Embracing Coffee in Central & Eastern Europe
As growing numbers of people in Central and Eastern Europe welcome the Western coffee shop culture, the number of coffee chains across the region continues to expand. But to find success, chains must understand and adapt to consumers’ coffee-drinking habits.
By Jaroslaw Adamowski
International coffee shop chains are rapidly expanding in Central and Eastern Europe as local consumers continue to raise their spending power. However, to increase their foothold in the local markets, both small and major players must adapt their business models to each country’s consumer behaviour patterns.
Wrocław, Poland-based AmRest Holdings SE has positioned itself as a leading player in the region’s franchise market, with close to 1,200 outlets in 13 countries, including Starbucks coffee shops. In addition to Central and Eastern Europe, where the firm is present in countries such as Poland, Hungary, Austria, the Czech Republic, Romania, Serbia, Bulgaria, Croatia, Slovakia and Russia, AmRest has also been expanding to several Western European states, including Germany, France and Spain, and established a presence in China.
AmRest has been expanding its Starbucks franchises in Central and Eastern Europe since 2008, when the company opened its first outlet in the Czech Republic.
“We have been dynamically developing Starbucks coffee shops in all the countries where they are operated by AmRest. Besides Poland, these include Hungary, the Czech Republic, Romania, Bulgaria, Slovakia and Germany. In total, seven countries and close to 300 coffee shops,” Adrian Wnek, a spokesperson for AmRest, said. “Last year, we launched our activities in Slovakia where we opened our first coffee shops in Bratislava. The Starbucks brand has been received with great enthusiasm [in Slovakia] and we will undoubtedly continue to build our brand’s presence in this market.”
In 2015, AmRest acquired a 100 percent stake in Marinopoulos Coffee Company Romania and Marinopoulos Coffee Company Bulgaria from their parent company, Marinopoulos Coffee SEE BV, becoming the operator of Starbucks franchises in the Romanian and Bulgarian markets. The deal was estimated to be worth about €16.4 million. The following year, the Polish franchiser further strengthened its coffee shop portfolio in the region by establishing presence in the German market and signing a deal that allowed it to acquire 144 Starbucks outlets in Germany. The acquisition was estimated to be worth some €41 million, and, at the time of the signing of the contract, AmRest declared that it aimed to triple Starbucks’ presence in the German market in the coming years.
As of 2017, AmRest operates 272 Starbucks outlets, a sharp increase compared with 2015, when the franchiser had only 67 coffee shops in its portfolio. This makes the brand AmRest’s second largest franchise in Europe, preceded only by KFC, with some 534 outlets, according to the company.
AmRest’s expansion throughout the region has allowed it to boost its 2016 revenues. Last year, the company reported record annual sales of more than PLN 4.207 billion (€978 million) which represented an increase of about 26 percent compared with a year earlier, as indicated by data released by AmRest. The company’s franchises in Central and Eastern Europe are currently run by some 29,000 employees.
In addition to Starbucks, other major players in Poland include Green Caffè Nero and Costa Coffee. It is noteworthy that both chains were developed in the Polish market based on two existing local coffee shop brands, Caffè Nero and Coffee Heaven. Costa Coffee currently boasts about 137 outlets in Poland’s 20 cities, while Green Caffè Nero operates 47 coffee shops that are mostly located in Poland’s capital, Warsaw. Last year, the chain opened its first outlet in the country’s second largest city, as well as a popular tourist destination for foreign visitors, Krakow.
Regional Customer Patterns
In Hungary, local chain Cafe Frei opened its first outlets in Budapest, the country’s capital, where it currently operates 15 cafés, and then began to expand to other Hungarian cities, which include Debrecen, Eger, Győr, Szolnok, Kecskemét and Nyíregyháza, where today it runs an additional 17 outlets. After its success in the Hungarian market, the chain expanded to several other European countries, including the UK, France, Austria and Romania, and is currently establishing a presence in the Middle East, where it already operates a café in the United Arab Emirates, and is mulling further launches in neighbouring countries to expand its portfolio of 40 coffee shops.
Tamas Frei, a seasoned Hungarian TV journalist and co-founder of Cafe Frei, said that coffee became his hobby while he travelled on assignments to various parts of the world, reporting from about 150 countries.
“I realised that most coffee shop chains focus on serving Italian-style coffee, based on espresso and milk, and are not interested in exploring other interesting coffee cultures, such as Latin American, Arabic or Japanese,” said Frei. “Most of these beverages are very time-consuming to prepare, it can take hours before these coffees are ready to drink. This is why we opened Cafe Frei, which offers six global coffee cultures from various parts of the globe, 70 beverages in total.” He said that Cafe Frei serves three million cups per year, and everything is made in-house, from coffee to cakes, at their own facility. “Our coffees are in authentic sizes. For instance, we don’t make a half-litre Bedouin-style coffee or Nicaraguan tobacco coffee. This is not the right size for these coffees, and we want them to have their original taste,” said Frei.
He explained that Cafe Frei’s beverages are made according to the recipes that have been confirmed by hundreds of years of experience, with the use of 270 special ingredients. “The coffees are pre-brewed at our plant, and this is how we are able to serve each beverage within three minutes following the placing of an order by a customer,” said Frei.
Middle Eastern Expansion Plans
Frei noted that Central Europe has always been a cultural melting pot which makes it relatively easy for innovative coffee businesses to introduce new concepts to the local markets.
He said the chain’s format works best in countries where customers are open-minded and wish to taste new coffee flavours, but also like to spend longer periods of time at cafés and view them as places where they can socialise, and not co-working spaces.
In Central and Eastern Europe, cafés are often empty during morning hours but packed with customers from afternoon until late night hours. “Our Hungarian coffee shops are virtually empty between 10am and lunchtime, because most Hungarians prefer to drink their morning coffee at work or at home. The first peak time is lunchtime, and the second starts at 6pm and continues until late night. This is different than coffee shop chains in Western European countries, which is where we’re looking for new foreign markets with a similar mindset,” Frei said.
In Europe, Cafe Frei views Poland as an interesting market and held talks with a local coffee shop chain over a potential partnership. If its Austrian business grows, the company is also considering expanding to southern Germany and Switzerland. In addition to Central and Eastern Europe, Cafe Frei is also looking to the Middle East and Northern African countries as possible new markets for expansion.
“We recently opened a coffee shop in Dubai, and Saudi Arabia is next on our list. We’re also opening soon in Qatar, Bahrain, Kuwait and Oman. We believe that our concept will be a perfect fit for these countries’ coffee culture,” Frei said. “Owing to our presence in France, we also have a foothold in the French-speaking world, and we have sold franchising rights to Tunisia and Morocco.”
Small Chains Still Attract Customers
Meanwhile, with major international coffee shop chains continuing to dominate the Polish market, local chains attempt to attract customers with diversified product portfolios and innovative design of their outlets. Company representatives confirm that the typical customer takes great notice of the design of the cafés, and wants to spend a longer period of time in a comfortable environment.
Polish coffee shop chain Columbus Coffee said it invests significant resources to furnish its outlets with comfortable, custom-made armchairs and sofas, which can be also purchased online.
“We have been developing our chain since 2010, when we opened the first Columbus Coffee café in Szczecin. In the past seven years, we opened a dozen other outlets in nearly all large cities in Poland which allowed use to become one of the major players on the Polish franchise market,” Paulina Grabowska, the chain’s marketing manager, said. “Besides our flagship coffee shops fitted with comfortable armchairs, we opened two new Express outlets this year, and we created a new café format that is a restaurant with an expanded menu and waiters.”
“Soon, we plan to further develop our chain with new openings in Lublin, Warsaw and Wroclaw, among others,” Grabowska shared.
In addition to Szczecin, Columbus Coffee currently operates outlets in Warsaw, Krakow, Stargard, Miedzyzdroje, Poznan, Gdansk, Gdynia, Zielona Gora, Swinoujscie and Kalisz.
The rapid development in the Central and Eastern European coffee shop sector that has been witnessed over the past few years could contribute to bolstering coffee consumption in this part of Europe, where coffee has traditionally been less popular than in the continent’s Western part.
It is worth noting that Central and Eastern Europe were responsible for imports totalling 437,523 tonnes of green coffee in 2015, according to the latest available data from the European Coffee Federation’s European Coffee Report. This was significantly less than the imports of such countries as Germany or Italy, with imports of 1.07 million tonnes and 527,893 tonnes in the same period, respectively. In total, Western Europe was responsible for imports of an aggregate 3.32 tonnes in 2015, more than triple of what was imported by Central and Eastern European countries that year.
Jaroslaw Adamowski is a freelance journalist based in Warsaw, Poland. He can be contacted at [email protected].