is often seen as separate and apart from the rest of the coffee business. Roasters and marketers of whole bean and ground coffee often ignore it entirely, or worse, disdain it. Yet this segment of the market is not only growing and very dynamic, but serving to introduce the coffee category, overall, to, well, BILLIONS of people. Ironic, then, that anyone with a stake in the coffee business would choose to overlook it.
Predictably, when solubles are mentioned, the growing Asian market comes to mind, but Russia and the other states of the former Soviet Union cannot be overlooked, nor should strong mature markets, such as the UK. This can also serve as a model for mature markets that are viewed as “dying” and merely being maintained (read: the U.S.).
Indeed, all of the people we spoke with and many of those we contacted but could not get back to us, were very busy with plant expansions, new plants and new markets that they barely had time to chat for a minute. The three interviews that we were graciously granted paint a picture of a diverse and growing industry.
We spoke with Bruno Giestas, Real Café’s commercial manager for foreign trade. Giestas spoke with us from Victoria in Espiritu Santo, which is, according to Giestas, the most important coffee growing state in Brazil. Espiritu Santo is on the southeast coast of Brazil, in the high altitudes where many kinds of both Arabica and Robusta are grown. Brazilian coffee is mostly grown in the mountainous, southern area of the country. The coffee is then ally processed in the country’s northern area.
Brazil consumes 14 million bags of coffee a year, making the nation the second largest consumer of coffee in the world. One million of these 14 million bags are made into solubles. As Giestas explained, soluble coffee production requires more steps in production than required for roast and ground operations. “The production of solubles requires the analysis of samples, special drying and freezing procedures, and extensive cupping for the purpose of improving taste. So the cost of running a solubles processing plant is often at least 10 times more than that of running a coffee roasting and packaging plant combined. On the other hand, solubles do not necessarily require a tremendous amount of raw materials.”
Giestas proffers that soluble manufacturers today are quite demanding and knowledgeable. Manufacturers are much more interested in high quality solubles than in the past, since consumers are much more discerning now than even just a few years ago. But one key goal that has not changed is portability and ease of use by the end consumer. “Easy to carry, easy to make!”
Giestas tells us that “there’s a greater range of Arabicas available now, and most of them go to Japan.” Only 10 years ago Japan was Robusta land, especially for instant coffee, but no longer as the Japanese have become especially discerning coffee consumers. And since Japan is still pretty much a new market, it’s a dynamic market. Giestas observes that “it’s much more difficult to change existing markets like Europe or the U.S. But the new markets in Asia invite the introduction of new specialties and changes to the old blends. And each country is different in its tastes. Today we export to 46 different countries and we offer 50 different profiles of coffee.” Giestas states that while coffee prices are always fluctuating, “what is now stable in the market is a better grade of coffee, and what is growing is the demand for the purest coffee.” The goal is to develop something closer to roast and ground.
There are two main types of coffee solubles: those that are freeze-dried and those that are spray dried. Giestas points out that spray dried coffee is less expensive to produce than freeze dried. He says, “Due to changes in technology, over the years the gap has widened between the cost to produce freeze dried and the cost to produce spray dried, as it is now nearly three times costlier to produce freeze dried than spray dried.” Freeze dried coffee is frozen at 45-50°C below zero. “This requires lots of energy and equipment,” Giestas says, “so the cost is much higher than for spray-dried, which is processed using a vertical tower.” But the spray dry process, even though it costs substantially less than the freeze dry process, “has improved dramatically.” Giestas opines that “spray dried has kept pace with freeze dried, especially in terms of variety of flavors since each change in the spray dry process yields a change in the taste of the product.” He adds that with aroma recovery technology “we can change the entire taste profile of our product.”
