different each brand can be.
Germany: Innovation as a key success factor
While one coffee format tends to dominate in the other four countries, coffee consumption in Germany is well proportioned. Regardless of the coffee format, however, sustainability and traceability are important factors in the purchasing decision as German consumers show interest in the entire coffee production and in having responsible consumption. Currently going through the third coffee wave, the German market is also marked by innovation as a key factor of brand differentiation.
Japan: Urban space limits sales of pods
With very different characteristics from the other four markets, coffee consumption in Japan is expected to be twice as large as local tea consumption by 2022. Coffee beans is the most prominent format, representing more than 30 percent of total volume sales in 2018; instant coffee, however, becomes more relevant as consumers seek for convenience. Coffee pods, on the other hand, shows few opportunities due to the limited spaces of Japanese households in urban areas, which discourages the purchase of new consumer appliances.
It is worth highlighting that even the largest coffee markets still present promising growth opportunities for new formats and brands. In order to stand out in new markets, however, it is essential to deeply understand the internal scenario of each coffee market and the particularities of each “wave”, that is, the development stage. Moreover, with growing competition among manufacturers and coffee brands, one must understand that differentiation is a key success factor: whether exploring new channels, such as foodservice, creating an innovative consumer experience, or even using technology to generate more efficiency and quality. Whatever strategy one may choose, the future holds excellent opportunities for those who dare to reinvent themselves just as coffee has been doing over the years.