that coffee roasting is among the few remaining, unconcentrated commercial/industrial activities. Is this still so when one considers volume? No, one could point quickly to the often-cited fact that three large companies control at least 60% of coffee sales worldwide.
But what is not as often added is that this domination is in the retail food sector - where coffee is not at the moment particularly healthy. The store market does indeed have the most volume among coffee point of sale sectors, but it is now increasingly splintered between traditional brands and store brands. It is frequently distorted by the amplitude in discount offerings that lower quality standards and, according to several studies, consumption levels as well.
The empire of large food stores, and the system by which they profit, has virtually made it impossible for innovative or truly high quality coffee products from smaller companies to ‘break in’ to shelf space. The concentration in the food retail business and in its distribution means that gaining shelf space has become a very expensive initiative indeed while the cost of supporting the success of the shelf space once attained, via mass marketing, has become astronomical.
Retail food sales for coffee have become a long hard war between a few big brands and the proliferating private label or store brands - there is virtually no shelf space left for the products of small or even middle sized roasters of any quality or price.
This of course gives the consumer less choice, less variety, and necessarily, less quality in the sense of truly fresh and fine blends and single origins.
Nevertheless, there are a few thousand independent coffee roasteries of varying sizes - although the majority are small - actively pursuing their business in the European Union. Around the world, there are, again, a few thousand more. This huge number of production firms exists for a number of reasons, but primarily they remain because they are profitable.
Their domain is the out-of-home coffee service business - for office, vending and catering. They also supply specialty food shops, local and foreign delicatessens and coffee boutiques. To begin with their product earns a greater return per unit sold and in addition requires no extortionary cost to gain shelf space and little or no marketing. So, when value, rather than volume, is considered, the retail and out of home sectors are probably almost equal.
How do these small firms dominate and usually prosper by focusing on the healthy, wealthy and expanding hotel, restaurant, cafe sector (HORECA)?
Principally, it can be said that the small coffee roasting firms have maintained control of the bar/cafe coffee business in most of the world because they control the sector’s distribution, backup service and price structure. This is a combination of considerable strength.
It is also helpful that while retail coffee sales are stagnant or even falling in many key national markets, out-of-home service has indeed been booming. This is accounted for by the growth in numbers of young urban drinkers who enjoy trendy coffee bars, by the advent of fast food coffee typified in the Starbucks or Dunkin’ Donuts chains, and the growing emphasis even in traditional fast food markets - such as that commanded by McDonalds - on fresh brewed coffee.
Several other factors, such as the extraordinary growth in worldwide tourism, have also taken part in giving vitality to the out-of-home coffee service business.
Although the big coffee companies have hardly been blind to this lucrative and expanding market, they have not, so far, been especially successful in getting into it. For one, their size stands against them.
Mainly this is so because a certain magnitude necessarily engenders a mentality that is not excited by one, single and perhaps small account. Yet this is exactly what makes the small roasters thrive, that they hover close and protectively over every account, that they not only cater to local tastes in coffee but constantly reinforce these preferences.
So, why doesn’t the multinational industry buy out the small competition? They do, but the rate of disappearance of small independent roasteries although rapid in the 1980s became a very slow erosion in the past decade. Many of the small firms are family companies that are now holding tight to what they have. Also, many of the small firms are happily realizing good profitability and barring chaos in the green coffee world, can proceed quite nicely on their own.
Ultimately, however, the unconcentrated nature of the HORECA sector is a matter of economy of scale - the small local roasters can afford to send out and correctly manage a little armada of vans each morning to service their clients. They can give them immediate service backup if required; they can adjust quickly to changes in local pricing strategies, in demand and drinking fashion. They can even afford to experiment - at least a little. For example, in France it is small companies not the big ones that have been experimenting with introducing flavored coffee in recent years.
Best of all, the local roaster knows his customers personally, knows what margins they can accept on coffee, how they serve coffee, how much and when. The local roaster gives his accounts that somewhat hard to define satisfaction in believing they are his star, their very own reliable source of coffee, which is prepared especially for them, and at the best cost possible.
These simple observations extend as well, at least to some degree, to the bar-cafe coffee equipment and accessory segments too. Again this helps explain why there are relatively numerous companies making coffee brewers, grinders, dosers and all sorts of coffee service devices, supplies and accessory items.
|A Seminar in session at Caffe Costaduro in Turin. Training and a stress on sevice has become an essential investment to protect the company's future.
They can compete in numbers because they have a quite large, diverse and competitive distribution network readily at hand. Roasting companies also distribute everything from private label and branded teas to alternative hot or cold beverages, including alcoholic.
These small roasting companies can be the distributors for a long list of items: cups with bar or coffee logos on them, brewers and grinders, granita machines, napkins, clocks, sugar and cream packs, chocolate neapolitans, cookies, even kitchen items, etc.
Some now distribute tins or brick packs of their own coffee for sale over the counter to consumers who just relished drinking a cup of their product. For them this is without doubt the best kind of distribution.
So, bar/cafe coffee business is not just about coffee alone, absolutely not, it extends to the commercializing, warehousing and distribution of a plethora of attendant items some of which have considerable added value appeal, and all of which usually serve coffee marketing and/or price structure demands.
In almost all national coffee markets, the margins on out-of-home coffee make virtually everyone in the service chain, from roaster to bar owner, barman and waiter, happy. The added role of distributor renders yet a further note of comfort to the roaster. To put it most simply, the small to middle-sized roasting companies and coffee equipment and accessory providers are money makers in sum because they have commercial and distribution control of a good sized, but especially lucrative niche in coffee consumption. One in turn which is divided down further into a vast network of individual, local territories. These exist in such multitudes that the market as a whole remains unplumbed.
Competition in these territories is defined and usually not too excessive. This is reinforced by the fact that within the territory the usual range of market offerings from discount to deluxe offer further niche possibilities. One could write a treatise on a single local (neighborhood) out-of-home coffee market and its structure that would need to delve into a quite complex though ever so small a world of production/distribution/service and consumption parameters.
To help illustrate why a very great number of small to medium-sized roasting and coffee bar equipment companies can profit on small to modest production and limited distribution in our age of mega-mania, the three following companies are profiled: two roasteries and one producer of espresso brewing equipment.