What are the basic steps in processing spray dried coffee? Giestas recited for us the “lather, rinse, repeat” of spray dried production: spray dry, add back taste and aroma, then pack. Giestas explains that the basic processes for freeze-dried and spray-dried coffee solubles are similar up to, but not including, the drying process. Both processes involve extraction and then concentration, but then the methods diverge: freeze dried uses the freeze dry tunnel and spray dry uses the spray dry tower. But in either case, the effort is to make better soluble coffee than what used to be available. It’s only the new technology that makes this possible. Worldwide, about 80% of solubles are spray dried. This is a function of market demand. Giestas tells us that Real Café has doubled its capacity for spray drying over the last three years. He says the company “could have opened a new freeze drying facility if the market demand were there, but,” he avers, “it is not.”
Some of the aroma recovery processes were developed by Real Café itself. Giestas describes the challenge in aroma recovery as “picking just the right aromas to add back and adding back just the right amount of them. Aroma recovery is the work of two types of professionals: the roasting technicians and the scientists. The goal is to combine the roasters’ craft with the scientists’ technology to make a great smelling and tasting extract. A meeting of art and science in real time.”
Giestas explains that arriving at a cup of coffee that correctly balances taste and aroma is a matter of intense experimentation. The result is tasty coffee that is convenient to consume without the need of a barista and espresso machine. So he feels that the company’s investment in research and development has paid off as each technological advance is parlayed into yet another advance.
“Solubles were born out of necessity,” Giestas observes. People have not always had easy access to coffee-making apparatuses. The history of coffee-making is cluttered with all kinds of devices: boilers, kettles, personal espresso-makers, grounders, and just about every kind of coffee contraption you can think of. But few of these gadgets have offered true convenience and the kind of portability people on the go really need for just a quick shot of coffee. This is where solubles make their entrance. Giestas notes the analogy that “the soluble manufacturing equipment is itself like a giant espresso machine, just as espresso machines steam water through fine grounds of coffee to create a strong extract.”
Giestas explains the spray dry process: coffee is granulated (in trade terms, “agglomerated”), then the steam process puts the coffee into powdered form. The powder then is made to agglomer ate - to “re-granulate”, you might say - into even bigger particles that are more soluble and more pleasing to the eye than the intermediary powder.
We spoke a bit with Geistas about the market for solubles in different countries. Are there any consumption incentives in particular regions? “At this stage, there are several fairly new soluble-consuming countries,” he tells us. “Consumption is growing dramatically in Asia, China, Southeast Asia, and Singapore, which is the entrance to Southeast Asia and all of China. These are the largest buyers of instant coffee. And Southeast Asia has the largest rate of growth in consumption among these Asian countries. Japan is the fourth largest consumer of soluble coffee in the world. The Japanese were almost exclusively tea drinkers, but not since they’ve discovered the ease of solubles. Meanwhile, growth in Europe and the U.S. is lagging.”
Getting back to trends in Brazil, Geistas thinks it is unlikely that a home espresso machine could be manufactured inexpensively enough for the average Brazilian family to afford one, so solubles will remain popular there. Coffee drinking is an important part of Brazilian culture. In the past, instant was thought of as cheap but not good. But now the quality is not a question. “The era of the instant coffee is here. If companies do not realize this they will be left behind!”
We next spoke with Olavo Aguiar of Branco Perez, which has its headquarters in Sao Paulo, Brazil. Branco Perez, a manufacturer and private labeler, produces both freeze dried and spray dried coffee and sells this product to other companies who sell it under their own labels. According to Olavo, freeze-dried is coming on strong in markets throughout the world although still not dominant. Coffee drinkers feel that freeze dried is a much better tasting soluble coffee than spray dried. Aguiar points out that freeze-dried is better tasting and it is so because of the process itself.
