According to Statistic Brain, 54 percent of Americans over 18 drink an average of 3.1 cups of coffee every day. Starbucks (NASDAQ:SBUX) has helped foster a culture of caffeination in the United States that collectively spends $18 billion dollars a year on specialty coffee. When going outside of the home for a brew, more people will visit a premium outlet — like Starbucks — than a lower-price outlet like Dunkin’ Donuts (NASDAQ:DNKN), McDonald’s (NYSE:MCD), or the local convenience store, an outlet arguably dominated by Green Mountain Coffee Roasters (NASDAQ:GMCR). It’s a good business to be in, with high margins and a consumer base in some instances addicted to the product — some 60 percent of drinkers who claim to “need a cup of coffee to start their day.”
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SPR Coffee, a Chinese coffee chain, puts global coffee bean sales at $80 billion each year, with 7.4 billion cups consumed, and growing at 30 percent annually. It makes the argument that since countries like Finland, Sweden, and the Netherlands consume more than 1,000 cups of coffee per capita each year, even America’s paltry 400 cups per capita leaves room for growth. China itself, what with over 1.3 billion people and a rapidly growing middle class, only consumes 5 cups of coffee per capita per year, representing an emerging market that coffee magnates would have to be insane not to capitalize on.
Their data may be dubious, but China remains a massive, growing economy that does not drink a lot of coffee — and coffee remains a a product with a high conquest and retention rate. Corporations looking to edge in will have to overcome a well-established culture of tea, but crazier things have happened. It has been speculated that European single-serve coffee super star Nestle (NSRGY.PK), its American counterpart Green Mountain, and Starbucks are all eyeing the country as a growth opportunity.
But China is not the only emerging market for coffee. Starbucks — along with partner Tata Global Beverages – recently opened its first location in India, with plans for as many as 50 more by the end of the year. CEO Howard Schultz attended the opening, downplaying allegations that his company dodged taxes in the United Kingdom with one hand, and pointing out the tremendous opportunity the country presents for Starbucks with the other. Taking a que from multinational food/beverage companies like McDonald’s, Starbucks has been increasingly savvy at localizing its brand. The India stores will use domestically roasted beans provided by Tata Coffee.
Starbucks will compete against Barista Coffee, a unit of Lavazza SpA, and Cafe Coffee Day, owned by Amalgamated Bean Coffee Trading. In large part thanks to the groundwork laid by existing coffee outlets, consumption of the beverage in India has almost doubled in the last decade. Saloni Nangia, president of consulting firm Technopak Advisors, told Bloomberg, “It’s a great time for Starbucks to come in because some of the base is already here, in terms of cafes, in terms of people using them as socializing hot spots. The average Indian consumer, or the current cafe consumer, is happy to upgrade to a Starbucks environment.”
That “upgrade” attitude is a large part of why Starbucks is the 88th most valuable brand in the world. That brand value allows it to operate at higher profit margins.
McDonald’s is a multinational that has pushed harder on coffee recently, recognizing its growing popularity at home and abroad. Outlets in South America have run coffee and breakfast promotions hand in hand with considerable success, and a vegetarian-friendly initiative in India could have McCafe and Starbucks butting heads.
Not to be left out, Burger King (BKW) is apparently jumping on the bandwagon, having recently announced a partnership with Nestle Professional to serve specialty coffee in Latin America and the Caribbean.
A release provided by Business Wire reads, “On average, 542 cups of coffee are consumed per person in Brazil each year, with 35 percent of those cups consumed out of home. Similar percentages are seen in other Latin America markets with Mexico reporting a 36 percent out-of-home consumption rate and a 46 percent rate in Panama.”
“We are more than just coffee,” says Nestle Professional head of global branded beverages Michiel Kernkamp. “We are a 360 degree solution for the introduction of Coffees at Burger King® restaurants.” However, coffee is as much culture as it is beverage. In order to bridge the gap, McDonald’s has pushed a companion breakfast menu and the semi-autonomous McCafe. Burger King will have to rethink image if it wants to nail that “third place” niche.
Success for the various initiatives remains to be seen. The coffee magnates seem set to push the beverage into ubiquitous global adoption, and with it, no doubt, coffee empires will rise and fall.