The global coffee market is highly competitive with key industry players adopting various strategies such as expansions, product development, acquisitions, and partnerships to strengthen their market positions. Most companies in the market are focused on expanding operations across regions, augmenting their capabilities and building strong partner relations.
The above graph indicates the number of developments undertaken by key manufacturers in the global coffee market. Tata Global Beverages Ltd accounted for the highest developmental share of 33% from 2012 to 2018. The company is mainly focussed on the expansion of its business to several untapped geographies. For instance, the acquisition of Earth Rules Pty Ltd helped Tata Global Beverages to offer its products to the Australian market. The company is also inclined towards increasing production capacity to cater to high product demand. For instance, Tata Global Beverages opened a premium coffee extraction plant at its instant coffee manufacturing facility in Theni, Tamil Nadu (India). This was considered as a step forward to eventually increased the production capacity of the company by 30%.
Starbucks Corporation accounted for 21% of the total development share. Starbucks Corporation is focused on corporate relationships to grow and expand into different geographical regions. Partnerships with major companies have helped Starbucks Corporation to ensure its reach in multiple regions of the world. For example, the partnership with Arlo Foods helped Starbucks Corporation to enter the EMEA market with its premium milk-based ready-to-drink (RTD) coffee beverages. Similarly, the launch of blonde espresso, a light-roast espresso blend has also contributed to the product development strategy. The key market players are focused on strategic product launches and distribution agreements to attract more customers and expand their presence across the globe.
Nestlé and the Coca Cola Company both accounted for a respective share of 17% in the global coffee market during the period of 2012–2018. Major developments Nestlé underwent were acquisitions of major brands to build a stronger product portfolio, for instance, acquisition of Chameleon Cold-Brew, a leading provider of premium-crafted coffee. However, the Coca Cola Company has been equally invested in new product development and partnerships. A recent development of Coca Cola involves the acquisition of Costa, a London-based coffeehouse chain, which would ensure Coca Cola Company’s reach in the UK.
Jacobs Douwe Egberts and Strauss Group Ltd both occupy 13% share respectively of the total market developments. Both the companies are majorly focussed on acquisitions. For instance, Jacobs Douwe Egberts acquired Singapore’s Super Group Ltd to enter Asian market with its instant coffee products. Similarly, Strauss Group Ltd acquired Amigo coffee brand from Cia Iguacu De Café Soluvel to expand coffee business in Romania.
The global coffee market based on developments, has witnessed acquisitions of major players, geographic and business expansions, as well as product launches.
According to Wantstats analysis, acquisitions accounted for 46% of the total key developments by market players. Companies in the global coffee market are investing in acquiring several companies in order to diversify their product portfolio as well as strengthen their consumer base. For instance, Tchibo Coffee International Ltd, acquired Matthew Algie, a Scotland-based roasting company, with the goal of expanding its reach into the UK market. Expansion, both in terms of regional presence and production capacity, accounted for 38% of the total developments in the market. Key players are increasing their production capacities to meet the growing consumer demand. For instance, the Coca-Cola Company opened Keurig’s new cold beverage platform manufacturing plant in Georgia, US. This development helped the company to expand its production capabilities in the region.
Moreover, product development by leveraging innovation has also been a major strategy accounting for 33% of the total developments by major players. Companies often innovate to fulfill consumer needs such as introducing products such as on-the-go coffee and coffee capsules on account of the increasing demand for convenient and easy to use coffee products. Partnerships accounted for 21% of the development share since companies are focussing on partnering with other players to increase productivity, enter different regions, and strengthen their distribution channels.
Michael Porter’s Five Forces model offers a framework to study the global coffee market. Strategic business managers, trying to gain an edge over competitive firms in the global coffee market, can utilize this model to better comprehend the industry in which the company operates. The components of each of the forces and the degree or impact of each component in the context of the global coffee market have been broken down and analyzed. Threat of New Entrants
The threat of new entrants in the global coffee market is expected to be moderate. There are several established players in the market. For instance, Starbucks Corporation has grabbed a large market share and has a wide customer base based on its product quality. Therefore, it becomes difficult for new entrants to compete with established brands in the market. Additionally, new players need to invest heavily in creating a brand name through promotion and marketing. However, the barriers to enter the market are not very high and the initial investment to start a coffee brand is not high either. Moreover, the switching costs being low, the new entrants can attract customers through lower prices. The easy availability of raw materials and the increasing demand for coffee might incentivize players in the food & beverage industry to extend their product portfolios by adding coffee.
Hence, the threat of new entrants in the global coffee market is expected to be moderate. Threat of Substitutes
The threat of substitutes in the coffee industry is expected to be moderate. The close substitute of coffee is tea and the wide range of options available in the market pose a threat to players in the global coffee market. The switching costs are almost negligible. However, certain factors moderate the threat of substitutes including the premium coffee quality and the large customer base that consumes coffee on a daily basis. Moreover, the brand loyalty of customers lowers the threat of substitutes for coffee.
Thus, the threat of substitutes in the global coffee market is expected to be moderate. Bargaining Power of Buyers
The bargaining power includes the pressure consumers exert on manufacturers to procure higher-quality products at lower prices. The buyers in the global coffee market have several substitute products from which to choose and consumers usually tend to experiment with new products in the market and often change their preferences which increases their bargaining power. Moreover, owing to the presence of established industry players in the market, the buyers have several choices, which also reduces the switching cost, thus, increasing the bargaining power of buyers.
The bargaining power of buyers is, therefore, expected to be high in the global coffee market. Bargaining Power of Suppliers
The suppliers in the global coffee market are farmers and independent suppliers. The suppliers of premium quality coffee are concentrated in certain countries such as Brazil, Ethiopia, and Vietnam, which increases the bargaining power of the suppliers. There are several coffee manufacturers whereas the suppliers of premium quality coffee are concentrated in certain parts which results in their dominance in the market. Therefore, the companies maintain strong relationships with suppliers.
Therefore, the bargaining power of suppliers in the market is projected to be high. Competitive Rivalry
The global coffee market is marked by a high degree of rivalry. There are prominent players in the market with fierce rivalry based on quality and price. Every manufacturer is investing heavily in launching products to outpace the competitors. Moreover, they are focused on reducing production costs to compete in the cut-throat market. Each player is fighting for a greater market share, which creates intense rivalry.
Hence, the intensity of rivalry in the global coffee market is expected to be high.
