Market Reports

Poland’s coffee market heats up

Recently published data suggests that coffee is increasingly gaining ground in the local Polish market. In 2011, the coffee market was estimated to be worth about US$950 million. From October 2011 to March 2012, the country imported some 105,900 tonnes of coffee, an increase of 3.6 per cent over 102,200 tonnes in the same period a year earlier, according to the International Coffee Organisation (ICO). The average Pole consumes about 107 litres of coffee per year, which gives the country the 12th position in Europe, according to a report by Euromonitor International. By 2015, the report puts Poland’s coffee market at as much as US$1.64 billion. Recent economic data confirms these positive forecasts. Unlike in many neighbouring countries, the Polish economy has managed to steer relatively clear of the ongoing Eurozone crisis. The International Monetary Fund (IMF) expects that Poland’s gross domestic product (GDP) will grow by about 2.6 per cent this year, and by a further 3.2 per cent in 2013. Meanwhile, the vast majority of European countries are projecting much lower growth rates in upcoming years. In the second quarter of 2012, the European Union’s combined GDP was down by 0.2 per cent over the same period a year earlier, according to Eurostat, the EU’s statistics office. Changing lifestyles Poland’s remarkable economic performance is impacting its inhabitants’ aspirations and lifestyle. As Poles have become wealthier since their country joined the 27-member state EU back in 2004, cafés are gaining an increasing market share. Polish annual coffee shop sales are estimated to be worth about US$568 million, according to data from local market research company PMR. “Coffee is among the biggest beneficiaries of the rising aspirations of consumers. With the domestic economy offering resistance to the financial crisis, consumers continue to seek out coffee and aspirational products in general,” Euromonitor International said in its report on the Polish coffee market. In 2011, Kraft Foods, operating under the Jacobs brand, was the Polish coffee market’s leader, with a 26 per cent share of the retail market, followed by Tchibo and Nestlé, which sell their products under the brands of Tchibo and Gala, and Nescafé, respectively. “Kraft Foods and Tchibo offer fresh and instant coffee products within various price segments. This allows them to reach wider customer groups,” the report said. “However, Nescafé is the leading coffee brand in off-trade value terms, and benefits from the range of coffees at various price points.” Meanwhile, coffee sales in Poland continue to point towards greater sophistication and diversification, the report said. This, in turn, has allowed brands like Lavazza to increase its Polish sales by 23 per cent in 2011. While Poles still drink coffee mostly at home, coffee shops are consequently gaining popularity, a recent public opinion poll suggests. From 2009 to 2012, the number of respondents declaring to have visited a coffee house over the past month increased from some 46 to 53 per cent, according to local polling company ARC Market and Opinion. According to another opinion poll commissioned by retail chain Makro Cash and Carry, over 70 per cent of Poles admit to visiting cafés, and the average Pole goes out for coffee 11 times per year. With Italian-style coffee dominating the local coffee shop landscape, the three most popular coffee-based beverages are latte, espresso and cappuccino, ARC Market and Opinion said. And while the market is still far from saturated, mounting competition is forcing coffee shop chains to look for new ways of attracting customers. In the past, Polish cafés lured a large part of their consumers with free wireless Internet, but this factor has become less of a factor, local observers say. “Consumers’ expectations are changing along with the evolution of the coffee shop market,” says Marzena Bialasek, an analyst from ARC Market and Opinion. “With the increasing availability and affordability of wireless Internet, local consumers are less interested in using wifi than they used to be.”
Meanwhile, the number of coffee shop customers interested in watching television over coffee increased from 15 per cent in 2011 to some 24 per cent this year, according to the Polish polling company. Cafe Chains expand For some local coffee shop chains, teaming up with foreign brands has helped reinforce their presence in the Polish market. In June 2012, Poland’s Green Coffee formed a joint venture with the UK’s Caffè Nero under the merged Green Caffè Nero brand. Under the scheme, the two companies aim to open around 10 new stores a year, in addition to the 11 stores operated by the Polish chain in the country’s capital city of Warsaw. For Green Coffee, the partnership is an opportunity to bolster its brand and expand to other Polish cities. In 2010, the Polish coffee shop chain reported a revenue of around US$2.6 million. “Both brands have an exceptional reputation for coffee excellence, personal service and good quality food. By working together, we hope to create a coffee house offering that brings the best of both brands into one setting,” Gerry Ford, Founder and Chief Executive of Caffè Nero, said in a statement.
