Market Reports

African Grounds: Coffee consumption in Africa shows remarkable potential

With more residents than China and collectively a larger middle class than India, Africa‚Äôs domestic market presents clear opportunity for growth. A handful of coffee chains are placing their bets on future coffee demand.’,’none’,’The first thing that a visitor to Rwanda will find, before the thousands of hills that reveal themselves outside the arrivals hall of Kigali airport, is the country‚Äôs coffee. There are bags of beans stacked on the tourist desk competing for space with dramatic pictures of Rwanda‚Äôs main draw for visitors, the mountain gorillas. The heart of the small airport has been given over to a local coffee chain called Bourbon that offers free wireless internet and ¬≠
deep-orange furniture.The prominent position of the country’s still modest coffee industry reflects the ambition to “rebrand the country” that is still most widely known for the 1994 genocide that shocked the world.The Bourbon franchise will be familiar to some US visitors from its branch in Washington DC – strategically placed in a former Starbucks outlet across the road from several of the world’s biggest development agencies. Rwandan businessman, Arthur Karuletwa, the founder of Bourbon and a former Starbucks employee, likes to say that Rwanda’s coffee proves that there is “life after death” and believes the industry can showcase recovery, trade, investment and tourism.What has been less noticeable until recently was that the chain has started to give Rwandans a taste for their own coffee. Bourbon – which is named after a variety of Arabica beans commonly grown in the country – now has three stores in the capital, Kigali, with plans to expand and a fourth due to open soon.The bulk of customers to the company, which first opened its doors five years ago at the UTC centre, are no longer provided by aid workers, diplomats and gorilla tourists, but by the country’s small but growing middle class.The outlets are in the upscale neighbourhoods like the UTC business centre and next to the golf course at Nyarutarama in a building that also acts as headquarters for telecoms giant MTN. The latest store will be at the Kigali City Tower, set to be one of the tallest buildings in the otherwise low-rise capital.The coffee shops with their distinctive rich-red colours, dark woods and African masks have become a mainstay of the city’s growing number of modern shopping malls.“We are increasing the number of shops,” says Bourbon’s Operations Manager, Paul Ntaganda. “But, we’re also seeing more and more Rwandans drinking coffee.”Since 2010, profits have jumped more than 40 per cent and July’s opening of the outlet at City Tower is hoped to increase that trend, according to Marketing Manager, Christine Mbabazi.“While the wealthier class always knew about coffee, we are starting to get the message through to the middle class as well,” she says. “We are trying to let Rwandese know about and enjoy a great product they have.”Part of the strategy has been to convince consumers who would drink tea at home and beer outside the house that there is an alternative.“People would always socialise with beer, but we’re persuading them to do it over a coffee now as well,” says Mbabazi.Even out in the villages, Bourbon’s buyers say they are starting to find that growers are getting a taste and local roasting and consumption is on the rise.But, consumption in the land of the thousand hills will have to build from a low base. While consumption has more than doubled in the last decade the numbers remain almost invisibly low in absolute terms.According to the latest figures available from the International Coffee Organisation (ICO), less than a third of 1 per cent of Rwandese coffee was drunk domestically, with local consumption at an average of 0.01 kilograms per person.A similar picture is visible throughout East Africa with Tanzania only consuming 47,000 of the 709,000 bags produced, with per capita consumption at just 0.06 kilograms. Regional economic heavyweight Kenya is only marginally ahead with 0.06 kilogram per capita consumption and only 50,000 of its 643,000 bags brewed at home. Uganda is fractionally ahead with 140,000 bags being used locally from a total production of 2.79 million.
To put these figures in a global context, importer countries like the US and Greece have per capita consumption of 4.2 kilograms and 5.5 kilograms respectively, while the world’s heaviest coffee drinkers, the Finnish, get through 12 kilograms a year on average.The most significant reason for the East African producer nations’ lag is cultural rather than economic as they are traditionally tea drinking nations. While regional neighbour, Ethiopia, has a smaller economy than Kenya, its citizens consume an average of 1.3 kilograms annually.
