Hindustan Unilever and Nestlé India are the dominant national players in coffee, with both companies together accounting for more than two thirds of off-trade value sales. Fresh coffee is mostly consumed in South India and is dominated by regional players, which control small pockets of the region based on the taste preferences and brand loyalties of the residents. Instant coffee is dominated by the two main national players with their respective Nescafé and Bru brand portfolios. In 2008, Nestlé India commanded a share of 37% of coffee off-trade value sales with Nescafé Classic and Sunrise, while Hindustan Unilever followed closely with a share of 32% with Bru. While Bru Roast & Ground is the leader in fresh coffee, Nescafé is the clear winner in instant coffee. Hindustan Unilever derives a higher proportion of coffee sales from South India, whereas Nestlé India is stronger in the rest of the country.
Growth in instant coffee drove the off-trade value sales of coffee in 2008 as instant coffee value sales saw a 10 percentage point higher growth in 2008 than fresh ground coffee. This benefited Nestlé India which controls 61% of off-trade instant coffee sales and allowed it to increase its share of coffee in India. Its increase in share was slightly higher than the increase in share Hindustan Unilever achieved. With the premix coffee format being rather unsuccessful, Nestlé India concentrated on ground level promotions such as sampling in order to increase the penetration of its regular coffee brands instead of introducing new coffee formats such as premixes and flavoured coffee.
Although Nescafé, the leading coffee brand in India held a 37% share of off-trade value sales in 2008, coffee in India is dominated by domestic brands such as Bru and Coorg and various other regional brands. Other international brands such as Illy have super-premium prices and have a minute presence in select urban off-trade outlets.
There were no notable new product launches in coffee in 2008. With rising prices and the failure of premix products to take off, companies concentrated on increasing the penetration of their existing brands.
Nestlé India and Hindustan Unilever were both active in terms of TV commercials for Nescafé and Bru. Both continued to use similar taglines and themes as 2007 with Bru continuing with “Bru se hoti he khushiyaan shuru” (Bru is the initiation point of happiness) tagline and Nescafé using its trademark playback music.
Coffee is predominantly sold in pouches with some brands available in plastic or glass jars. In the latter part of the review period, companies dealt with sharp increases in coffee prices and high inflation rates by promoting smaller pack sizes such as 50g and 100g, which are more affordable than 200g or 500g packs. Hindustan Unilever’s Bru is being promoted in affordable sachets in rural areas.
Premium brands, Bru Cappuccino are differentiated from standard brands Nescafé Classic and economy brands Nescafé Sunrise based on their higher price points. Economy brands such as Nescafé Sunrise are also considered cheaper economy brands as they are mixes of coffee and chicory. Key brands such as Nescafé and Bru widely use points of sale displays to attract consumers in supermarkets/hypermarkets.
There are no private label products in coffee in India
Prospects of Coffe Industry in India
As coffee penetration is very low in India, there is high potential for expansion of the coffee consumer base. The aggressive expansion of chained coffee specialists is expected to create a taste for coffee among Indian consumers who are predominantly tea drinkers. The new generation of urban Indians is expected to develop a taste for speciality coffees such as cappuccino and mocha during the forecast period and this will expand the currently niche coffee premix consumer base.
A 4% CAGR off-trade volume sales is expected in the forecast period. This is slightly slower than the review period CAGR of 5%. The penetration of coffee has expanded over the review period and year-on-year growth is expected to slow in the forecast period because of this expanded consumer base.
The growth of coffee in the future could be threatened by consumers shifting to juices as a healthy alternative for at-home consumption and to soft drinks such as juice drinks and bottled water for on-the-go consumption. With consumers experimenting with various alcoholic and non-alcoholic drinks coffee companies are faced with the challenge of retaining interest in coffee once the hype around chained coffee specialists fades.
Instant standard coffee is expected to see higher volume growth rates as busy lifestyles and the increasing proportion of working women will favour instant coffee over fresh ground coffee that takes time and skill to prepare. Moreover, coffee volume growth is being driven by the expansion of its consumer base in north, west and East India where unlike South India, the consumption of fresh ground coffee is not traditional and the taste of instant coffee is preferred.
On-trade coffee sales which are growing from a much smaller base are expected to see higher growth rates than off-trade sales. With their established status as hip hangouts for the youth, the number of specialist coffee shops is expected to witness a high CAGR of 22%. The expansion of chained coffee specialists is expected to establish on-trade coffee consumption as a leisure and entertainment activity for a larger proportion of Indian youth.
Unit prices are expected to rise over the forecast period as high input costs and inflationary pressures are expected to squeeze company margins. Outside of South India, coffee consumption is not an essential part of daily routines as is tea and coffee and is not expected to erode tea consumption during the forecast period. As coffee remains a discretional purchase, companies are expected to continue offering small affordable pack sizes and freebies to generate trials and increase coffee consumption from a seasonal to regular habit.
Hindustan Unilever and Nestlé India are expected to concentrate on above-the-line communication and point of sale sampling and displays to increase the penetration of instant coffee in north and West India. These players are not likely to face any competition from regional companies which are predominantly in the fresh ground coffee category. Retail chains such as Subhiksha and Food Bazaar, which are already carrying private label tea are expected to launch private label coffee to offer affordable alternatives to branded coffees.
Coffee premixes are expected to expand their consumer base during the forecast period as the appreciation for convenience of preparation grows with increasingly busy lifestyles in the cities. Increased exposure to Italian variants such as mocha and cappuccino in on-trade outlets is also expected to drive sales of speciality 3-in-1 premix coffees in off-trade outlets.
Future prospects for coffee pods/machines are fairly dim in India as consumers are content to prepare coffee on the stove. The high prices of coffee pods/machines will limit their growth prospects during the forecast period.