15 Mar 2018 Instant coffee wars in SA

South Africa’s market for instant coffee is in the throes of a war for market share – which is lowering prices for consumers.

Owner of the Frisco coffee brand, AVI, has reported “aggressive competitor activity” in the South Africa’s instant coffee market. 

The company released its results for the six months to end-December earlier this week, reporting that revenue and operating profit from its coffee brands were lower than the first half of last year.

The increased competition has forced AVI to cut instant coffee prices. A 750g tin of Frisco at Makro (as part of a bulk deal) can now be purchased for R67.33 – compared to R70 a year ago.

AVI is up against the brands of the Swiss giant, Nestlé, which in 2016 estimated that its Ricoffy represents one in every two cups of instant coffee consumed in South Africa.

Prices of Ricoffy range from a current offer of R59.99 for 750g at Game to R79 at Makro.

Nestlé also owns Nescafé Gold (currently at R96 for 200g at Makro – unchanged from a year ago.)

Nestlé recently invested R1.2-billion to expand its instant coffee manufacturing plant in Estcourt, KZN. The company has also invested in chicory farming in KZN and the Eastern Cape.

It clearly believes there is money to be made in the SA coffee market. South Africans consume, on average, between 250 and 300 cups of coffee per year – compared to 456 cups in Brazil, and upwards from 500 in Europe.

Coffee drinking in SA has gained ground at the cost of black tea, which has declined in recent years, a survey by the marketing company, Insight Survey, has found.

Through its Ciro brand, AVI is the sole distributor of the European coffee brands, Douwe Egberts and Jacobs, in South Africa.

Jacobs Douwe Egberts* or JDE, owner of the brands, is currently fighting a global instant coffee market share battle with Nestlé. Last year, it pulled even with Nestle in terms of retail coffee volumes, though its sales still lag by value.

South African coffee drinkers can expect cheaper instant coffee for longer thanks to the strong rand and lower coffee bean prices worldwide.

Arabica coffee bean prices have slumped by 15% in the past years thanks to expected bumper harvests in South America. Brazil expects that its output of robusta beans, the lower quality bean usually used in instant coffee, will rise 30% this year.

AVI hopes lower prices will help drive volumes and profit margins on its coffee brands in the second half of the year.

• Jacobs Douwe Egberts is a Dutch privately-owned company that owns a number of beverage brands (coffee, tea and hot chocolate). It was formed in 2015 following the merger of the coffee division of Mondelez International with Douwe Egberts.
  The company is majority owned by Acorn Holdings, a subsidiary of JAB Holding Company. Mondelez International owns the remaining shares.

Source: Business Insider SA