Coffee Industry Analysis Synopsis of

Coffee Industry Analysis Synopsis of Industry Dynamics The coffee industry is designated by the U.S. Department of Labor with SIC Code 2095 and is comprised of producers of coffee and tea, with manufacturing centers serving the American market globally. According to Department of Commerce estimates the coffee industry achieved revenues of $6.5B in 2004, growing to $6.9B in 2008. Despite this growth in revenue there continues to be a consolidation of manufacturers in the coffee industry, from 297 in 2004 to 275 in 2008.

The consolidation of manufacturers has not impacted the total employment level however, with 12,496 people employed in 2004, rising to 13,467 (U.S. Department of Commerce). Also contrary to the consolidation of manufacturers, there has been an increase in production volume, from 54.2 million pounds to 62.6 million in the last five years. Table 1: Coffee Industry Analysis provides an analysis of the industry illustrating how productive the consolidation of the overall industry has been. Figure 1: Coffee Industry Analysis Source: (U.S.

Department of Commerce) 2004 2005 2006 2007 2008 Industry Revenue $Mil $6,569.7 $6,824.4 $6,431.1 $6,799.7 $6,995.5 Industry Gross Product $Mil $3,713.2 $3,682.2 $3,359.5 $3,443.6 $3,497.8 Number of Mftrs Units 297-261 271-274-275 Employment People 12,496 11,246 12,932 13,296 13,467 Exports $Mil $489.2 $615.3 $714.7 $796.9 $881.2 Imports $Mil $1,082.8 $1,237.1 $1,309.7 $1,356.7 $1,497 Total Wages $Mil $579.7 $570.8 $579 $563.5 $554.4 Domestic Demand $Mil $7,163.4 $7,446.2 $7,026.1 $7,359.5 $7,611.3 Production Volume Million (lb) 54.2-58.4-61.2-62-62.6 Figure 2: Coffee Industry Growth Rates illustrate the relative rates of growth and contraction in the industry over the last five years. Of the nine categories in the analysis, only Imports and Exports have been year-over-year positive over the last five years. Table 2: Coffee Industry Growth Rates Source: U.S.

Department of Commerce Industry Revenue Industry Gross Product Number of Establishments Number of Enterprises Employment Exports Imports Total Wages Domestic Demand This is consistent with the attention the contracting number of coffee producers are paying to making their manufacturing operations more efficient from a process perspective (Claro, Claro, 410-411). In addition, the value chain of the coffee industry has gone through fundamental change as the focus has been towards fair trade coffee where growers are paid market-based wages instead of being underpaid for their work (d'Astous, Mathieu, 1149, 150).

Fair-trade coffee is also contributing to growth of gross margins and profits of the entire industry. The business process management (BPM) and business process re-engineering (BPR) efforts within this industry are also contributing to the profitable consolidation, merger & acquisition (M&a) and reorganization of business models and supply chains as a result (Ogando, 52, 53). The net result has been growth in the industry averaging 2.9% over the period of analysis (U.S. Department of Commerce).

Segmentation Analysis First from product segmentation perspective, the coffee industry is dominated by roasted bean products (75%) followed by ground and specialty coffees and tea (11% each). Specialty teas are a market niche at 3%. Figure 1, Product Segmentation of the Coffee Industry, graphically shows the share of market attributable to each product type. Figure 1: Product Segmentation of the Coffee Industry Source: (U.S.

Department of Commerce) Product/Services Share Roasted bean coffee Ground and specialty coffees Tea Other tea In terms of distribution channels, grocery wholesalers (73.2%) dominate the distribution channel strategies of nearly every manufacturer to an extent. This is attributable to the fact that mass merchandisers including Safeway, Tesco, Wal-Mart and other chains with significant influence on manufacturers' ability to competitive price their products. In addition the reliance on coffee futures trading also is significantly changing the pricing structures of products and therefore modifying their margin structures for distribution (Mohan, 1000-1002).

Figure 2: Distribution Channel Segmentation of the Coffee Industry (U.S. Department of Commerce) graphically illustrates the market-making role of grocery wholesalers. Figure 2: Distribution Channel Segmentation of the Coffee Industry Source: (U.S. Department of Commerce) Market Segment Share Grocery wholesalers Export Supermarkets, grocery and convenience stores Food service.