Instant coffee consumption in emerging markets

In the past decade, the instant coffee market has expanded at annual growth rates of 7 – 10 per cent. In most emerging markets, many industry officials put that growth at 15 – 20 per cent per year. This level of growth – of an already established product – makes instant coffee by far one of the most lucrative segments in the industry. Especially when one considers the volume it represents. In the 2011-12 crop cycle, soluble coffee exports accounted for 12.7 million 60-kilogram bags of green coffee, more than 11 per cent of total world exports. Early forecasts for the 2012-13 cycle project that soluble exports will rise 5.6 per cent to 13.4 million bags, according to the United States Department of Agriculture (USDA). The growth in demand for instant may come as a surprise for those seeing coffee capsules dominate Western at-home consumption. The jump can be explained by demand from populous producing countries that are choosing affordable instant as their first step into coffee consumption, as well as non-producing emerging markets such as Russia and Ukraine. Russia, for instance, is forecast to see imports of soluble coffee in the 2012-13 financial year grow by more than 51 per cent over a year ago, to the equivalent of 3 million bags. Overall local consumption increased to 4.9 million bags, according to the USDA. Green bean imports into Russia, meanwhile, has grown to 1.9 million bags from 1.24 million bags four years ago. Similar trends are reported from Ukraine and South Korea. Euromonitor International recently reported that “growing demand for instant coffee primarily in emerging markets” has helped Swiss food giant Nestlé to become the world’s leading hot drinks manufacturer, with its key brands such as Nespresso and Nescafe, according to a 2012 report. Emerging markets have been so important to Nestlé that the Swiss multinational has adopted a special “Popularly Positioned Products Program strategy to adapt to the particular needs of its high-growth, but price-sensitive, emerging markets”. This involves selling Nestlé brands in smaller quantities and in cheaper packaging to sustain margins, Euromonitor said. Nestlé’s global share of instant coffee reportedly stood at 51 per cent in 2010. While such growth rates are impressive by any standard, they pale in comparison to the double-digit growth reported year after year from emerging coffee-producing markets. In this realm, Vietnam, India, Indonesia and Brazil have been leading the way. As for the vast Chinese market, while limited data is available, all signs point to positive growth. “Nobody really knows how much [coffee] China drinks,” says Alex Gruber, Director of the coffee division for Singapore-based green coffee traders Tong Teik Pte Ltd. “It’s a big black box and consumption could be anywhere from a quarter to a third of a cup per capita. But from imports and other statistics we know that they are increasing consumption. Instant coffee is certainly growing in China. As well, as we have new domestic markets like Indonesia, where they ran out of their own coffee and had to import Robusta coffee from Vietnam.” Vietnam is currently the world’s largest grower of Robusta and second biggest producer overall after Brazil. The country’s leading coffee company Trung Nguyen estimates instant coffee to be growing at between 15 – 20 per cent, while overall consumption is forecast to grow 22 – 25 per cent in 2013, Trung Nguyen Chairman Dang Le Nguyen Vu told the USDA. Trung Nguyen holds a market share of around 38 per cent of  local consumption in Vietnam. Around 30 – 35 per cent of demand is met by the instant and soluble sector, according to the USDA, which expects to see rising demand in the years to come. “Vietnam’s instant coffee market is expected to continue to grow steadily in coming years due to rising demand among adolescent and young adult consumers, who seek convenient and timesaving methods for consuming hot drinks with their modern and busy lifestyle,” the USDA states. “Instant coffee manufacturers in the country have added different types of coffee to meet changing consumer preferences such as 2-in-1, 3-in-1, and 4-in-1 coffee products, coffee with ingredients such as sugar, milk and cream.” As Vietnam is embracing coffee drinking on a larger scale, local consumption will likely be approaching 2 million bags by the end of 2013, according to Raymond Neogh, General Director of FES Vietnam Co Ltd, another manufacturer of soluble coffee in Vietnam. “We are seeing a lot of progress for the further development of instant coffee, with Nestlé announcing last year they are investing US$270 million in a new processing plant. The state-controlled Vinacafe, which holds around 30 per cent of the total domestic market in Vietnam, starting construction