Nescafé, Ricoffy and Frisco are at war – which means cheaper prices for instant coffee drinkers
South Africa’s market for instant coffee is seeing a bitter war for market share – which is lowering prices for consumers.
Owner of the Frisco coffee brand, AVI, is reporting "aggressive competitor activity" in the South Africa’s instant coffee market. The company released its results for the six months to end-December on Monday morning, reporting that revenue and operating profit from its coffee brands were lower than the first half of last year.
The increased competition has forced AVI to cut instant coffee prices. You can now buy a 750g tin of Frisco at Makro (as part of a bulk deal) for R67.33 – compared to R70 a year ago.
AVI is up against the brands of the Swiss giant Nestlé, which in 2016 estimated that its Ricoffy represents one in every two cups of instant coffee consumed in South Africa. Prices of Ricoffy range from a current offer of R59.99 for 750g at Game to R79 at Makro.
Nestlé also owns Nescafé Gold (currently at R96 for 200g at Makro – unchanged from a year ago.)
Nestlé recently invested R1.2 billion to expand its instant coffee manufacturing plant in Estcourt, KwaZulu-Natal. The company has also invested in chicory farming in Kwa-Zulu Natal and Eastern Cape.
It clearly believes there is money to be made in the SA coffee market. South Africans consume, on average, between 250 and 300 cups of coffee per year – compared to 456 cups in Brazil, and upwards from 500 in Europe. Coffee drinking in SA has gained ground at the cost of black tea, which has declined in recent years, a survey by the marketing company Insight Survey found.
Through its Ciro brand, AVI is the sole distributor of the European coffee brands Douwe Egberts and Jacobs in South Africa. Jacobs Douwe Egberts, owner of the brands, is currently fighting a global instant coffee market share battle with Nestlé. Last year, it pulled even with Nestle in terms of retail coffee volumes, though its sales still lag by value.
South African coffee drinkers can expect cheaper instant coffee for longer thanks to the strong rand and lower coffee bean prices worldwide. Arabica coffee bean prices have slumped by 15% in the past years thanks to expected bumper harvests in South America. Brazil expects that its output of robusta beans, the lower quality bean usually used in instant coffee, will rise 30% this year.
AVI hopes lower prices will help drive volumes and profit margins on its coffee brands in the second half of the year. Still, its share price fell by half a percent following the results on Monday morning. Revenue gained only 2% to R7.3 billion in the past six months, below inflation. Headline earnings rose 7.5% to 325,6 cents, while its interim dividend gained 8.0% to 175 cents per share.
There is "aggressive competitor activity" in the South Africa’s instant coffee market, Frisco owner AVI reports.
- It has been forced to cut prices.
- Instant coffee drinkers can expect lower prices for longer thanks to the strong rand and declining coffee bean prices.