• Overview - adding value

     Downstream processing is often seen as a way of adding value to a raw product at origin. Unfortunately this is not as straightforward as it at first appears: if it were, there would be a far greater trade in processed coffee products from origin than there is today. 

    In 2009 (calendar year) just 6.9% of all coffee exports from producing countries were processed coffee. This is roughly the same as 20 years ago, but lower than the total last year. The bulk (96%) of this is instant coffee, as roasted coffee exports have never exceeded 0.3% of total coffee exports from producing countries.

    The consuming market for coffee is dominated by a few very large companies, mainly multinationals, which sell their product by promoting their brand name and image through large-scale advertising. Normally advertising expenditure is equivalent to between 3% and 6% of sales revenue.

    Most coffee is sold through supermarket chains, which, in general, stock a relatively limited range of brands that meet their criteria for sales per unit of shelf space. In that environment it is difficult and costly for new brands and new suppliers to penetrate the market, but it is not impossible as there are always some openings for new suppliers.

    Smaller packers and roasters however have managed to secure a place in practically every consuming country to a greater or lesser degree, often selling coffee under either their own brand names or providing supermarkets chains with own label (also known as private label) coffee to be sold under the brand name of the supermarket. Own label or secondary brands generally sell at a substantial discount and are not usually advertised in the press or television. Instead they are promoted in store.

    In the past such brands were usually considered to be inferior in quality, but that is not the case any more and as a result own label coffees have been able to capture a significant share of the market. The own label area offers the best opportunity for coffees processed at origin because such coffees cannot afford large advertising expenditure. But with increasing concentration at the retail level the scope for new entrants is becoming more limited, and furthermore the own label market is fiercely price competitive.

    Soluble coffee packed for supermarkets retails at a discount of 10%–30% (in some cases even more) on the price of the leading comparable brands. For spray-dried soluble coffee the retail market is not only oversupplied but is also shrinking as consumers switch to better quality freeze-dried and agglomerated soluble coffees.

    Updated 12/2008
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