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Coffee producers mixing it up

Released at: 14:42, 21/10/2018

Coffee producers mixing it up

Photo: Viet Tuan

Major instant coffee producers have taken note of the huge potential Vietnam's rising coffee consumption offers.

by Khanh Chi

Increasingly busy lifestyles and longer working hours will continue to strengthen customer appreciation of instant coffee, according to market researchers Mordor Intelligence, leading more consumers to switch from freshly ground coffee or standard instant coffee to instant coffee mixes with milk and/or sugar. Moreover, producers continue to introduce stronger-tasting varieties that suit the traditional preferences of Vietnamese consumers. The increasing number of cafés and coffee culture in Vietnam is also expected to boost the market, Mordor believes.

The thirst for caffeine in Vietnam puts the country on track to be among the world’s Top 5 fastest-growing coffee retail markets by volume between 2017 and 2021, according to global market intelligence agency Mintel. “The domestic instant coffee market is witnessing stiff competition from a range of long-term foreign and local brands,” Mr. Tran Thanh Hai, Chairman of the Nutrition Food JSC (NutiFood), told the launch ceremony for its first-ever coffee brand in Vietnam.

Strategic moves

A local nutrition and dairy processing firm, NutiFood announced on August 22 its official entry into the domestic instant coffee market with Nuticafé iced coffee, joining the potential but challenging playground after more than a year of research. This is the first product of its kind from NutiFood, which has long been focusing on dairy products. It has, in fact, been active in the local coffee market since mid-2017, when it invested in Phuoc An Coffee Ltd., which owns a 1,000-ha coffee plantation in the central highlands province of Dak Lak.

Given the fierce competition in the local market, NutiFood has chosen to invest in the best source of high-quality coffee while also taking advantage of technology and internal R&D solutions to find a niche and create a new instant coffee product, according to Mr. Hai. He expects Nuticafé, which is produced with Ice Flash coffee-freezing technology, to meet customer requirements in clean and safe coffee. 

Instant coffee market share, Vietnam

Source: Euromonitor, 2017

Instant coffee consumption per capita, by country

Source: Euromonitor, 2017

In addition to the domestic market, NutiFood also plans to export its coffee products, following its premium baby formula that began to be distributed in the US earlier this year. Mr. Hai said it not only wants to sell coffee products but is also keen to improve the value of Vietnam’s coffee beans and introduce the country’s coffee-drinking culture to international customers.

Meanwhile, long-term coffee producer Nestlé Vietnam opened a new Nescafé Dolce Gusto capsule production line in southern Dong Nai province in late July, strengthening its coffee investment in the local market. As the leading coffee purchaser in Vietnam currently, it buys 20-25 per cent of the country’s total coffee output. “The new production line will facilitate the distribution of high-quality coffee to more Vietnamese consumers and provide access to 13 export markets,” said Mr. Ganesan Ampalavanar, General Director of Nestlé Vietnam. “The inauguration of the production line reaffirms Nestlé’s commitment to bringing value and contributing to the development of Vietnam’s coffee industry.” 

The investment reflects its focus on high-growth, high-margin categories, including coffee, and is also in line with the growing trend of higher coffee consumption in many Asian countries. The new production line will use local beans to provide high-quality coffee products for domestic consumption and export, with approximately 90 per cent of the Nescafé Dolce Gusto output being exported to other markets in Asia.

Nestlé’s biggest competitor, Vinacafé Bien Hoa (VCF), since merging with the Masan Group over a year ago, has recorded an increase in output of more than 30 per cent and its products have been exported to Russia and eastern European countries. VCF’s after tax profit in the second quarter of this year reached nearly $6.4 million, up 116 per cent year-on-year. In the first half, revenue from instant coffee, cereal, and energy drinks grew 15 per cent and after-tax profit rose nine-fold year-on-year. According to the company, this was the result of a transformation of its business model from product sales to brand construction and distribution through Masan Consumer Corp. 

Instant coffee spending per capita, by country

Source: Euromonitor

Instant coffee revenue growth, Vietnam, by year

Source: Statista, March 2018

Continued favor

Asia’s emerging markets will play a big role in the future of the global coffee sector, as Mintel’s research reveals that Indonesia, Vietnam, and the Philippines are estimated to be among the Top 5 fastest-growing retail coffee markets by volume between 2017 and 2021. Indonesia is expected to grow at a compound annual growth rate (CAGR) of 11.4 per cent, Vietnam at 9.2 per cent, and the Philippines by 6.7 per cent. They are joined by Turkey and Mexico.

Vietnam’s instant coffee market was valued at $279.3 million in 2017, a hefty rise of 62 per cent against four years ago, according to global market researcher Euromonitor. The majority of Vietnam’s population today are millennials and are the core target group in coffee consumption, and now is considered a “golden period” for coffee players to make the most of the country’s market, according to Kantar Worldpanel Vietnam. It is the second-largest exporter of coffee beans globally, and the country’s love of coffee will only grow in the years to come.

The manner in which people enjoy coffee is, however, changing, and players who understand and can answer different consumer needs will win the day. “The competition is not among instant coffee manufacturers or against roasted and ground (R&G) coffee; it’s also against the rising number of coffee street vendors and coffee shop chains of local and international players and even extends to other beverages such as energy drinks and soda,” said Ms. Pham Quynh Trang, Insight Director at Kantar Worldpanel Vietnam.

A typical example of the blurred boundaries between category trends that lead to fierce competition for consumer choice is the recent launch of Coke plus Coffee, which was a big hit in Japan but is yet to take hold in Vietnam, she added. R&D and brand building are therefore becoming increasingly vital in the success of manufacturers. Good products for properly-targeted consumers is the baseline and those who can tell a good story that move consumers will win.

Changing local tastes

The growth in Vietnam’s instant coffee market declined in 2017 and this is expected to continue this year, according to data from market researcher Statista. The reason for the fall is considered to be changing consumption habits among local people, who are moving towards more diverse and high-end products. 

Despite the fact that instant coffee cannot sustain the high growth seen in previous years, the value of sales for in-home consumption still increased in the past year, by 4.4 per cent in Urban 4 key cities and 6.5 per cent in Rural Vietnam compared to the same period last year, according to Ms. Trang. “This slowdown has resulted from the impressive return of ground coffee, the popularity of non-alcoholic beverages such as energy drinks and soda, and the growing ‘out-of-home’ trend, which is clearly observed among the millennial generation,” she said.

Nonetheless, it can also be recognized that significant investment has been made recently by major players in terms of product innovation, with the aim of attracting consumers back to the market by launching premium instant coffee such as Italian coffee or aromatic coffee. Thus, from Kantar Worldpanel’s perspective, the market will not only see more challenges but also greater vibrancy in the time to come. In other words, more effort is required from market players if they wish to sustain and accelerate product competitiveness.

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