The Eastern European coffee industry rebounds post-pandemic with eyes on international expansion as restrictions begin to lift. Jaroslaw Adamowski explains.
The global pandemic has slowed down the growth rate Eastern Europe’s coffee industry had experienced prior to 2020. This said, with most restrictions on coffee shops lifting from April and May 2021 due to an improved health situation, local chains are hoping to return to a rapid expansion path, with plans to increase their presence across the continent.
Of the European Union’s 27 member states, 11 countries are located in the Eastern European region. Their aggregate population is about 102 million of the bloc’s roughly 448 million inhabitants. This, paired with their developing economies, makes Eastern Europe an increasingly attractive market for international coffee shop chains.
With coffee shops temporarily closed to dine-in customers during various phases of European lockdowns, many sought to increase their sales through focusing on takeout sales. This, however, has proven to be difficult owing to the general preference of Eastern European consumers to consume drinks and food inside coffee shops, pointing to a number of differences in such operations in Western Europe and the continent’s eastern region.
East versus West
Tamas Frei, Co-founder of Hungarian coffee shop chain Cafe Frei, tells Global Coffee Report that the Eastern European coffee market has several distinct traits that make it different from its Western European counterpart.
“In the West, coffee shops are often packed full of customers in the mornings, as many of them buy coffee to go. But in Eastern Europe, coffee shops are above all a place where you spend time with your close ones, friends, and colleagues after work,” Frei says. “Another difference is that coffee shops here must have an offer that resembles that of a patisserie, so mainly sweets, cakes, croissants, and sandwiches.”
Cafe Frei opened its first coffee shop in Hungary’s capital Budapest before expanding to other cities across the country. Once the chain became an established player in its domestic market, Cafe Frei embarked on international expansion. This drive allowed the business to secure a foothold in several European countries, including Switzerland, France, Croatia, Slovaki, Romania, and the Middle East, with a number of outlets opened in the United Arab Emirates and Saudi Arabia. These include the chain’s own coffee shops as well as franchises.
Frei says Cafe Frei strives to attract consumers with beverages that originate from six global coffee cultures: Italian, French, Arabic, Japanese, United States, and Latin American.
“In Central Europe, it’s normal to have a date or a business meeting in a coffee shop, so you have to spend more on design, placing comfortable chairs and sofas for your customers,” he says. “The trick is to make your coffee shop a place where people want to socialise, but not spend an entire day with their laptops as if it were an office.”
Madrid-based group AmRest has established itself as a major player in Eastern Europe’s coffee shop landscape by bringing the Starbucks brand to the region back in 2008 when it opened the first franchised coffee shop in Prague, the Czech Republic’s capital. Since then, AmRest has expanded its Starbucks portfolio to more than 300 coffee shops across the region, gaining a foothold in Germany, Poland, Romania, Bulgaria, Slovakia, Hungary, and Serbia.
A proven price policy
In Romania, local coffee shop chain 5 to go is also developing its presence through franchising. In a bid to compete for more price-oriented customers with international chains, the Romanian business has adopted a price policy under which all of its hot beverages and pastries carry the same price tag of RON 5 (about US$1.20).
Radu Savupol, Founder of 5 to go, tells Global Coffee Report that his chain has witnessed dynamic growth in the past years, increasing its presence from some 100 coffee shops at the end of 2018 to more than 220 outlets at the end of 2020.
“Most of the outlets are franchises, less than 10 per cent of the total are our own shops. This fast development is the result of a mix of factors: the concept behind the brand with simplicity and convenience being key factors for consumption nowadays, the people behind the brand with an enthusiastic and passionate team, and dedicated partners, plus the story behind the brand, focusing on positive experiences, and a friendly atmosphere,” Savupol says.
The company’s plans for 2021 include opening a further 100 coffee shops in the Romanian market and launching 5 to go’s international expansion.
“In the first half of this year, we succeeded to open 40 new local coffee shops and we launched 5 to go in France, with two units opening in partnership with [Romanian donut shop chain] Donuterie. I’m confident that we will reach the goal of 100 new outlets by the end of this year, and that we will add at least one new destination on the international 5 to go map,” Savupol says.
For the purpose of its expansion into the French market, the chain modified its price model under a concept called the 5 to go Coffee Corner and is offering beverages and sweets between €1 and €5 (about US$1.20 to $5).
“In the second half of the year, we plan to continue our expansion in France through a master franchise deal with a local partner, aiming in particular at small- and medium-size cities, with a goal of opening 10 outlets in the first year of operation,” says Savupol.
Meanwhile, in addition to France, the Romanian business is also readying to establish a foothold in neighbouring Bulgaria.
“We also have plans to open a coffee shop in the United Kingdom, in London, based on the same model we implemented in France, with Donuterie as our partner and a similar fixed price model approach,” Savupol says.
Focusing on international expansion in the next five years, the chain’s founder says the plan is to bring 5 to go’s outlets to a total of 1000 coffee shops in Romania and abroad.
Acquisition boosts international expansion
In Lithuania, the most populated of the three Baltic States, which also include Estonia and Latvia, the pandemic did little to halt the growth of Caffeine, a local coffee shop chain. The brand’s international expansion was boosted in 2019 when Caffeine was acquired by Norwegian retail group Reitan.
“It is important to note that Caffeine was the first brand that created what we call a culture of takeaway coffee in the [Lithuanian] market in 2007 when it was established,” says Lina Kaminskaite, Head of Marketing at Reitan Convenience Lithuania, the chain’s operator.
In 2019, at the time of the takeover, Caffeine operated some 30 coffee shops in Lithuania. Since then, the chain has expanded its presence in its domestic market to 52 cafés in Lithuania. About half of the chain’s outlets are located in Vilnius, the country’s capital, and the surrounding area, pushing Caffeine’s expansion to smaller cities across the country, according to Kaminskaite.
“[Caffeine’s] customers mostly enjoy café latte, cappuccino, and flat white coffees. Around 80 per cent of all coffee sales are these particular coffee options,” she says. “Over the past several years, we have also noticed that some trends such as brew coffee have gained in popularity. Our customers enjoy cold brew coffee especially during the summer season.”
The chain’s marketing head says that, based on the company’s market research, there is a noticeable trend among Lithuanians to drink black coffee at home. However, when they go out, Lithuanian consumers prefer to discover new tastes, and tend to buy more milk-based coffee drinks.
“Once we are out of home, there are plenty more coffee options that we can choose to taste and explore,” says Kaminskaite.
These observations confirm the strategy adopted by Hungarian chain Cafe Frei to specialise in serving coffee drinks from six different regions of the world.
Meanwhile, with a dominant position established in the Lithuanian market, Caffeine is also increasingly shifting its focus towards foreign expansion.
“Caffeine launched first cafés in Latvia and Estonia in 2010. At this moment, we have some 20 coffee shops in Latvia and about 10 in Estonia,” Kaminskaite says.
“In the years 2019 and 2020, Caffeine also launched its coffee shops in Oslo and Copenhagen,” she says, referring to the chain’s expansion to Oslo and Denmark where its parent group maintains a strong presence.
Despite the pandemic, Eastern Europe’s industry representatives, such as Frei, Savupol and Kaminskaite, believe in the region’s growth potential. The habit of going out for coffee has already become ingrained into the metropolitan lifestyle in these emerging economies, of which eight, namely the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia, are members of the 38-country-strong Organisation for Economic Co-operation and Development.
While the increase in retail coffee has become a global trend, the pandemic has not halted the expansion plans of the Eastern European coffee industry.
This article was first published in the November/December 2021 edition of Global Coffee Report. Read more HERE.