And even more discerning freeze dried loyalists, as they have become better educated about coffee, are raising their expectations to demand even better tasting freeze dried. “Freeze dried however is not dominant in the world market. Spray dried has always had the much larger share of the soluble coffee market. Aguiar said that freeze dried represents about 10% of soluble coffee exports out of Brazil. Spray dried accounts for over 80% of the total world soluble coffee market. Aguiar told us that the growth of popularity for freeze-dried is especially great in Russia and Asia. Both Japan (the fourth largest national consumer of soluble coffee) and Korea are anticipating improved freeze-dried quality. The only exception is China, where coffee itself is still not a popular drink, though hopes are high that China will join the fold. The consumption of instant coffee in China is growing about 15 to 20% per year, says Aguair. The consumption of “3-in-1” (soluble coffee, nondairy creamer, and sugar all in one package) is also growing fast in China. But even so, as to all these numbers, we are referring to a small coffee consuming public in China.
As to production, Aguiar explained that, since freeze dried is more expensive to produce than spray dried, there are fewer producers of freeze dried than of spray dried. So naturally the freeze dried coffee business is less competitive than the spray dried business (within their own category, not one versus the other). And, since the production of freeze dried coffee requires a great amount of energy, recent high energy costs have made production of freeze dried even more expensive.
Overall, during 2004, production costs of solubles went up, explained Aguiar, because of energy price increases in electricity and oil. This increase has a greater impact on the production of freeze dried because it consumes a lot more energy during its production process. In Russia, Aguiar said, the retail shelf price of spray dried is about one dollar for 100 grams of soluble coffee while freeze dried is $2.50 to four dollars for the same amount. In the UK, the consumption of freeze dried is big but it is not competing with roast and ground. In Russia, by comparison, there are actually consumers leaving freeze dried and exploring the roast and ground market.
Aguiar clarified that despite all of the freeze dried versus spray dried talk, the two in fact are not in competition. He posited that any soluble drinker with enough money and access to product variety will probably choose freeze dried. To compare otherwise is like saying which would you choose, a Honda or a BMW? Both are cars and both work well, but they address the needs of different consumers.
Thus the current ironic situation in the freeze dried industry: demand is up but profit margins are down. The main reason margins are down this year in the soluble industry is that the dollar is stronger against the real. Specifically, Aguiar pointed out, “six months ago we had an exchange rate of US$1=3.10 Brazilian reals. Today it buys 2.71 - a decrease of 12.58%.” Aguiar repined that Branco Perez’s margin decreased 8% last year. “And the diminishing exchange rate between the Brazilian real and the U.S. dollar has cut into the firm’s profitability even more.”
Finally, we spoke with Stanley Stimler, managing director of Loudwater Trade and Finance Ltd, the mother company of Van Lauren Beverages Ltd in England and Grand NN in Russia. The firm has two coffee packing plants, one in the U.K., and one in Russia. Their products are offered to supermarkets under their own private label as well as packing for known brands.
|Stanley Stimier, director of Loudwater Trade and Finance, Ltd..
Stimler tells us that in Eastern Europe demand has moved toward freeze-dried and away from spray dried. As he says, “Spray dried is out. The consumer in the U.K. and in Europe, especially Eastern Europe, is prepared to go the extra mile and pay the price for better coffee.” And it’s a tight market, with demand for freeze-dried far exceeding supply. In Russia, freeze dried coffee sells for nearly four times as much as powdered coffee, and still, it just flies off the shelf. He explains, “Russian consumers perceive spray dried as cheap, while they see themselves as richer for buying and serving freeze dried.”
Stimler mentions that especially in the U.K., consumers will pay the higher price for fair trade coffee as they feel good knowing that farmers are better compensated for their labors. “Even Nestle is getting into the fair trade game, though Nestle doesn’t use the term ‘fair trade’.” Stimler finds it remarkable that one of the largest coffee roasters and packagers would pay attention to this niche in the coffee market. This leads him to infer that, for soluble makers and packagers, there is clearly more room for growth in the fair trade market. But, as to organic coffee, Stimler doesn’t see much growth above present sales.
Stimler’s firm started as a coffee trader, selling to packers. Since 2000 the company has itself been in the packing business. According to Stimler, coffee packers (as they call themselves) are primarily interested in providing three things: quality, a variety of blends, and attractive packaging. Stimler is proud to say that now the company ships 450-500 metric tons monthly. “That’s six million kilos a year, which, as they say, is a lot of coffee.” And he adds, “we still have the capability to cater to individual customer demands.”
