16 Oct 2014 Lavazza-AVI deal aims to boost premium coffee in SA’s retail space

The South African coffee landscape has changed and developed over the past decade driven by the advancement in the country’s out-of-home café culture. Over this period, AVI says it has experienced strong growth in the premium coffee segment across all sectors, particularly with Lavazza through Ciro with year-on-year increases, due to the division’s success in positioning and driving the brand through the hotel, restaurant and blue-chip office sectors.

The MD of Entyce Beverages, Sarah-Anne Orphanides, comments, “Our increased representation of the brand means that we can consolidate its position in the market and invest more extensively in new offerings and focus on building brand equity. This forms part of the company’s overarching hot beverage strategy to remain at the forefront of the market.”

Paul Hanlon, the MD of Ciro adds, “Lavazza gives us access to global R&D, world-class training centres, patented coffee capsule systems and innovation enabling us to offer an experiential, lifestyle brand to consumers.”

In return, the company provides Lavazza with access to its superior in-class sales and merchandising services in retail and its extensive infrastructure including technical, training and distribution services in out-of-home. Its African footprint, its longstanding trade relationships and local insights and expertise makes for a robust partnership. The intention is therefore aimed at continuing the brand’s local success in out-of-home and replicating it in retail.

Commenting on the significance of the brand’s strengthened market presence in South Africa, Lavazza’s emerging markets director, Darren Dench, concludes, “The South African market is an important part of the brand’s global growth strategy. Our initial success in South Africa has led to a broader expansion plan. To ensure our growth, it’s essential to align with the right local partner which we have identified in AVI, due to its extensive expertise across all sectors.”

In a recent interview with the Financial Mail, Orphanides (left) commented that out-of-home consumption is driving the rapid trend to quality coffee in South Africa, with growth being driven on many fronts, including filling station convenience stores, booming restaurant breakfast trade and companies that want to keep their office workers happy.

But while the out-of-home quality coffee market has been powering ahead, sales at the retail at-home level have been “going nowhere”, said Orphanides. It is this opportunity that Entyce’s Ciro unit will tackle aggressively through this new, exclusive, distribution alliance with Lavazza.

Until now, Ciro’s partnership with Lavazza has been confined to distribution in the out-of-home market, she says. The objective of the new alliance is to replicate, in the retail space, a success story that has resulted in Ciro’s Lavazza out-of-home sales racing ahead at 20%/year over the past five years.

For food retailers, another opportunity in the quality coffee segment lies in opening their own upmarket coffee shops. “There is a big margin uplift to be had by selling outside the coffee aisles in stores,” says Orphanides.

It is lucrative business, too, with the FM article stating that a Caffe Pronto franchisee collects profit of about R10/cup.

Spar Group has already come to the Lavazza party through a tie-up with Ciro. “Seven coffee shops have already been opened in Spar stores and the number will reach 100 by June next year,” says Orphanides. “We are also in talks with Pick n Pay.”