“We want to create a new style of coffee house in Poland, and this partnership is a step towards achieving that,” Ford said. Set up in 2003, Green Coffee is owned by founders Adam Ringer and Kinga Łozinska, two Polish businesspeople who previously owned several companies in Sweden. Starbucks was introduced to the local market in 2009 by Polish-American AmRest Coffee, a joint venture between Poland-based AmRest and US Starbucks Coffee International. Starbucks currently has 29 stores in eight Polish cities. “After three and a half years of our presence in Poland, we have become an important player in this market,” says Michael Hudspeth, Starbucks Brand President for Central and Eastern Europe. “The situation in the Polish café market is very dynamic.” Reflecting the growing importance of the local market, in June 2012, the chain’s third Starbucks Reserve concept café in Europe was opened in the Polish city of Wroclaw, with the first two stores launched in Amsterdam and Moscow. “We see great potential for further growth, and we plan to launch new cafés in various localisations,” Hudspeth says. “We will definitely continue to strengthen our position in big cities, especially in those where our brand is already present.” In addition to the Polish market, AmRest Coffee operates a further 14 Starbucks coffee shops in the Czech Republic and seven stores in Hungary. In the next years, the franchiser plans to focus on developing its chain of coffee shops in these three markets, according to the company’s semi-annual report for the first half of 2012. AmRest also operates KFC, Burger King, Applebee’s and Pizza Hut outlets in nine European countries. It would seem that business is going well. In the first six months of 2012, the company posted revenues of some US$350 million, an increase of 141 per cent over US$248 million in the same period a year earlier. AmRest also posted an EBITDA of about US$44.4 million, up a robust 150 per cent from some US$29.5 million in the first half of 2011, according to its mid-year report. The Polish café market is not necessarily dominated by foreign brands. Coffeeheaven, the largest café chain in Poland, is present in 18 cities and operates a total of 95 stores. Of these, some 41 outlets are located in Warsaw, where the prices of coffee are also the highest in the country. Following its rapid expansion in Poland, Coffeeheaven has begun to establish itself in neighbouring markets. Currently, the chain operates outlets in Hungary, Bulgaria, Slovakia, and Latvia, where it purchased local café chain Coffee Nation. The Coffeeheaven chain was established in 1999 by local company CHI Polska, which was acquired in early 2010 by the UK’s Costa Coffee. Costa Coffee currently operates an additional seven Polish coffee shops under its own brand. By mid-2013, the British chain aims to launch a further 20 Costa Coffee outlets in Poland, company representatives say. In 2011, CHI Polska posted revenues of around US$47.3 million. Next year, Coffeeheaven also plans to develop its vending machine concept, Coffeeheaven Express, which will be established in partnership with Shell petrol stations. Empik Café is Poland’s second-largest coffee shop chain, with some 70 outlets operating under several brands, including Empik Café, Voyage Cafe, Business Shark, Bread and Butter, and Flying Bistro. In 2012, the chain was acquired from Poland’s Empik Media and Fashion Group by France’s Lagardère Group for an undisclosed sum. By the end of next year, the new owner plans to launch a further 20 cafés. Other brands currently developing their coffee shop chains in Poland include Israel’s Aroma Espresso Bar, which operates two stores in Warsaw and aims to open another 23 cafés in the next five years, and Italian Segafredo Zanetti Espresso, which opened its first store in Gdansk, in the country’s north. Moreover, Local franchiser AD Trading plans to develop its new Coffee Factory chain, intended as a rebrand of the company’s coffee shops previously operated under the Swedish brand Wayne’s Coffee. Certain Polish café chains are concentrating on building their brands only in selected regions of the country. Set up in 1999, Columbus Coffee operates nine outlets in four cities located in the country’s northwest. The chain plans to open new cafés, some of them as a new drive-up concept, a novelty in Poland’s coffee market. In total, local market analysts estimate that Poland-based café chains operate more than 700 outlets. Of these, as much as 100 were opened in 2011. If this dynamic development continues, this year, the number of new coffee shops opened in Poland could exceed last year’s figure. Planned tax hike The growing popularity of drinking coffee out of home could be undermined by the Polish government’s recently announced plans to increase the value added tax (VAT) on all hot beverages from the current eight to some 23 per cent. The tax hike is scheduled to take effect on 1 January 2013. Under the most likely scenario, Polish coffee shop chains will not lower their prices, and the increased tax will be covered by their customers, according to Dorota Szczerbicka, marketing director at CHI Polska, operator of Coffeeheaven and Costa Coffee outlets. “We want to be well prepared for the upcoming tax increase. This is why we have commissioned an opinion poll to assess the price flexibility of Polish consumers,” Szczerbicka says. Local observers seem to agree that the planned move by the government could seriously harm the growth of the café market in Poland. One in five Poles believes that beverages sold in coffee shops are already too expensive, as shown by data from ARC Market and Opinion. GCR

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