Chapter 2: Market Industry Background
2.3 Coffee Market Information
Exhibit 7: Thailand’s Media Consumption in Minutes/Device Sources: Millward Brown Adreaction 2014
2.3 Coffee Market information
The development of a coffee culture can be visualized as occurring in different waves. The first wave is when coffee is introduced to the market in the form of mass-produced brews.
The second wave focuses on tastes and roasting styles and brings “espresso beverages” to the menu via coffee chains such as Starbucks and Peet’s.
The third wave is when coffee becomes more of a craft, emphasizing the quality and origin of the beans. This particular wave introduces coffee drinkers to baristas and to bean growers as well. Observing cafe culture in different countries along these waves helps position our businesses better toward increasingly competitive cafe markets.
In the past, traditional coffee and instant coffee were widely consumed and were an integral part of Thai culture. The turning point toward a more modern coffee drinking style occurred 20 years ago when the Black Canyon chain emerged, followed by Starbucks in 1998.
These coffee shop chains changed consumer behavior, making coffee the beverage of choice in the morning hours. This particular trend triggered higher coffee consumption in Thailand, resulting in a healthy 7% compound annual growth rate (CAGR) between 2008 and 2012 in the consumption of coffee beans, fresh ground coffee, instant coffee, and ready-to-drink coffee.
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market to reap the benefits of the growth in coffee consumption. After that, different types of coffee shops were opened, including boutique coffee shops along Sukhumvit road, local coffee shops chains such as True coffee and Cafe Amazon, and street-side coffee kiosks.
The growth within the chain segment has been stronger than growth for independent shops and will continue to grow well. Per capita coffee consumption is still low in Thailand compared to developed markets such as Japan and the United States. However, like a double-edged sword, as coffee shop chains grow and build a strong coffee culture in Thailand, they must bear in mind that consumers will be increasingly demanding. To be precise, consumers will become more sophisticated. With standardization, coffee shops chains will have to compromise on the experiences that consumer might receive. Not only that, with cost concerns over investment, coffee shop chains will not likely invest in locations without enough traffic to justify high investment, leaving room for small lifestyle coffee shops to grow.
To be successful, independent coffee shops must differentiate themselves moving toward the next wave of coffee culture. In Australia where coffee drinking is sophisticated, small local lifestyle cafes are often more successful than chain coffee shops and many people will drive past a Starbucks to go to a cafe offering coffee they prefer. Thailand is now moving in the same direction, but perhaps at a slower pace. Specialty cafes have opened up along high-traffic areas, but are still restricted primarily to the Thong Lor and Sukhumvit areas. These specialty coffee shops must offer a new experience by providing nice decor, comfortable seats, Wi-Fi, unique food offerings, and a wider variety of beverages. One advantage local shops enjoy is that it will always be easier for them to adapt to local lifestyles.
Thailand is buying a ticket to a third-wave coffee culture where coffee is all about the flavor, not merely a caffeine fix. Increased coffee consumption will drive growth in the coffee shop market. Those who dream of opening a small coffee shop should quickly grab this growing opportunity. There is still room to grow in this highly competitive market, and those who adopt the right strategy will thrive.
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Exhibit 8: Growth in coffee consumption by region (1990 – 2012) Source: International Coffee Organization
Exhibit 9: Coffee consumption in 2012 in East and Southeast Asia Source: International Coffee Organization
Consumption data for Thailand are incomplete, with the most recent figure available dating from 2001. However, external sources suggest that domestic consumption has been growing at between 7% and 10% over the last decade. Applying a relatively conservative rate of 7%
per annum since 2001 would suggest that Thailand consumed just over 1 million bags of
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coffee in 2012. Furthermore, with a population of nearly 67 million people, this would equate to around 950 grams per capita.
The domestic market is mostly composed of instant coffee or 3-in-1 mixes, which according to the International Trade Centre account for around 95% of coffee consumption. Moreover, given Thailand’s production is around 90% Robusta, and coffee exports to Thailand are an estimated 95% Robusta, the evidence suggests that the Thai market could absorb over 1 million bags of Robusta yearly, and is showing strong signs of growth.
Exhibit 10: Consumption and per capita consumption in Thailand Source: International Coffee Organization
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English, this application will be developed in both languages to attract larger pool of customersNo or low cost: users can download and try for free, easy to attract them to become subscriber if they already have a smartphone
Easy to navigate: our application is intuitive and user-friendly, so it will take them no time to get used to it
Easy to join: users can try basic function without needing to sign-up, and it only takes them a few steps to complete our sign-up process if they wish to access full services.
Connection to people who work in the coffee industry
Weaknesses:
Investment in R&D of the product: as this is a start-up and we don’t plan to invest too much in the first stage comparing to other companies
Branding: this is a new start-up so it will take more time to let people know more about us and subscribe to our services
Revenue structure relies on advertisement and deals
Opportunities:
Growth rate of mobile application and coffee trends
New technology: as more and more technology are being developed, we can incorporate those modules in our future development
New products and services that that can be added on to coffee business The emergence of the ASEAN Economic Community and prospects of free
movement of products and people by 2015: more businesses and consumers will enter the market
Threats:
A few other local competitors Information updates
Limited financial capital
People who are not mobile-savvy Limited category, only coffee houses