Review of the Russian Coffee MarketResearch by the Company “Step by Step”
Unlike the tea market, data on the coffee market is not as comprehensively covered in statistical sources. However, with the help of a number of indicators, one can mathematically determine the market size. Statistics provided by Rosstat include indicators on retail trade turnover and the share of coffee within it. This allows one to determine the volume of the consumer coffee market, which has been growing very rapidly. The rates of the coffee market are substantially higher than growth of the tea market.
In 2011–2016, coffee increased its structural share in retail turnover by 0.29 pp, whereas growth in the share of tea equalled 0.05 pp. This is due to higher growth rates in coffee sales compared to tea. The reasons include the spreading fashion for coffee in restaurant business, which is followed by growing in-home consumption thereof; in turn, promotional activities of coffee and coffee machine manufacturers increases as well. Within the category of hot drinks, demand has been steadily shifting towards coffee.
In order to determine the monetary capacity of the segments in the coffee market, data by “Nielsen” was used. According to the company, in 2016 natural coffee demonstrated growth in sales by 6% in physical terms compared to 2015, whereas sales of instant coffee declined by 0.4%.
Increasing consumption of natural coffee is connected to growth in sales of coffee machines as well as the popularity of coffee as a drink – the coffee consumption culture has been actively forming in Russia.
Based on data by Rosstat, the monetary volume of coffee market segments was calculated.
The way the coffee market is divided into price segments is rather arbitrary, as thorough price monitoring can result in a somewhat different picture – nevertheless, the presence of products of different price ranges in the market is apparent. Analysis of coffee supply in the retail sales channel in physical terms indicates that the shares of the low- and mid-price segments are fairly even.
According to estimates by “Step by Step” Group, Moscow, Saint Petersburg and other million cities account for around 35% of instant coffee sales and approximately 60% of natural ground coffee and coffee bean sales.
The segment of coffee capsules is the youngest one, and it is still forming. Active promotion of capsule machines by Nestle in Russia started in 2009-2010 just like in the rest of the world. No statistics for the Russian market are available yet – however, foreign trends indicate that said market segment has good prospects for development. For instance, sales of coffee capsules in Great Britain occupied more than 17% of the overall coffee market in 2015 (137.5 million GBP). Capsule coffee machines are used by more than 17% of the local population (mainly these are “Nespresso”, “Tassimo” and “Dolce Gusto” machines).
According to “Step by Step” Group, in Russia over 75% of capsule coffee sales for in-home and office consumption falls on Moscow, Saint Petersburg and million cities. This can be explained by capsule coffee machines and coffee capsules being sufficiently represented in appliance and electronics store chains. In addition, coffee capsules have been increasingly appearing in federal retail networks. Coffee capsules are a premium product, and its deep penetration in the market is limited by two factors – coffee machine prices and prices for the capsules themselves. Even though capsule machine prices are significantly lower than prices for more advanced coffee machines, the price of one cup of coffee made from a capsule serves as a repulsive factor for consumers. Depending on the capsule purchase location, one cup of coffee may cost up to 50 rubles, which is comparable to the price for a cup of coffee in a coffee shop in smaller towns. Apart from that, at the moment the choice is rather limited in the coffee capsule segment, not to mention consumers are unable to use coffee produced by one company in coffe machines of another. On the one hand, the latter allows companies to make their customers loyal to them; on the other hand, however, they limit the choice this way. According to estimates by “Step by Step” Group, growth will only occur in the capsule coffee market when prices decrease and the choice gets wider due to new manufacturers entering the market. In this scenario buyers will stop feeling like they are trapped by certain brands. The same factor limits growth of office consumption of coffee capsules, despite the convenience of this method of preparation compared to making coffee in regular cheap coffee makers typically used in office.
Single serve coffee bags are also a rather young market segment, but it has a great future due to the convenience of making such coffee both at home and in the office. The current limit is that not many consumers own suitable coffee machines today, although all in all, trends in the coffee bag segment are similar to those in the coffee capsule segment. It is obvious that upon switching from older coffee makers and coffee machines to new ones, part of the consumers will also switch to coffee in capsules and single serve bags. In 2015, 40% of urban families had a multicooker or a coffee machine, whereas in rural areas the indicator equalled 28%. In 2017 Rosstat created a new category for these two types of appliances, the number of owners of which keeps growing every year (said indicator measured every 2 years).
In 2016, the average price for instant coffee amounted to 2249.3 rubles per kilogram, whereas in the first 7 months of 2017 it reached 2367.3 rubles per kilogram, having increased by 5.2%. Natural coffee beans and ground coffee cost 976.4 rubles per kilogram last year, and in January-July 2017 its average price reached 1010.4 rubles per kilogram – growth equalled 3.5%. During the period from January 2016 to July 2017, the price for instant coffee increased by 13.7%, whereas the price for natural ground coffee and coffee beans increased by 9.8%.
Despite coffee only being packaged in Russia and the country being fully dependent on raw materials, price fluctuations in the raw material market did not affect consumer prices. A decline in producer prices recorded in 2017 is due to Rosstat having switched to a new product classifier, which not only includes coffee, but also its substitutes (such as chicory), which are significantly cheaper.
It is also important to note that, unlike a number of other goods, prices for which increased after the sanctions were imposed, the latter had no effect on the coffee market.
The leading positions in the coffee market on the whole are being held by “Nestle Russia” LLC (“Nescafe” trademark), the share of which amounted to 30% of the market in volume terms in 2016. Other large shares of the market belong to “Orimi Trade” Group (“Jardin” and “Joekcy” trademarks), “Jacobs Rus” LLC (coffee brands “Jacobs”, “Carte Noire”, “Tassimo”, and “Maxim”), “Food Empire Holdings” (“MacCoffee”, “FesAroma”, “Express Plus”, and “Eagle Premium” trademarks), and “Strauss” LLC (“Ambassador”, “Elite Health Line”, “Le Cafe”, “Totti Caffe”, “Chernaya Karta (Black Card)” trademarks).
Domestic companies prevail in the segment of coffee beans – 65% of the market is concentrated by the following producers: “Orimi Trade”, “Moskovskaya Kofeinya na Payakh (Moscow Tribute Coffee House)” CJSC and “Chayno-Kofeynaya Kompaniya (Tea and Coffee Company) “Grand” LLC. The Finnish “Paulig Group” was fourth. More than half of the instant coffee market is controlled by 3 companies: “Nestle Russia”, “Jacobs Rus” and “Tchibo”.
The 10 leading coffee suppliers account for more than 50% of the overall volume of coffee imports, which amounted to 147 thousand tons in 2016. In 2017, the ten leading importers remained the same, and no new large players appeared among them
The bulk of coffee imports in physical terms fell on the following countries: Brazil (20.3%, against 24.3% in 2015), Vietnam (45.4%, against 34.1% in 2015) and Indonesia (13.5%, against 20% in 2015). Vietnam has increased its share substantially, which decreased the structural shares of supplies from Indonesia and Brazil.
The volume of coffee exports in 2015–2016 amounted to less than 5 thousand tons, which is significantly lower than the level of imports and domestic production. The main countries receiving Russian coffee are Uzbekistan (7.1%), Ukraine (31.4%) and Finland (59.7%). The share of branded coffee is rather small.
Candidate of economic sciences, member of the Russian Guild of Marketing Specialists,