Connect with us
nairametrics

Business News

It’s time to break Nescafe’s two-decade grip on Nigeria’s coffee market

From homes to offices, the consumption of coffee has increased among Nigerians, blending into their lifestyles, particularly in the urban youth circles. There are just two coffee brands leading this drive within the country— @NESCAFE and others.

Published

on

Kaldi Africa, Nescafe, Nestle products, Cafe Neo, Coffee products in Nigeria

From homes to offices, the consumption of coffee has increased among Nigerians, blending into their lifestyles, particularly in urban centres. There are just two coffee brands leading this drive within the country Nescafe and others.

The others have been evidently non-existent for the last 30 years, thereby limiting the options of coffee consumers to just one choice, which inevitably made Nescafe the ‘preferred‘ brand in the coffee market.

[READ ALSO: Nigerian brands on alert as Facebook revises news feed algorithm]

Produced by Nestle Nigeria, Nescafe has grown to become a market force, controlling product price and availability. The company has been a dominant player in the coffee market, dictating its pace and structure. From tin package to economy sachet packs, Nescafe has innovatively positioned itself as a product for all levels of income earners.  

As a way of penetrating deeper, the company has gone a step further from being just an end-product manufacturer, to serving consumers caffeine-on-the-go with its mobile coffee carts. However, the stronger Nescafe’s grip is on Nigeria’s coffee market, the more danger its dominance poses for the market. 

GTBank 728 x 90
Image result for Coffee War

Coffee war is the use of marketing to capture market share; or in simple english, create disorder to the status quo.

There’s a need for a coffee war 

For over two decades, Nescafe has enjoyed the advantage of being the market’s first mover, and it has continued to monopolise the coffee business to an extent that the market could shake to its foundation if Nescafe sneezes. 

[READ ALSO: US-China Trade War: Implications for Nigeria as its Asian romance lingers]

Deal book 300 x 250
Coronation ads

By 2020, consumption of coffee is projected to climb beyond the 1000 tons mark, and the majority of coffee products will be provided by Nescafe which has 75% market share. This means that Nescafe will account for most sales then, if not all sales. 

Such control is unhealthy for the growth of the market, and it’s time to loosen the grip of the Nestle subsidiary on distribution and sales through a ‘coffee war’. Customers end up being winners in such wars, considering the advantages that come when brands battle for market share, and the financial implications of having a monopoly. 

Image result for Nescafe brands

Some Nescafe flavour brands

What Nigeria is losing to monopoly

The growing consumption rate is creating an opportunity for small and medium-sized roasters to capture a larger market share and increase the revenue of the coffee market to the country’s GDP. 

A competitive coffee market will boost local production, as roasters will source for coffee beans within Nigeria. The lack of rivals has reduced the production output of coffee farmers, coupled with the fact that Nigeria isn’t considered a force to be reckoned with among coffee exporters.

Jaiz bank ads

[READ ALSO: How Cable TV could die in Nigeria]

Stanbic IBTC

This has compelled coffee farmers to abandon the venture for more lucrative seeds. But with the competition, coffee farmers will record a boost in demand, thereby, causing an increase in the number of farm jobs to meet demands. Then, they can share the spotlight with Kenyan farmers who were said to have earned $41 million within four months in 2018 for coffee seeds sales. 

The country is losing job opportunities in the coffee market which in Ethiopia employs 15 million citizens. With coffee being the second most exported commodity in the world behind oil, Nigeria can increase employment opportunities through this market. 

Also, with Nescafe playing God in the coffee market, revenue generated from farm to end-product will not be as significant as when the market is competitive. Note that in countries like Uganda and Ethiopia, coffee production alone earns both nations £634 million and £846 million respectively.

Image result for Cafe Neo

Cafe Neo located in the Island was founded by brothers; Ngozi Dozie and Chijioke Dozie.

How Nescafe’s dominance can be broken 

Coffee intake is currently on the rise in Nigeria. With urbanisation hitting 51%, it’s a good time for new entrants to make their way into the market, or for existing players like Cafe Neo and Kaldi Africa to consolidate in order to strengthen their capabilities and better compete against Nescafe. Operating as lone wolves against Nescafe in the market will only tame their growth further, until they have nothing to offer their customers.

[READ ALSO: Hypo wipes out rivals in a market determined by price and media campaign]

Currently, small coffee shops are operating in Nigeria, predominantly in Victoria Island,  Lagos, but surviving the coffee market requires extensive financial resources to market their offerings, and consolidation of resources will provide this needed capital.

