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GROWING BRAZILIAN COFFEE INDUSTRY –

LESSONS LEARNED

IACO SYMPOSIUM

41021181

Maria Fernanda BrandoP&A Marketing International

November 2014

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COFFEE MARKET 2013

- 20 million bags consumed

- 6 kg/capita

- Coffee is trendy

- Domestic consumption = 40% of production

- Sector sales: R$ 7 billion (US$ 3 bi)

BUT IT HAS NOT ALWAYS BEEN LIKE THIS...

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YEAR 1988

- Coffee had a terrible image but…

- Coffee was a strong habit

- Part of the daily routine

30% OF COFFEE BRANDS HAD IMPURITIES

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1989 – PURITY PROGRAM

- Auto-regulation and purity control

- Only 100% pure coffees can use label on packaging

- External auditing

- Campaign oriented to consumers + actions within

roasting sector (endomarketing)

- Campaign in national TV + public relations

• associations of coffee sector

• public sector

• distribution channels

• media

• opinion makers

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INITIAL RESULTS

- Brands with purity seal attract more demand

- Coffee starts to regain credibility

- Consumption starts to grow

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ACTIONS 1989 - 1998

- Public relations

- National media

- Trade fairs and other events

- Consumer research and surveys

- Cathegory becomes more dynamic

• coffee shops

• specialty coffees

• new coffee products

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- INVESTMENT BY INDUSTRY:

- RETURNS:

US$ 27 million in 10 years

INVESTMENT VS. RETURNS

• promotion: US$ 21.5 mi

• independent control: US$ 5.5 mi

additional sales

• 7 million bags of coffee

• US$ 1 billion per year in sales

(average retail price basis)

- Greatest return of any food promotion campaign

in the world ever

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RESULTS

- Fewer brands with impurities

available to consumers

• 1988 – 30% of brands

• 1998 – 5% of brands

- Better coffees in the market

• more purity

• higher quality

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LESSONS FROM BRAZIL CASE

- Purity Seal• great instrument, but not magical• component of a broader program• specific answer to specific problem

- Vital to have:• parallel activities• support activities• arrangements with institutions and industry

- Seal helped to lower promotion investments

ACTIVE PARTICIPATION OF PRIVATE SECTOR (ROASTERS) IS

FUNDAMENTAL TO PROMOTE CONSUMPTION

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PROMOTION OF COFFEE CONSUMPTION

- Markets where coffee is novelty

• natural enthusiasm

• industry “creates” consumption naturally(Indonesia / China)

- Markets where coffee is traditional

• enthusiasm has to be generated

• institutional programs are vital(Brazil / Colombia / Mexico / East Africa)

- It is impossible to keep enthusiasm in the long run

with publicity alone...specially because resources

are not enough!

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IMPOSSIBLE TO KEEP ENTHUSIASM WITH

PUBLICITY ALONE

- New products and preparations

• espresso, cappucino

• filter

• soluble

• cold beverages with coffee

• capsules

- New equipment/technologies

• household

• shops

• vending machines

- New consumption habits

• out-of-home

• single serve

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EVOLUTION OF DOMESTIC COFFEE

CONSUMPTION IN BRAZIL

MIL

LIO

N B

AG

S

Source: ABIC

Year-period: November-October

19908.2

200013.2

201320.1

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PROMOTION PROGRAMS – A SUCCESSFUL CASE

COFFEE

1980-1990

COFFEE TODAY

TRADITIONAL, BORING,

NO DIFFERENTIALS

ESPRESSO, COFFEE HOUSES,

EXPERIENCE, TRENDY,

SOCIALIZING

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THE MANY TYPES OF MARKETING

MARKETING

MARKETING

MIX

INSTITUTIONAL

MARKETING

GUERRILLA

MARKETING

DIGITAL

MARKETING

MARKETING

OF BRANDS

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THE POWER OF MARKETING

- Capacity to change perceptions

• about a country

• about an issue

• about a product or category

• about a personality

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OVERVIEW OF COFFEE CONSUMPTION IN BRAZIL

TODAY

- Coffee is a consolidated habit

• continuous growth over the last 10 years

- Out-of-home consumption grows

• 36% of total coffee consumption in Brazil

• role of bakeries and coffee shops

- Middle class accounts for major part of consumption

- Growing demand for espresso, specialty coffees and

capsules

- New products competing with coffee (breakfast):

