Another cup of coffee? Yes please, say Aussies

Australians love a cafe cup of coffee, according to business information analysts at IBISWorld who predict cafes and coffee shops’ revenue will grow 32 percent over the next five years to reach $6.55 billion.

Australia’s cafes and coffee shops industry is characterised by high sales volumes, low profit margins and intense competition, yet IBISWorld general manager (Australia), Karen Dobie, said the industry is expected to increase 2.3 percent this year despite a dip in consumer spending.

Dobie said that cafes have outperformed hospitality rivals over the past five years, with revenue increasing 2.6 percent per annum compared with 0.9 percent for the catering industry and 1.1 percent for restaurants.

“Australians consider buying coffee outside the home an essential part of the daily routine – and we’re willing to sacrifice other things rather than forgo our daily cup,” Dobie said.

And that's because coffee is the morning kick-start of choice for many Aussies with the expected average weekly spend on cafe caffeine to reach $6.13.

Of course this takes into account increasing costs of a coffee serve.

The cost of a cup

“Rising costs for wages, electricity and insurance, coupled with increasing world coffee prices have seen the price of coffee in a cafe rise,” Dobie added.

Industry sources estimate the domestic price of coffee has increased $2 per kilo, leading to a four cent increase in the price of coffee in a cafe over the past year.

Our taste for premium coffee has also played a role in pushing up the price of cafe coffee – as more cafes employ highly skilled baristas to dispense quality coffee.

“Despite these price rises, Australians are still prepared to stretch their budgets to purchase one or more coffees a day, with those in Perth paying the most per cup,” Dobie said.

The big chains

Independent coffee shops are highly competitive when it comes to service, quality and price, often outperforming global brands, which have not been able to capture more than five percent of the local market, according to IbisWorld.

However franchise brands McDonald’s McCafe and Gloria Jean’s Coffee have secured a small share of the local market. Dobie attributes this to a higher level of Australian ownership and a more hands-on involvement in understanding the strong coffee culture, in contrast to the Starbucks chain, which closed 61 sites in 2008.

Eco cup

IBISWorld expects this industry will enjoy continued growth, particularly if Australian businesses boost their revenue through premium products served to niche markets.

“Rising public concern over carbon emissions, climate change and the health implications of consuming products tainted by pesticides present investment opportunities in areas such as organics and eco-consumerism,” Dobie said. “Operators will benefit from differentiating their products by using organic ingredients, reducing their carbon footprint and promoting ethical business practices such as the use of fair trade coffee to attract consumers that are willing to pay a premium for coffee that has been ethically sourced.”

Retail sales for fair trade coffee totalled $50.5 million in December 2010 – representing a 910 percent jump from 2005.

“McCafe was quick to capitalise on this trend by promoting the company’s social and environmental credentials via the use of certified Rainforest Alliance coffee. While economies of scale make this a more cost-effective strategy for McCafe than for some smaller players, it’s a trend that’s here to stay.”

From: franchasie.net.au