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Economics of Specialty Coffee in Australia


This blog post is a little bit more serious than usual. That is because we thought that it would be a good time to think about and research how the coffee industry was going to change for our many friends in the coffee industry, specifically roasters, as a result of the COVID-19 pandemic. We have created a (sort of) comprehensive report on the economic outlook for roasters, as well as some helpful information outlining the coffee demand in Australia more generally. 


Australian espresso culture developed in post-war Australia through Italian and Greek migrants in the 1950s and 1960s. Australia simply added milk. This industry has become enormous in recent years, and thus the economics and finance of the industry are equally as enormous and confusing. Despite the coffee industry’s huge popularity, “Coffee Bean Distributors” (a group that mainly consists of coffee roasters) are a market group that is developing slowly in comparison to the rest of the specialty coffee market in Australia. You can spur this growth and support the specialty coffee industry by shopping at The Coffee Network


How Much Coffee Does Australia Drink?


Indeed, coffee is very popular in Australia. Yet, coffee is not as popular as some may think. Where do you think (against the world) Australia is ranked in its consumption of coffee habits? The answer may surprise you: Australia is ranked as the 42nd largest consumer of coffee in the world, at around 3 kg per capita per year - that is around 1 cup per day per person. It must be noted that Australia’s consumption of specialty coffee in comparison to the rest of the world is likely higher than indicated by this rank number. This rank number is reasonably low (42nd) because this number likely includes instant coffee and percolated coffee, which are not very popular coffees in Australia when compared against the booming popularity of specialty coffee. 


The revenue of the Australian coffee market was $5.5 billion USD in 2018. These numbers have remained relatively stable over the last few years. 


Coffee Demand Across Generations


In a study of 1,000 Australians, one in four Australians indicated that they cannot survive a day without coffee (27%). 9 to 10 Australians indicated that they enjoyed coffee to some extent (88%). Coffee love is greater among younger generations, rather than older generations, with around one third of people in the younger generations needing it to survive everyday (33% Gen Y (people born between 1980 and 1994), 30% Gen X (people born between 1965-1979)). 


Economic Analysis For Roasters


Researchers at IBISWorld indicate the following:


Growth among “Coffee Bean Distributors” (a group that mainly consists of coffee roasters) is expected to fall this year by 15.8% as a result of COVID-19. Please note that this is potentially incorrect, considering that the IBISWorld report being referenced was created in July 2020 and is therefore not completely up to date at time of writing (7 October 2020). It is possible that this IBISWorld report is overly pessimistic, considering that some suburb cafes are performing well at the moment, and domestic regional centres (such as the central coast) are performing reasonably also. 


Previous predictions indicated that this Coffee Bean Distributor market was expected to grow by 0.9%, but such predictions were made before COVID-19 shook the whole coffee industry. Growth is heavily limited for Coffee Bean Distributors because downstream demand is severely limited due to government restrictions. For example, on 23 March 2020 the Federal Government restricted cafes for 2 months in order to mitigate the pandemic of COVID-19. Many cafes closed as a result of these restrictions.


As the recession continues to develop, it is likely that consumer sentiment towards the coffee industry will begin to decline due to rising levels of unemployment and a downturn in the economy. Luckily, downstream demand is expected to recover over the next 5 years. 


Revenue earned in the Coffee Bean Distributors market amounts to $2.3 Billion, with expected annual growth of 2.9% through to 2025. Industry revenue at 2025 is expected to reach $2.7 Billion. There is a comparably small level of profit ($72.6 Million). There are around 622 businesses associated with this market group, and 6110 people in employment. 


The market is considered to be at relatively low concentration. For instance, the largest player in the market, Vittoria Coffee, only accounts for 5.8% of the market share. 


Arabica beans make up for 54.3% of the market. Robusta beans make up for 10% of the market. Coffee blends make up for 35.7% of the market. You can check out some of the blends that we have available at the The Coffee Network here


Threats to the Industry


Instant coffee is, and will remain, the largest threat to this industry over the next 5 years. Instant coffee is the most common substitute to brewed coffee from roasted beans. Other beverages which include things such as energy drinks and coffee substitutes like tea, pose less of a threat to the specialty coffee industry than does instant coffee. 

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