Market Reports

Positive perceptions and profits of the German coffee market

The turn of the millennium saw coffee shake off its image as an unhealthy drink in Germany and sales figures catapult forward as a result. Eugene¬†gerden writes how the growing market is also experiencing a significant shift.’,’none’,’ Amidst the Europe Union’s swaggering fiscal woes, Germany’s massive economy has continued to reign relatively strong. Its highly skilled workforce has helped push along the country’s steady growth as a backbone supporting the regional currency.  Fuelling the country’s intelligent workers through their structured days has been a steady growth in coffee consumption. By 2010, per capita coffee consumption reached 150 litres per year, according to the German Coffee Association. At present, coffee remains one of the most imported foodstuffs in Germany, with sales surpassing bottled water and beer.
The German coffee market is set to continue to rise, and in this growth take on a changing shape. Coffee drinkers are rapidly shifting their preferences away from instant coffee and towards fresher coffee brews. Interestingly, this rise in the popularity of coffee in Germany is relatively recent. Up until 2003, sales figures showed five years of continuous decline.
According to Mintel, from 1998 to 2003, sales of coffee in Germany dropped from around US$5.5 billion to $3.4 billion. This was attributed to an unfavourable image of the drink among local consumers, as it was seen as unhealthy. In addition, the market was said to be lacking in original offerings. The events of recent years, however, have helped promote a remarkable turnaround. The active expansion of global coffee chains in the country, Starbucks in particular, has helped increase the diversity of offerings available. This has been coupled with the efforts of local producers to change the image of coffee, through its promotion as a favourite beverage of young people. As a result, from 2005 to 2010 sales grew by an average of around 4.6 per cent a year – 10 times faster than beer and almost three times that of wine. The German Coffee Association has played a significant role in the promotion of coffee in the country, skilfully taking advantage of the boom in healthy lifestyles. Coffee has come to be seen as a favourite drink among some German celebrities and athletes, contributing to its soaring popularity among young people. The association enlisted the help of Gerald Asamoah, a cult German football player, who has served as the face of advertising campaigns to promote coffee consumption. Currently, the coffee market in Germany is estimated to be worth around US$5.1 billion in sales terms, making it the biggest in the European Union. According to Boston Consulting Group data, the German coffee market is almost four times bigger than the UK’s and almost twice the size of France’s market. Kraft Foods currently remains a leader, according to news reports, with 19 per cent of total retail sales. The success of the company is mainly based on the popularity of its flagship Jacobs, Onco and Cafe Hag brands. The Tchibo Group is the second major player with around a 15 per cent share. Local discounter Aldi Group has a similarly sized share at 15 per cent. Melitta and Munich-based Dallmayr remain the third and the fourth largest coffee producers in Germany, with shares estimated at 5 and 7 per cent respectively. Nestle’s Nespresso and Dolce Gusto brands occupy around 0.8 per cent and 1.7 per cent of the German coffee market respectively. Holger Preibisch, Chief Executive of the German Coffee Association based in Hamburg, says that most recently the market is seeing a shift from traditional drip coffee made from pre-ground beans, to espresso-based specialty coffees. “Despite the fact that 75 per cent of German consumers still prefer [drip] coffee, there is a clear shift to freshly ground coffee specialties with the ever growing sales of coffee capsules and pods,” he says. “In the latter case, since 2005 sales of capsules and pods have increased by 10 times and reached 35,100 tonnes in 2010.” Overall, 406,500 tonnes of roasted coffee were sold in Germany in 2010, compared to 12,500 tons of instant. At the same time, espresso-based coffee in 2010 grew to 53,300 tonnes, which is almost 12 per cent higher than in 2009. Preibisch says that fully automatic coffee machines have become an integral component of many German households and office. As such, the consumption of espresso coffee should continue to grow steadily. As for speciality drinks, cappuccino accounts for about 85 per cent of this category, while the share of Viennese Melange about 5 per cent. Sales of iced coffee are estimated at 6 per cent. The share of instant coffee is currently estimated at around 3 per cent, meaning there is still seeing a segment of the market turning to instant coffee. Germany is also seeing a very slow shift towards sustainable certified coffee, currently estimated at just 3 per cent of the total market. “Low market share of certified coffee means that these drinks still remain a niche product in the market and that the consumer is not ready yet to pay a premium for sustainability,” Preibisch says.
The German Coffee Association reports that one of the major trends which is currently observed in the German coffee market is the ongoing growth of out-of-home consumption. The amount of coffee which is consumed in restaurants and hotels (as well as while travelling, in public places or at work), is currently estimated at 25 per cent of the total market. This strong market share is being attributed to the growing number of specialised coffee shops, including both independents and chains.  The German Coffee Association reported that in 2011 more than 150 specialised coffee shops and bars opened in different cities throughout Germany. Since 2000 the country has seen around 1600 new coffee shops. Preibisch says that coffee houses have now become an integral part of most large German shopping malls. American giant Starbucks has played a key role in the development of the German coffee market in recent years. In addition to the opening of its shops, the Starbucks model is attributed for launching certain coffee trends in the German market, particularly boosting the image of espresso, cappuccino, latte macchiato and other coffee drinks, which are currently in rising demand.
Preibisch says that in 2010 more espresso beans were sold in Germany than in the entire 1990s. Since 2000, the single-serve segment has grown by an astounding 250 per cent. The biggest players in this segment include consumer goods group Sara Lee with its Senseo coffee brewing system, as well as domestic brands Dallmayr and Tchibo. The Swiss food giant Nestlé is represented in this segment through its two well-known capsule systems. In addition to the successful luxury brand Nespresso, the company has high hopes for its Nescafe Dolce Gusto system. According to analysts from the German Coffee Association, the segment of coffee capsules and pod machines is expected to become the main battleground in the country’s coffee market. The potential stems from a largely untapped market, as current only around 10 per cent of German coffee drinkers own single-serve systems. “Convenience is becoming more and more important in the modern society,” Preibisch says. “These products should continue to be in demand in the future.” According Euromonitor data, capsules at present account for 25 per cent of the German coffee market in terms of value. This is a six fold jump since 2005, and predictions say that those figures could jump to 30 per cent by 2015. Many large companies are making public their plans for further investments in this area. Nestlé recently announced it plans to spend around US$292 million on a factory in Germany, which will specialise in the production of Nescafe Dolce Gusto pods. The plant is expected to be located in Schwerin, in the north of the country, and will have a production capacity of around 2 billion capsules a year. According to Laurent Freixe, Head of Nestlé’s European business, the planned expansion “illustrates the company’s deep trust in the German market”. Currently Germany remains the world’s largest market for Nestle’s Dolce Gusto. Despite this growth in popularity and sales figures, many local producers are experiencing pressure from increasing production costs and fierce competition. Discount retailers are using coffee as a cheap item to lure people into their shops. Amid this retail pressure, producers are resorting to price wars and the occasional unfair competitive practices. In 2009, the German Federal Cartel Office imposed fines that were estimated to reach US$229 million on three leading coffee roasters, also fining six individual managers. It was said that the cartel existed for nine years, from 2000 to 2009, where the group was coordinating price rises on beans, espresso, and filtered bags. At the end of last year, eight companies were fined around US$45 million, having been accused of price fixing coffee in commercial service markets, including hotels and restaurants.
These discretions aside, analysts say that coffee sales are likely to continue to increase in Germany in the near future. The rise of espresso-based coffee is likely to negatively affect the positions of the current market leader Kraft, as this market takes on a new shape, putting aside drip and instant to welcome the espresso.

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