The responsibility for stimulating coffee consumption in consumer nations has fallen to P&A International Marketing who have sought to roll out lessons learnt in the fast growing consumer market in major producer, Brazil.Carlos Brando, who has overseen much of that effort, has been a frequent visitor to the East African producers and his message to the government, growers and farmers was: “Hey guys there’s a possibility of finding a market in your own country.”He points to success in Asian giants India, China and Vietnam and says that consumption of one third of world production will take place in producer nations, where annual growth is averaging at 4.5 per cent as opposed to importer countries where it’s steady at 2.5 per cent. The emerging economies in East Africa cannot yet offer a consumer base to rival China or India, he points out.However, Africa’s emerging middle class has received unparalleled attention in the last 12 months with international consultants, McKinsey, dubbing its better performing economies the “African lions” and pointing to average economic growth running at close to 5 per cent over the last five years. Seen as a whole, their influential report argues, Africa with its billion people has more cities of one million or more residents than China and collectively a larger middle class than India. The challenge for companies has been to follow the success of telecoms companies in locating and tapping into the increasing prosperity.For the coffee industry some of the approaches that have been successful in Asian and Latin American countries will also work in nations like Uganda and Kenya, Brando argues.“With the traditional tea drinking nations we need to position coffee as the modern, young person’s drink,” he says.With the actual numbers comparatively small, the trend towards increasing coffee consumption is most visible in the expansion of the region’s leading coffee chains. The fiercest battle for territory and market share is being played out in Kenya, where established market leaders Java House and Dormans, are rolling out new stores and facing competition from new players and stalwarts like the Savannah coffee houses.“The bigger picture is about looking to the future market,” explains Eric Omondi, a director at Dormans. “And we are trying to secure market share… We are looking to middle class areas to expand in Nairobi and Mombasa and lock in a big share of a market that will keep getting bigger.”Dormans coffee shops, a junior partner to the long established C. Dormans coffee exporters, already has 10 outlets in East Africa’s largest economy with at least three more stores in planning.“Kenya has an interesting, and by sub-Saharan Africa’s standards, large middle class with a big amount of international exposure. As far as people are concerned, coffee is now part of the social scene. It appeals to people who want to be in the places that are chic, places that are trendy,” says Omondi. “They see the coffee culture when they go abroad to the US or Europe and they want the same thing here.”He notes that regional demand is most noticeable from the increasing number of requests the company is getting from outside Kenya by business people eager to open their own franchises using the Dormans brand.“East Africa is ripe for investment in coffee,” he says.One of the biggest obstacles in growing consumption in Rwanda, Uganda and elsewhere in the region has been a stubborn perception that coffee negatively impacts on health.Research by the ICO has been made more widely available in all of the countries to combat the perception that coffee consumption leads to blood pressure problems. A broader education program funded by donors and the coffee board in Nairobi has helped to tip public opinion towards coffee by pointing out its advantages over non-alcoholic alternatives such as sweet fizzy drinks.At the same time a barista school in Nairobi, run by Dormans, has encouraged an end to the time when the big hotels in the Kenyan capital would buy and serve coffee, but had almost no-one who knew how to treat the beans or serve the drink. An annual national barista tournament was staged for the fourth time this year and sent its winner, Catherine Maringi, to the World Barista Championships, held in Colombia in May.A harder problem to counteract has come in the form of higher prices for beans from the region – demonstrated by record prices earlier this year for AA category coffee at the Nairobi auction. This has meant high earnings for farmers and an expansion of production, but has also put pressure on the price for main street consumers locally.Despite this, the main effort regionally is to stake a claim to the emerging market.“We want to be in every single up and coming area in Kenya that has a mall,” says Omondi. “We want to make sure coffee is part of the new lifestyle.”
One aspect of the business that is still lacking is the coffee-to-go customers, with most consumers associating the drink with spending time at an upscale caf√© as part of the experience. However, sales to supermarket chains like the regional giant, Nakumatt, have increased steadily.The next phase for the industry is already underway with Kenyan and Rwandese chains like Bourbon and Dormans looking at regional expansion plans. Dormans has already earmarked one site in the Ugandan capital, Kampala,  and is looking at another in Tanzania‚Äôs business hub, Dar es Salaam. The success of Kenyan competitors Java House has already spawned a copy-cat in Kampala where a dozen individual coffee outlets are competing for attention.Similarly, Bourbon is also looking at opening franchise operations in Tanzania and DRC, to complement a broader expansion strategy that includes building on its US operations with new outlets in Boston and New York.‚ÄúWe‚Äôve got very, very serious competition,‚Äù said Omondi. ‚ÄúAll the regional players in the industry have become very knowledgeable, public awareness is on the rise as is consumption. It‚Äôs going to be a big market and a big battle for a share of it.‚Äù

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