Coffee shops in São Paulo are selling coffees produced by their own estates. One could say that growers’ families are actually opening coffee stores in the city. The trend is more and more visible due to value addition in sales of the finished product (by the cup) rather than of green coffee (by the bag). Suplicy Café is one of the examples with its Minas Gerais’ Santa Izabel Estate now supplying 60% of all the coffee sourced by the shop. The entire line of coffee beverages prepared at Octavio Café, part of the Octavio group that owns Dallis Coffee in the US, come from their own coffee farm located in Pedregulho, state of São Paulo.
Source: O Estado de São Paulo
Over the last five years, economical stability and higher wages in Brazil favored the ascension of more than 20 million people from the lower social classes to the middle class. The “new middle class”, as it is being referred to, already accounts for 49% of the total population, or 95 million Brazilians. According to the renowned Getúlio Vargas Foundation, an average middle class family has a monthly income between US$ 650 and US$ 2,700. With more available money and more access to credit, this new middle class represents a group with specific socialcultural characteristics that have already begun to influence consumption patterns.
If we take a look at the Brazilian coffee market we note interesting facts related to these recent changes. The middle class share in the total coffee consumption rose from 37% in 2003 to 42% in 2009, a growth of almost 14%. Out-of-home consumption grew at an incredible fast pace – 170% increase over the same period – pushed largely by the new middle class, as the 2010 ABIC Consumption Trends survey indicates. Out-of-home consumers are looking for different types of coffee beverages, namely espressos, cappuccinos and other milk-based preparations, different from the traditional filtered coffee they usually drink at home. From 2003 to 2008, out-ofhome consumption of espresso grew 30% and cappuccino an amazing 127%!
The 2010 ABIC survey indicates that the concept of coffee quality in this segment revolves around purity, aroma and flavor. The brand of the coffee they are used to buy as well as its quality are strong determinants of purchase for these customers. They are also more inclined to pay more for higher quality coffees as compared to previous years.
A higher demand for instant coffee is also noticed amidst this new middle class as they look for more practical products. According to a recent survey done by Nielsen, the middle class contributed to the increase in sales of products linked to practicity and health & well being in the country in 2009. Apart from soluble coffee, instant soups, easy to prepare pastas, yogurts and disposable diapers also registered above average sales.
Companies and industries of different segments are maximizing efforts to adapt and launch new products that best serve the needs of this emerging class. On supermarket shelves one can witness more and more “pouch” products, as well as smaller-sized packages, that make consumer goods more attractive and accessible to this type of client. The variety of options in the Brazilian retail include instant coffee offered in small portions of 50g and R&G coffee, traditionally sold in 500g pouch packages, now also available in packages of 200g.
Coffee is the second most drunk beverage in Brazil, after water, and is consumed by 97% of the population over 15 years of age. The rise of the new middle class is creating new opportunities for the coffee industry, but challenges are there too nonetheless. Over the last five years, coffee-substitute products have also registered growth in sales, mainly ready-to-drink juices, powder refreshments and soft drinks. Children seem especially attracted by ready-to-drink chocolate beverages. Coffee companies now have to fight for more space in an expanding sector.
But, for ABIC’s executive director, we should expect a positive scenario: “coffee consumption in Brazil will grow 5% per year over the next years, in a rather conservative perspective”. If the country keeps this pace, aided by the expansion of consumption in the middle class, the domestic market will demand around 21 million bags of coffee by 2012 which will possibly position Brazil as the largest coffee consuming country in the world.
Last year, the Brazilian per capita coffee consumption reached 5.81kg/year. Sales of the Brazilian coffee sector in 2010 are estimated at more than R$ 7 billion (US$ 3.9 billion).
In the same day that Sara Lee launched its Senseo coffee machine in Brazil, Nestlé, owner of Nespresso and Nescafé Dolce Gusto, announced a 16.6% price reduction in its less expensive coffee makers. Nestle also introduced a loyalty program for Dolce Gusto consumers. Other single-serve brands, such as DeLonghi and Illy, have also dropped their machine prices by 15 to 20% in Brazil. Sara Lee is expected to become Nestlé’s main competitor in the Brazilian single-serve segment. Source: Valor Econômico
American company Sara Lee has been a coffee market leader in Brazil since 2000 when it acquired the popular Pilão and Caboclo brands. This leadership is now threatened by 3 Corações, the merger of Santa Clara and Israeli Strauss-Elite, whose 18.1% market share is coming closer to Sara Lee’s 20.9%, according to Nielsen. Latin-Panel, another research institute, claims that 3 Corações is already ahead with 20.3% of the market against Sara Lee’s 18.6%. Some of the reasons behind this amazing performance are 3 Corações / Santa Clara’s strong presence in the Northeast region of Brazil, one of the most benefited by government social programs, and aggressive sales and marketing in the Southeast region, where São Paulo state alone accounts for more than one third of Brazilian coffee consumption. Third place German Melitta, that is also growing faster than Brazilian consumption, is another factor behind concentration and foreign control of the Brazilian coffee market.
Sources: Valor Econômico and P&A