Valued at over $100 billion in 2020, the global coffee market is so much more than just a caffeine hit. Global coffee chains like Starbucks, Costa Coffee and McDonald’s McCafé turn over tens of billions of pounds year on year. Independent cafés are also becoming increasingly fashionable, especially here in the UK, although this makes it an increasingly saturated market to enter. Not only are there thousands of other independents to compete with, but the chains are also expanding every year, thus making it harder for owners to build a sustainable business.
As part of International Coffee Day, this blog looks at the challenges such brands face when operating on the world stage.
Where does the coffee come from?
The modern-day coffee industry has so much to consider when importing and exporting coffee. Brazil, the largest producer of coffee in the world, is home to 10,000 sq miles of coffee plantations that produce over a third of the coffee consumed around the world. Other major producers in this global industry include Vietnam, Colombia, Indonesia and Ethiopia.
The economics of a single cup
In 2018, a study by the Speciality Coffee Association found that the average cup of coffee cost £2.44. There is naturally a certain degree of variation as sizeable chains such as McDonalds and Greggs can buy at such a large scale that they are able to charge as little as £1 per cup. Meanwhile, a specialty independent café may need to charge closer to £3 as it can’t benefit from the same economies of scale.
With around 2.3 million cups of coffee consumed every minute around the globe, coffee is now the 4th most popular beverage in the world! Despite that, the profit per cup of coffee is rather limited. On a cup of coffee costing £2.50, the café may only make about 25p worth of profit, so just a 10% mark up. The café has to allow for the cost of the coffee, employee wages, premises maintenance and rent, taxes, all of which slowly eat away at profit margins.
From the plantation to your taste buds
The process of producing coffee is also far from simple, with the multiple stages involved increasing the property commitments for growers and exporters. Once grown, the bean is then exported. In 2018, an estimated 7.2 million tonnes of green coffee beans were exported across the world, equating to a value of £14.2 billion.
Once at its destination, the coffee beans are sent to a coffee roaster. In this sizeable commercial unit, the beans go through a very thorough process of roasting, grading and certification, before being packaged up ready to be sent to retailers and cafés. Switzerland is the world’s largest coffee roaster in sales volume, with £1.8 billion worth of roasted, graded and certified coffee beans exported in 2018.
Once roasted and packaged, the beans are dispatched and then stored in large warehouses before shipment to retail outlets like Tesco, chains like Starbucks and local independent artisan cafés. Quite a long way to come since it set out on its journey from Brazil!
Location, location, location
Location is key for cafés, whether a chain or an independent, as you need to have the right site to attract robust customer footfall. Chains like Starbucks and Costa love locating themselves in shopping centres, service stations and high-density high streets to maximise demand from people on the go. Independent cafés usually opt for high street positioning, so it is rare to see a specialty artisan café in a motorway service station or busy shopping centre.
This often comes down to the high property costs associated with those locations, as it is far easier for big chains to offset the cost than for a small independent. Bluewater Shopping Centre, for example, hosts two Caffe Neros, two Costas, a Joe & The Juice, two Starbucks, a Pret A Manger and a Coffee Republic. An independent would naturally steer clear of such a saturated market.
Independent cafés often opt for areas where they can appeal to locals rather than tourists. Being savvy with their location choices can also allow them to benefit from cheaper premises costs.
Starbucks in particular are meticulous when it comes to looking at where to place their outlets. Before opening new locations, they look into average income in the surrounding area, research local employment and ascertain how many commuters they can attract. They even check proximity to other cafés and search for locations with multiple access points for customers to enter their stores.
How Albion can help
Whether you are focused on the coffee we drink, the food we eat, or the cars we drive, the lifecycles of all these products require significant investments in property. The commercial property market can be daunting, even for those in the know. Once you start considering the need for commercial property in numerous locations around the globe, it can seem like a huge undertaking.
Albion can help. Our experts offer so much more than just translation services. Our property team can guide your business through the many language and cultural obstacles you will face. We provide tailored support, allowing you to develop a thorough understanding of the culture and behaviour of the market you are entering, as well as the nuances of the property sector in that country. To find out more, please contact our experts.