BMI segments the coffee market into four categories – pure ground coffee (including coffee beans), mixed ground coffee, pure instant coffee and mixed instant coffee. The mixed variants include an element of chicory within their composition.
In terms of instant coffee production, there are a few key players dominating the market as the tremendous investment in infrastructure required to enter this category forms a natural barrier to market.
On the other hand, the ground coffee category is more fragmented with a number of smaller players importing beans for roasting, grinding and further sale. There is a level of local production of coffee beans, but it’s limited and quite focused regionally.
Historically there was some consumer traffic from black tea to mixed instant coffee, where this category acted as a natural entry point, but in recent years there seems to have been more of a shift within the coffee category itself. As palates become more sophisticated there’s been a conversion from instant to ground coffee.
The coffee sector saw relatively good growth (5,3%) during 2010, driven by mixed instant, mixed ground and pure ground coffee volumes, following a fairly static market in the two years prior to that.
Mixed instant coffee continues to dominate the total market in volume terms. It’s substantial 64,7% volume share in 2010 meant the 2,5% annual growth seen for the category automatically put the coffee market growth into the black. Furthermore, positive performances by both mixed instant and pure ground coffee served to bolster the base line growth already achieved.
The mixed instant volumes saw only limited growth during 2010 as larger manufacturers placed less priority on this established market.
In terms of the mixed ground category, one of the larger suppliers saw good growth in both product repertoire and revenue during 2010, while the remainder of the market saw only limited growth. Market activity by this single player pushed growth for the category to 7,0% for the year. Price increases slowed as less established players lowered their sales prices to compete with the larger producers.
One category recording a volume drop was pure instant coffee. A key supplier for this category slowed production almost completely, resulting in reduced supply to the market. It is believed that there was a level of traffic to pure ground from pure instant variants as consumers explored competing products. This movement may have been encouraged by the value proposition offered by pure ground coffee as tremendous price increases were recorded for pure instant.
Pure ground coffee noted tremendous volume growth in 2010, particularly for wholesale. A flood of imported beans and packaged ground coffee bolstered South African volumes by 17,8%, this being the single largest growth percentage recorded historically throughout the analysis.
Retail remains the largest consumer of coffee, with more than half the market volumes channelled through this sector.
The coffee market is expected to show limited growth in the short term. Increases of 2,9% and 2,8% are anticipated for 2011 and 2012 respectively.
All about tea
BMI’s quantification of the tea market is analysed in four categories – black tea, iced tea, Rooibos and speciality tea.
Black tea dominates the tea market, evident by the 58,3% share it commands of overall market volumes.
Rooibos and iced tea represent the second tier of market volumes, while speciality tea maintains a niche position with small volumes and good growth.
The raw materials required for black tea are imported, whereas rooibos is cultivated in South Africa and category volumes are highly dependent on the year’s crop.
Black tea’s cycle
The performance of this category has been somewhat volatile with a clear cyclical two-year trend observed since 2005. The growth of 3,4% in 2010 follows a 2,5% decline in 2009. BMI believes this may be a function of raw material imports required to produce the black tea volumes consumed locally and, with this being a dollar-traded commodity, category sales and volumes directly related to the Rand/Dollar exchange.
According to BMI, black tea represents a natural consumer entry point to hot beverage consumption. The outlook for black tea is conservative with limited increases of 2,3% and 1,8% anticipated for 2011 and 2012 respectively.
Iced tea growth tapers off
2010 saw the second consecutive single digit growth (3,9%) for iced tea throughout BMI’s recorded historical volumes. Annual increases before this point were double digit with the annual growth rate averaging at 42,9%.
Iced tea is a relatively new category compared to fruit juice, for example, and it’s understandable that it would show higher than average growth year on year as the category grew in awareness and popularity.
The extreme slowdown in growth during the last two years shows a more normal rate of growth/annum. In addition, 2009 marked the depths of the global recession and the economic slowdown put a cap on consumer spending.
The slow growth in iced tea consumption in 2010 represented a continuation of this trend. While this may be a healthy growth rate for many competing beverage categories it is far from the tremendous growth seen historically.
The outlook for the category remains positive but conservative. Iced tea volumes are expected to yield a 6,7% growth for 2011 and 2,5%/annum for the medium term overall.
Rooibos gains global popularity
Rooibos makes up 31,6% of the total tea market volume and 25,1% of its value. The share of the category relative to other tea products has increased steadily in recent years.
Displaying the highest growth rate of tea categories, rooibos experienced 13,8% growth from 2009 to 2010, driven primarily from a supply perspective and dependent on crop yield. With the growth in popularity of rooibos in South Africa and abroad, local growers worked hard to meet the increasing demand.
The majority of 2010’s volume growth was channelled into the export trade with a tremendous increase of 39,9% seen for the sector. Retail volumes saw a slight decline, possibly due to preferential channelling of volumes on to global markets.
Limited growth is expected for rooibos in 2011 and 2012 as market volumes reach parity with consumer demand.
Speciality tea small but strong
While speciality tea makes up just 2,5% of the total tea market volume, it achieves a far higher proportion (10,6%) of the total market value. This relatively high-value category commands premium pricing with top-end variants on offer.
Of the tea formats, the speciality category has shown the strongest consistent year-on-year growth since 2004, with double-digit increases each year. 2010 was no different, with a 18,8% increase in volumes.
BMI believes category growth was fuelled from a supply and demand perspective. Supply was steady with new variants encouraging consumer interest, while demand saw consumers actively seeking food and beverage options with better health and wellness benefits.
The outlook for the category remains positive with a 17,8% increase expected for 2011, but a somewhat tapered growth rate during 2012.