RTD juices, chocolate and soy beverages

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NEW PRODUCTS AND MORE TECHNOLOGY

- Single serve is new phenomenon

• traditional R&G coffee: sales growth of 4,7%

• single-serve coffee (capsules): growth of 36,5%

• Dolce Gusto and 3 Corações aiming middle class

- 850,000 espresso machines in Brazilian homes (2012)

- 10 new industries in the single-serve market

- Consumers looking for higher quality products

• experiences / convenience / indulgence

2013

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- Increasing concentration of sector

• from 1,490 companies (2012) to 1,428 (2013)

- 410 companies associated to ABIC

• 9 largest 74% of production

- R$ 7.3 billion in coffee sales

BRAZILIAN COFFEE INDUSTRY 2013/14

THE 5 LARGEST IN ROAST & GROUND

1) 3 Corações (Strauss Group)

2) DE Master Blender’s - Pilão

3) Maratá

4) Melitta

5) Cia Cacique

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HIGHER INCOME

CONVENIENCE

PRACTICITY

DIFERENTIATION

PREMIUM PRODUCTS

SINGLE-SERVE

SOLUBLE

COFFEE SHOPS

MORE OPTIONS

OUT OF HOME

PRODUCT

INNOVATION

A CHANGING CONSUMING MARKET

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- Consumers pay more for convenience

- Gourmet coffee houses expand...but there is a lot of space for others:

• more popular coffee outlets

• fast-food restaurants

• kiosks

- Emerging markets / new consumers

- Office coffee service

- Informal markets

A CHANGING CONSUMING MARKET

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FROM MULTI TO SINGLE SERVE

GREAT OPPORTUNITY FOR REGIONAL/SMALLER BRANDS

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LIKE IN MANY AFRICAN COUNTRIES, BRAZIL...

- Two or three different countries within the country

• South vs. North

• big cities vs. countryside

- Different markets

• premium

• mass

• emerging

- Wide array of products & preparations

• R&G

• soluble

• roast

• capsule

* filter, espresso, capuccino, shakes, etc

• coffee shop

• street (informal)

- Several places of consumption

• home

• office

DIFFERENT MARKETSDIFFERENT DEMANDS

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PROJECTIONS OF WORLD CONSUMPTION GROWTH 2012–17:

VALUE AND VOLUME

Coffee

Roast

R&G

Single-serve

Soluble

Value

Volume

Source: Euromonitor YEARLY GROWTH RATE

OPPORTUNITIES FOR NEW PRODUCTS

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THERE ARE MANY OPPORTUNITIES

- Demand for coffee is almost inelastic

- Clients change the type/brand of coffee, but do not

abandon the habit

- Coffee is an accesible pleasure

- Expenses with coffee are a minor part of budget

BIG GROWTH POTENTIAL

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- Traditional coffee consuming countries

• USA, European Union, Japan

• growth of in-home consumption

• expansion of private labels at retail

• single serve machines: pods/capsules

• “rebirth” of coffee shops

- Producing countries and emerging markets

• Asia, Latin America, Africa, Eastern Europe

• new middle class / new consumers

• soluble

• coffee in the workplace

• coffee shops

• single serve

CURRENT SCENARIO IN DIFFERENT MARKETS

AROUND THE WORLD

COFFEE CONSUMPTION GROWS DESPITE CRISIS

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INSTITUTIONAL MARKETING

- Government + private sector

• campaigns + Public Relations

• benefits of coffee to health

• consumption related to nutrition, sports, pleasure

ROLE OF BRANDS

- Private sector: roasters + soluble industry + retail/shops

• product innovation

• products adapted to new consumers (smaller packages,

new flavors, accessible quality)

• aspirational marketing

• media

EFFORTS TO PROMOTE COFFEE CONSUMPTION

CLIENTS OF P&A GROUP

ABOUT P&A

Global presence in different sectors of agribusiness

Over 19 years of market experience

Core areas

• consulting

• trading

Group companies

• Qualicafex

• GSB2

• Exotic

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THANK YOU!

peamarketing@peamarketing.com.br

www.peamarketing.com.br