of its third processing plant,” Neogh tells Global Coffee Review. “As people are getting more busy, they start looking for easier, more convenient and time saving products like the 3-in-1 types of instant coffee. We have even seen coffee shops starting to use instant coffee in their ice coffee blends because it makes the preparation easier,” he says. It is avenues like this that explain why world consumption continues to grow so exceptionally well, even as a few traditional markets in Europe and the US have seen a drop in local consumption because of the global financial crisis. These consumption figures are supported by companies producing parts and machines for soluble manufacturing plants, who have been doing well in recent years. “It’s a magical change and we are seeing it across the markets where we have been selling our products for years and really got to know these markets,” says Anwar Ahmed, General Manager of India’s SSP PVT Ltd processing machinery makers. In India alone, new plants and upgrades represent an increased capacity of at least 20,000 metric tonnes in 2013. At the standard conversion rate of 2.5 used for green coffee, this is equivalent to between 50,000 and 70,000 tonnes of green coffee needed to fuel these plants. “We are talking about over 1 million bags of coffee in new instant coffee processing capacity being installed in India, a lot of which is for the domestic market and a lot of which is aimed at the export market,” says Ahmed. He adds to this a 7000-tonne plant underway for Egypt, projects worth 8000 tonnes in Vietnam, 3000 tonnes in the Ivory Coast, and smaller investments in Ukraine and Russia. “My only concern is where is all this coffee going to come from to feed this demand,” he says. The convenience and cost factor of instant coffee speaks for itself. For a few cents, simply pour a teaspoon of powder into a mug of boiling water. For these reasons, coffee consumption in non-traditional coffee markets has almost always started with instant coffee. While this growth in instant coffee is nothing new, these figures are a good reminder that roast and ground coffee, especially coffee capsules, are still a luxury of the relatively rich. “Instant coffee is associated with Robusta coffee and there has been a clear campaign against Robusta for years,” says one senior trader with a large global green coffee buyer. “This reached its lowest point when some parts of the industry started referring to Robusta coffee as not being real coffee.” A switch in consumer appreciation of instant coffee may have been sparked when Seattle-based Starbucks Coffee Company entered the soluble market in 2010 with a high-quality Arabica-sourced soluble coffee brand. “The Via blend is just fantastic, and that’s the main reason for its success,” says the senior trader. “When you see the way this little powder stick transforms into a truly great coffee experience, just by dissolving into hot water, that suddenly makes instant coffee very attractive.” With US$180 million in sales in 2011, US industry data puts Via as one of the top five instant coffee brands in the US. Folgers continues to lead the American market, accounting for 20 – 23 per cent, although Via is creeping up with a market share of more than 10 per cent just a year after its launch. These figures, however, are on the small end considering most American consumers have moved on from instant. In 2010, instant coffee accounted for just 8 per cent of the overall coffee market in the US compared, to 77 per cent in the United Kingdom and 89 per cent in Ireland, according to Euromonitor International. “The UK is a prime example where consumption is rising overall, and in particular out of home, but overall you should never forget that instant coffee is still king there,” says Mick Wheeler, Executive Director of the Specialty Coffee Association of Europe (SCAE). This same trend can be observed in Japan, the world’s third largest importing country. Even though the market share of instant coffee has come gradually down, with consumption of roasted coffee on the rise, instant coffee still holds a leading 43 per cent market share.
The All Japan Coffee Association reported that weekly coffee consumption reached 10.93 cups per person in 2010. Of that figure, 4.69 cups consumed were soluble coffee while 3.27 cups were roast and ground. Whether instant or roast and ground, industry experts say that increased coffee consumption is a good thing. This is especially true for producing countries, who can increase their financial security through domestic demand. “The really good thing is the fact that with domestic consumption rising in origins, growers there have a more secure future,” says the SCAE’s Wheeler. “They are, to a limited extent, insulated against the trials and tribulations of the world market.”