Image result for Kaldi Africa

Kaldi Africa is a a joint Nigerian and Kenyan enterprise founded by Dr. Nasra Ali when she relocated to Nigeria (Photo Credit: The Food Lover)

If the French could consume about 366,000 tons of coffee and its entire population is nowhere close to Nigeria’s urban population, then there are still large numbers of underserved coffee-heads and millennials who Nescafe have been unable to service, and it’s only a matter of time before demand becomes a burden. 

app

While Nescafe enjoys a first mover advantage which has helped it capture a large customer base, their customer-loyalty is yet to be tested by a formidable competitor, but consolidation among smaller coffee chains and partnerships with Quick Service Restaurants, as being applied in the United States to break Starbucks monopoly, could begin the end of Nescafe’s dominance.

Olalekan is a certified media practitioner from the Nigerian Institute of Journalism (NIJ). In the era of media convergence, Olalekan is a valuable asset, with ability to curate and broadcast news. His zeal to write was developed out of passion to shape people’s thought and opinion; serving as a guideline for their daily lives. Contact for tips: [email protected]

2 Comments

2 Comments

  1. Aderemi Davies

    November 5, 2019 at 9:16 am

    This is a very analytical write up, a clarion call for local producers to start looking in to the growing coffee market. However while the new cafes can enjoy prominence with the coffee outlet venture, manufacturing and distributing of retail coffee products locally may be much more difficult especially with the prowess Nescafe currently exhibits. Are we sure they won’t stifle out the competition as most big industry players always does? Just like what competitors are facing with Multichoice.

  2. Ayogu Odenigbo Izunna

    June 14, 2020 at 10:25 am

    I have always been a huge fan of coffee. Recently, the urge to go into coffee production has dominated my thoughts.
    Then, stumbling upon this article, my mind has been made up.
    It’s never easy to fight monopoly from big brands. But it’s easy to give it a try. Thanks for this.

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Energy

FG to begin online registration, monitoring of petrol stations, depots

The DPR has stated that it will commence the remote monitoring, registration, and accreditation of all petroleum products depots.

Published

on

The Department of Petroleum Resources (DPR) has revealed that it plans to automate and begin remote monitoring, registration, and accreditation of petroleum products depots, retail outlets, and the entire downstream oil and gas industry, with the launch of the newly established Downstream Remote Monitoring Systems (DRMS).

While disclosing a statement in Abuja, the Head, Public Affairs of the DPR, Paul Osu, pointed out that the newly established Downstream Remote Monitoring Systems is expected to take off on December 1, 2020, after the launch in Abuja.

According to a report by Vanguard, Osu explained that the DRMS is a web-based solution designed to provide intelligent regulatory and inventory management system for petroleum products supply and distribution from depot to retail outlets and also as a regulatory tool to monitor retail outlets and depot activities.

He said, “Other features of the application include retail outlets accreditation and re-registration, nationwide automated product inventory management, retail outlets coordinate recording for mapping purposes and transactions management and report generation of dealers nationwide.

“The establishment of DRMS is another strategic initiative of DPR to continue to create opportunities and enable business in the oil and gas industry in Nigeria.”

GTBank 728 x 90

It can be recalled that the DPR had a few months ago, launched the National Production Monitoring System (NPMS), another online platform to assist the oil and gas regulator accurately monitor national crude oil production and exports, through the provision of a system for direct and independent acquisition of production data from oil and gas facilities in Nigeria

This is to ensure timely and accurate reporting of production figures and export data. This is also expected to guard against the crude oil theft that is prevalent in Nigeria’s upstream oil sector or reported cases of crude oil that is sold but unaccounted for.

The NPMS is an initiative that is developed as a replacement for the current paper-based report and ensures ready production reporting to the Federal Inland Revenue Service (FIRS) and the Nigeria Extractive Industries Transparency Initiative (NEITI) and other agencies.

Coronation ads

Continue Reading

Financial Services

Era of backlog of unsettled claims is over – NAICOM boss

NAICOM has stated that it will monitor and sanction insurance companies who fail to settle claims as at when due.

Published

on

NAICOM

The National Insurance Commission (NAICOM) is out to seriously sanction any insurance companies with huge unsettled claims.

This disclosure was made by the Commissioner for Insurance, Mr. Sunday Thomas, at the on-going 2020 Insurance Directors’ Conference, jointly organized by NAICOM and the College of Insurance & Financial Management (CIFM), held at the Oriental Hotel in Lagos.

Mr. Thomas reiterated the need for the operators, post-pandemic, to appropriately strengthen their human and financial capital for effective participation in big-ticket risks to take advantage of the obvious gains of the domestication policy in the Nigeria Content Development Act 2010.

In his words, Mr. Thomas stated, “More businesses especially in the oil and gas and the Aviation sectors are now being reinsured abroad. Of more concern is the declining participation of life companies in the annuity business, which is the emerging business for our industry.

