Beanies Flavored Coffee Market Entry Strategy for Germany

Introduction

Beanies — the Flavor Company — was born in a modest garage in February 2009. It was the brainchild of two former employees of Boater's Coffee. As more investors joined the company, the Beanies brand was officially launched and registered. As operations began to expand beyond the capacity of that original garage, a 1,000-square-foot space was rented as an economical alternative in May 2009. Four varieties of flavored instant coffee were introduced in the same month. Beanies truly became an "international" brand when it commenced exporting its product to coffee lovers in Poland. With business growing further, the firm moved to a 2,000-square-foot space at the end of winter in 2010.

Growth in the digital realm is a priority for Beanies, and the company launched a user-friendly, fully integrated e-commerce website that allows users to create a profile online in accordance with their purpose of visit. A jarring line was also procured and installed, enabling the firm to manufacture its own recipe and design its packaging as desired. (Beanies, 2012.) Equipped with a diverse portfolio of flavored coffee blends in whole bean, ground, and instant form, Beanies' prime objective is now to strengthen its brand in the international arena.

The company has already marked its footprint in the coffee markets of Italy, Austria, the United States of America, Finland, Denmark, the United Kingdom, Uruguay, and Cyprus. Now it is looking to intensify its efforts on the European frontier, particularly in Germany. It achieved some success at a food fair there during a UKTI mission, and Beanies concluded that Germany was ripe for expansion and wanted to take its business to another corporate level there.

Global Coffee Market

Coffee consumption soared from 15,000 tons in the 1990s to 55,000 tons in recent times (German Coffee — Flavor and Smoothness, 2011). The market is growing steadily as global demand for instant coffee is on the rise. In 2008, the hot drinks sector — which includes coffee, tea, and chocolate-flavored drinks — had a total worldwide sales value of USD 59 billion. Coffee was the highest contributor, accounting for USD 40 billion in sales. Leatherhead Research forecasted that this division would grow by 5% each year up to 2012, escalating the overall market value to approximately USD 48.75 billion by then.

The instant coffee market held a thirty-five percent share of the global hot drinks market in value terms, with particularly high shares in the United Kingdom and Ireland — eighty-one percent and eighty-nine percent respectively. According to the Global New Products Database, coffee was most "active" in the United Kingdom, which recorded the highest number of powdered instant coffee launches, followed by Russia, Germany, Poland, and France. Such brand introductions grew in 2009 to over 200 overall, with unflavored or plain powdered coffee dominating the market at 84% of all product launches. (Moe, 2010.)

The instant coffee market is also on the rise in the United States of America, where approximately fifteen percent of coffee consumed annually is instant coffee. In the United Kingdom, instant coffee is synonymous with soluble coffee, and Nestlé controls over fifty percent of that market. As noted above, the market in Germany has grown to 55,000 tons from 1,000 tons. With the advent of globalization and revolutions in communication technology, the way international business is conducted has fundamentally changed. Consumer behavior has evolved: people now lead busier, more hectic lives and have less time to spare.

World consumption of soluble coffee products improved after a number of years of stagnation, growing from 21.4 million bags in 1999 to 29.9 million bags in 2004 (Neumann Kaffee Gruppe Statistics).

The rate of growth in demand for coffee in Europe has been a modest 0.2% per year — slower than total growth in usage for all coffee types combined. Instant coffee accounts for over 80% of the market in England; although demand was beginning to fall at one point, it has since rejuvenated with the introduction of specialty coffee brands. Other European countries have witnessed a brief but transient demand for soluble coffee. The Deutscher Kaffee-Verband estimated that the instant coffee share rose from 6.2% to 7.5% between 1998 and 2005, demonstrating an increment in demand for these products.

This growth in demand for soluble coffee can be credited to an increase in demand within Eastern Europe — especially Russia — and the Far East, where instant coffee holds high market shares. An innovative "3 in 1" instant coffee product has gained considerable popularity: it is a soluble coffee with a non-dairy creamer and sugar, usually intended as a single serving. In 2009, 72% of the soluble coffee utilized in importing countries was processed into soluble coffee in those very same countries. In 2000, the equivalent figure was 83%, implying that manufacturing nations may be forecasting notable growth in their share of the soluble coffee market in importing countries.

Demand for soluble coffee varies across manufacturing nations. It accounts for ninety-five percent of total coffee utilization in the Philippines and Thailand. Brazil is the largest producer of instant coffee, yet local consumption accounts for only five percent of total coffee utilization there. In India, soluble coffee demand represents thirty-five percent of the entire coffee segment and is mostly imported, with Mexico accounting for sixty percent. Notably, two powerful coffee giants — Nestlé and Kraft Foods — dominate the world market with approximately seventy-five percent market share combined, with Nestlé alone supplying half of global coffee demand. (Trade Practices of Relevance to Exporters in Coffee Producing Countries: Demand — Soluble Coffee, 2011.)

Country-by-country consumption data from 2007 to 2010 shows a downward trend in coffee demand in the UK, Italy, and Spain. With focus on Germany, it is notable that the percentage change is positive and the highest among European Union members at 4.3%. While coffee consumption trends fluctuate over these three years, they settle on a rise for 2010. As Germany tends to import its coffee, there is strong market potential there. (Monthly Coffee Report March 2012, 2012.)

Market Environmental Analysis and German Demographics

Having explored the global coffee market in detail, it is crucial to analyze the industrial and social dynamics of Germany in order to understand the market context. With a total area of 357,022 square kilometers, only 33.13% of Germany's land is cultivable. Agriculture accounts for only 1.8% of total gross domestic product and employs 5.6% of the total workforce, yet Germany remains the third largest agricultural producer in the European Union. With a relative scarcity of natural resources, Germany relies heavily on oil and natural gas imports for its energy requirements. In 2010, the country became the second largest natural gas importer and seventh largest oil importer. (Germany Economic Structure, 2010.)