So Van Lauren has its finger on the pulse of the markets in the U.K and. in Eastern Europe while the company is enjoying the advantages of changing consumer demands: for better beans and improved quality, economic fairness for farmers, and more attractive packaging. These are all variations on a theme of increased opportunity in a growing industry. Even industry giants Nescafe and Maxwell House are sitting up and noticing the change as they’re now themselves offering their products in the same markets. Stimler recalls that “there was a time when people were saying the soluble industry was dying since coffee drinkers were more enticed by roast and ground.” But he says, “I don’t see that. I see soluble coffee changing to meet the quality people want, especially in freeze dried.”
“I’m highly confident about the soluble business,” he says. “If you’d asked me five or six years ago, I wouldn’t be as upbeat as I am today. The emerging markets, especially China, have enormous prospects for the future. Nescafe and Maxwell House are already in China.” As to whether his company might open a plant there, Stimler says, “to open a plant anywhere in the world we need to find the right partners. We have our ears close to the ground and a plant in China could be something for the future.”
Three different views from three industry veterans provide different nuances but an overall tone of healthy, indeed, barely controllable, growth. As soluble coffee will be the first taste of coffee that most of the people in the world may remember 10 years from now it seems incumbent upon everyone in the coffee industry to understand the market for solubles and the product itself. It, after all, may be what many or even most of the people in the world think of, if they think of coffee at all, just a few years from now. 7
Moscow Coffee House Builds Soluble Plant
Moscow Coffee House has recently built a freeze drying facility with equipment supplied by Niro in Moscow, Russia.
Until now Russian consumers had the choice of buying a spray dried product manufactured locally, or a spray or freeze dried product imported from Europe.
Sergey S. Yegorkin and Aleksey Kemenov had a coffee packing plant near Moscow handling the imported soluble product and first recognized a gap in the market in 1994. It took a further 10 years of planning and financial negotiation for their dream to be realized.
Niro was involved right from the start to plan the project and to assist the company to secure adequate financing. The feasibility of the whole project took a serious knock in 1998 when the Russian economy failed and financing was withdrawn. However, with Niro’s help and the financing scheme of the Russian Sberbank, Moscow Coffee House prevailed. Installation of the processing equipment began in May 2003 and was completed six months later. The first freeze dried coffee was produced in July 2004 and the completed plant was officially inaugurated in November 2004.
The plant manufactures a complete range of coffee products using top quality beans imported from leading growers. These include the flagship freeze dried coffee, agglomerated coffee and spray-dried coffee powder much of which goes into the 3-in-1 products (coffee, whitener and sugar) also manufactured on the premises.
Niro has designed and engineered the entire plant from initial cleaning of the beans right through to final production. The original packaging line is still in place.
The process starts with the cleaning of the beans and storage in silos according to type. Beans are then blended and roasted on batch roasting equipment before being ground prior to the extraction process.
The extraction process separates the pure coffee aroma from a liquid coffee infusion. The remaining liquid is then concentrated to 52% dry solids through evaporation before having the aroma replaced. The top quality stream is then transferred to an Atlas “CONRAD” freeze drying plant; the second stream is spray dried using a Niro fluidized spray dryer “FSD”.
In addition to the processing equipment used directly for manufacturing the freeze dried and traditional instant coffee Niro has also supplied the entire utility section. This includes all the equipment necessary to produce iced water, cooling water, steam, refrigeration, compressed air and process water at the rate of 30m3/hour.
When in full production it is estimated that Moscow Coffee House will be able to produce up to 2,000 tons/year of freeze-dried coffee, 2000 tons/year of coffee powder and agglomerated coffee, and a complete range of 3 in 1 products. The company already has plans for further expansion to enable it to meet its long-term objectives in the country.