Coffee2013:ReadyforTakeOff

OverviewofCoffeeTrendsinNewConsumerMarkets

March 5, 2013 | Strictly private and confidential

Agenda

Sections
I

Introduction

II

Strategic Considerations in Global Coffee Demand

III

Regional and Country-Level Snapshots

13

IV

Key Points to Consider

22

2
4

Ross Colbert, Global Strategist Beverages

Mr. Colbert joined Rabobank in January 2011 and is responsible for developing
FARs research portfolio and Rabobanks global view toward the beverage sector.
Rabobanks FAR team provides information and analysis covering all of the
major sectors throughout the food chain. The seven-member FAR Beverage
team is part of Rabobank
Rabobanks
s global FAR group, which is comprised of
approximately 70 analysts around the world.

Ross Colbert
Global
Strategist, Beverages
Food
ood & Agribusiness
g bus ess
Research & Advisory
Rabobank International
245 Park Avenue
New York, NY 10167
Phone: 212 916 7960
Fax: 212 808 2594
E-mail:
Ross.Colbert@rabobank.c
om

Colbert joined Rabobank following an extensive career in the beverage

industry. Most recently he was Managing Director of M&A Americas for Zenith
International, which is one of the worlds leading consulting, market intelligence
and financial advisory firms focused on the global food and beverage industry.
Prior to that, he was Managing Director and Chief Operating Officer for eight
years at Beverage Marketing Corporation, which provides market intelligence
and financial advisory services to the global beverage industry. Over his career
he
has
served
as
an
advisor
to
Pepsico,
Coca-Cola
Enterprises, Heineken, