The competitive sector is projected to grow further in the next five years, but in a slower pace.
An affordable luxury and a daily ritual, coffee is a definitive mainstay in Australia’s beverage industry amidst fierce competition between homegrown cafes.
One can attribute that to the country’s coffee culture and low barriers to entry, leading to a growing number of speciality shops. Cafes and coffee shops also benefited from the larger trend of greater demand for fast and convenient food and dining options.
The Coffee Club (TCC), one of the country’s largest coffee chains, has created a signature blend that includes a Brazilian natural bean, a Colombian bean from the Antioquia region and a small amount of Indian Robusta. Aside from offering a decaf coffee blend, the chain teased a single origin espresso offering that is currently being trialled in select locations.
Comparing the scene today to five years ago, the chain noticed a continuous spirit of experimentation in the industry.
“The industry is also becoming more innovative in how it serves coffee. We have become known as a coffee destination across the world and we never compromise on quality,” the chain told QSR Media.
The Coffee Emporium (TCE), which is undergoing a “comprehensive” menu review, noted an evolution of the typical coffee drinker.
“The coffee consumer is no longer a coffee drinker but instead a coffee connoisseur - better educated than ever before,” TCE head of marketing Tania Minchella explained, adding that the scene is seeing consumers moving away from enjoying coffee with a slice of cake and towards enjoying coffee with a meal.
Soul Origin co-founder Hao Quach noticed a shift towards premium and speciality coffee.
“Whilst to some coffee still represents a necessary caffeine hit each morning, to many it has returned to its origins and has become more ritualistic, truly impacting on a person’s day whether good or bad. Consumers are more likely now than ever before to walk across the street for a good cup of coffee,” said.
Move towards single origin, colder options
This growing sophistication of consumer tastes resulted in two notable trends: a growing preference in single origin offerings and growing variations in colder options.
“We have seen a move in the industry towards single origin coffee. For The Coffee Emporium we are proud custodians of our own unique signature coffee blend and as such this is not a path we have gone down,” Minchella explained. “We also fundamentally believe that a more flavorsome coffee comes from a blend made from multiple origins rather than a single origin, especially through the espresso machine.”
“We’re seeing brewed coffee, known locally as “batch coffee”, emerge as a must have for every café. It’s a very simple and clean coffee that can really highlight the origin flavours of the bean,” TCC said, adding that they are integrated milk texturing machines, self-tamping grinders, recipe cards, distribution tools and use of shot scales to help its baristas refine their production.
“Cold coffee offerings are on the rise globally and cold brew variations have been among the fastest growing categories in coffee beverages over the past two to three years,” Quach said.
Positive, yet slower growth
According to IbisWorld’s latest report, the country’s vibrant coffee culture has supported the moderate growth of the coffee segment. Strong demand for coffee, the market research company explained, has led to an influx of new operators, with many artisan bakeries and patisseries establishing cafe operations over the past five years.
Whilst revenue is forecasted to continue growing over the next five years, growth is projected to slow as the industry is expected to reach saturation. This, IbisWorld said, would result in operators focusing on premium ingredients and gourmet cafe-style meals in order to boost sales of higher margin products.
Industry revenue was expected to grow at an annualised 2.2% over the five years through 2018-19, to $9.8 billion. Over the next five, is it forecasted to rise at an annualised 1.9%
over the five years through 2023-24, to $10.7 billion.
“Heavier workloads and increased sociability have all boosted demand for on-the-move consumption. These trends have particularly supported demand for convenience foods and beverages, with time-poor consumers spending less time at home preparing meals and more time outside for work and leisure. Coffee shops have benefited from this trend as they often offer both coffee and light snacks, such as sandwiches and cakes,” IbisWorld senior industry analyst Bao Vuong explained.
But whilst these trends have benefited the whole industry, Vuong said that boutique coffee houses have been the main beneficiaries. “Smaller coffee houses have benefited greatly from higher industry demand over the past five years, with independent coffee shops that offer niche products outshining less popular coffee chains,” he added.
Looking back, Vuong also noticed many operators repositioning themselves to reach “more discerning” customers, with menus having changed “dramatically”.
“Basic snacks and breakfast items have been replaced with gourmet equivalents. Artisan bakeries and patisseries have increasingly sought to reposition themselves as cafes, encouraged by solid growth and the profitability of coffee sales over the past five years. These new entrants have aimed to sell coffee alongside a range of gourmet pastries, which has dramatically improved the quality of industry food offerings,” he said.
Victoria, Tasmania top coffee drinkers
In a separate report from the NPD Group, Australians drank an average of 50 coffees from the foodservice industry in 2018, up from 48 in 2010. Customers from Victoria and Tasmania are the most frequent drinkers, having drank an average of 58 cups.
Despite a competitive market, coffee products have enjoyed relatively strong performance in recent years, growing from 843 million servings in 2010 to more than 1 billion in 2018. The market research company attributes its success in 2018 almost entirely to lattes and iced coffees.
Consumers aged 35 and older accounted for more than two-thirds of the coffee market, with independent operators and smaller chains (20 outlets or fewer) dominating coffee servings growth.
"Independent operators and smaller chains occupy a disproportionate share of servings and account for almost all incremental servings volume," NPD explains.
Consistency still king
Whilst food offerings may change, retaining the consistency of one’s coffee and its complementary experience is crucial - something the chains universally agree upon.
“There is no room for error. The blend is of course is a significant factor in creating a great cup of coffee. However, we believe customers look for the complete coffee experience and this is where the barista plays the lead role,” Minchella explained.
“Customers want to know they will receive a delicious coffee every time they order,” TCC said. “To guarantee this, [we] ensure each cup of coffee is created by a well-trained barista using a well-maintained machine.
“Customers give you the greatest indication of their satisfaction with your product through return patronage and loyalty,” Quach added.
“An establishment's success is largely determined by its customer service, the price and quality of its products and the overall cafe experience,” Vuong said. “Players that can understand and cater to specific characteristics of consumer demand are more likely to have success and some businesses have found this challenging.”
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