The 2009 population statistics estimated a population of eighty-two million people with a high level of consumerism. The German market is moving away from the traditional manufacturing sector and transforming itself into a knowledge-based economy. Its service division contributed seventy-two percent to gross domestic product. Germany's economy is the fourth largest in the world and the greatest within the European continent. It balances its trade sheet as the world's second largest importer and also ranks as the world's second largest exporter.

Machinery constitutes the highest category of imports, with mineral fuels coming in a close second. Commodities represent a remarkable figure of USD 82.02 billion, accounting for approximately 8.7% of the value of total imports. The trade balance is positive, as the value of exports exceeds the value of imports. Germany's GDP grew by 3.0% in 2011, though this was a decline from the preceding year's figure of 3.7%. Germany has strengths in information and communication technology, accounting for over twenty percent of the complete European market with a turnover of €141.6 billion in 2010. High demand exists for consumer electronics such as smartphones and LCD televisions.

Another area of strength for Germany is health and biotechnology. It is the third largest market in the world in this sector after Japan and the United States of America, valued at USD 18.3 billion — equivalent to USD 223 per capita. Germany imports a large amount of seafood, with only twenty-one percent sourced from domestic fisheries; per capita fish consumption is on the rise. It holds the fourth largest wine market in the world after France, Italy, and the United States. There has been considerable emphasis on organic food, with sales totaling €5.8 billion. The global recession did affect Germany, and the economy contracted by nine percent in 2009 — the greatest decline since World War II. The government responded by implementing a program that reduced working hours, which only marginally increased unemployment.

German Demographics

The total population of Germany as of 2011 was 81,471,834 people. The age structure breaks down as follows: 0–14 years (13.3%): 5,569,390 males and 5,282,245 females; 15–64 years (66.1%): 27,227,487 males and 26,617,915 females; 65 years and over (20.6%): 7,217,163 males and 9,557,634 females. The median age is 44.9 years overall — 43.7 years for males and 46.0 years for females. Life expectancy for the total population is 80.07 years — 77.82 years for males and 82.44 years for females. (Germany Demographics Profile 2012, 2011.)

German Coffee Market

The hot drinks market is composed of coffee, tea, and other hot drinks. In 2010, the German market for hot drinks had sales of $4.9 billion, with a compound annual growth rate (CAGR) of 2.1% from 2006 to 2010. Coffee consumption volumes grew with a CAGR of 1.2% between 2006 and 2010, reaching 370.7 million kg in 2010. The market's volume is forecasted to grow at a CAGR of 1% from 2010 to 2015. Coffee was the greatest contributor to the hot drinks segment in Germany in terms of revenue, accounting for sixty-nine percent of the overall market value in 2010. Tea was valued at only $1.4 billion in 2010, contributing 27.9% of the total market. (Hot Drinks in Germany February 2012, 2012.)

Coffee dominated the hot drinks sector in Germany throughout the period 2006 to 2010, consistently representing 69% to 70% of the market. A further favoring factor for Beanies entering Germany is that Germany is the largest coffee-consuming market in the entire European Union, with the highest consumption pattern, occupying more than half the EU pie at 54.4%. This illustrates the massive potential for Beanies to enter the market and launch its customized, flavored instant coffee brand. (Hot Drinks in Germany February 2012, 2012.)

Soluble coffee has enjoyed relatively stable demand over the years in Germany, which has positive implications for Beanies, as it shows there are no sharp variations or steep changes in the level of demand for its product category. (Wheeler, 2011.) Germany also has the highest average per capita coffee consumption at approximately one hundred and fifty liters per year. (Coffee in Germany.) Data from the Deutscher Kaffeeverband report "European Coffee Market with Focus on Germany" confirms a stable and steady demand for soluble coffee, which remained at approximately 16,600 tons over 2009 to 2010.

Conclusion

The promotional tactics outlined above, backed by a strong and well-executed marketing strategy, will help ensure success in the German market. Germany's large population of coffee drinkers, stable demand for soluble coffee, growing organic food trend, and status as the European Union's largest coffee-consuming market all present favorable conditions for Beanies. Beanies should definitively consider Germany as ripe ground for market entry and commit the necessary resources to establish its brand there.

References

Beanies. (2012). Beanies Coffee. Retrieved April 28, 2012, from http://www.beaniescoffee.co.uk/

Coffee in Germany. CBI Ministry of Foreign Affairs in the Netherlands.

Exporter Guide Germany Country Brief December 2010. (2010). New Zealand Trade & Enterprise.

German Coffee — Flavor and Smoothness. (2011). Retrieved April 28, 2012, from German City: http://www.mygermancity.com/german-coffee

Germany Demographics Profile 2012. (2011, July 12). Index Mundi.

Germany Economic Structure. (2010, April 8). Economy Watch.

Germany in Transition: Traditional Markets in Decline. (2004, June 14). Coffee and Cocoa International.

Hot Drinks in Germany February 2012. (2012). Marketline Industry Profile.

Moe, S. (2010, June 25). Global Coffee Trends. Bord Bia — Irish Food Board.

Monthly Coffee Report March 2012. (2012). International Coffee Organization.

Trade Practices of Relevance to Exporters in Coffee Producing Countries: Demand — Soluble Coffee. (2011, October). International Trade Centre.

Wheeler, M. (2011). European Coffee Market Situation. Specialty Coffee Association of Europe.