“These are the areas where the industry can impose itself on the economy through the control of funds for national development. The industry must invest handsomely in technology, one of our key drivers for developing the market.

GTBank 728 x 90

“The Institutions should be prepared to digitalize their processes, procedures, and systems, in order to make their operations seamless and real-time. The Commission is investing heavily in automating its processes and expects nothing less from the insurance institutions. An industry Information Technology Guideline has been issued for the operators and the Commission requires your support and cooperation for effective compliance.”

(READ MORE: FG seeking FDI to develop Special Economic Zones – Trade Minister)

Why this matters

Coronation ads

Prompt settlement of claims should be a top priority for the insurance operators in achieving an excellent and responsive customer service experience. Settlement of claims has been a serious nightmare for quite a number of customers, resulting to the abysmally low insurance culture in Nigeria.

Customers are more likely to patronize the insurance companies that are prompt in claims settlement and by extension improve the industry penetration in the market.

Continue Reading

Financial Services

Total credit to the economy rose to N19.54trillion – CBN Governor

The CBN revealed during the MPC meeting that the total credit to the economy rose to N19.54tn as of the end of November 13.

Published

on

CRR debits, P-AADS, #EndSARS: CBN says funds in frozen accounts may be linked to terrorist activities, Covid-19: Court closures impacted revenue generation for courts - Emefiele, P&ID dispute: UK Court orders $200 million guarantee to FG, Leaked letter by Poultry Farmers Association triggered CBN emergency approval to import maize, nImplications of CBN's latest devaluation and FX unification, current account deficit, IMF, COVID-19, CBN OMO ban could give stocks a much-needed boost , CBN’s N132.56 billion T-bills auction records oversubscription by 327% , Nigeria pays $1.09 billion to service external debt in 9 months , Implications of the new CBN stance on treasury bill sale to individuals, Digital technology and blockchain altering conventional banking models - Emefiele  , Increasing food prices might erase chances of CBN cutting interest rate   , Customer complaint against excess/unauthorized charges hits 1, 612 - CBN , CBN moves to reduce cassava derivatives import worth $600 million  , Invest in infrastructural development - CBN Governor admonishes investors , Credit to government declines, as Credit to private sector hits N25.8 trillion, CBN sets N10 billion minimum capital for Mortgage firms, CBN sets N10 billion minimum capital for Mortgage firms , Why you should be worried about the latest drop in external reserves, CBN, Alert: CBN issues N847.4 billion treasury bills for Q1 2020 , PMI: Nigeria’s manufacturing sector gains momentum in November, CBN warns high foreign credits could collapse Nigeria’s economy, predicts high poverty, MPC Member, BVN, Fitch, Foreign excchange (Forex), Overnight rates crash after CBN’s N1.4 trillion deduction, Nigeria’s foreign reserves hit $36.57 billion; Emefiele keeps his word on defending the naira, CBN to support maize farmers, projects 12.5 million metric tons in 18 months, BREAKING: CBN Upscales Greenwich Trust Limited, grants it's operational license for merchant banking, AGSMEIS: CBN expand beneficiaries to 14,638., CBN expands access to mortgage financing

The CBN Governor, Godwin Emefiele, has disclosed during the Monetary Policy Committee meeting that the total credit to the economy rose to N19.54tn as of the end of November 13.

According to him, the aggregate domestic credit grew by 7.6% in October 2020 compared with 7.35% Month-on-Month in September.

In his words, “Total gross credit by the banking industry stood at N19.54tn as at 13th November 2020 compared with N19.33tn at end-August 2020, an increase of N290.13bn. When compared with N15.56tn at the commencement of the LDR policy in May 2019, total gross credit increased by N3.97tn.”

According to Emefiele, the composition of the loans are N738bn to Manufacturing, General commerce N874bn, Agric and forestry N301bn, Construction N291bn, ICT (N231bn), etc.

In the month of October 2020, he stated that 86.23% of the total loans granted to over one million customers by banks were at interest rates considerably below 20% per annum.

GTBank 728 x 90

(READ MORE: N200 billion Unclaimed Dividend: Securities dealers reject FG’s plan to manage fund)

Bottom line

The MPC was quite optimistic and favorably disposed about the future impact of the disbursements from agri-business/Small and Medium Enterprise Investment Scheme of the sum of N92.90bn to 24,702 beneficiaries; Anchor Borrowers Program – N164.91bn disbursed to 954,279 beneficiaries; and COVID-19 Targeted Credit Facility to household and SMEs, with the sum of N149.21bn to 316,869 beneficiaries.

Coronation ads

Continue Reading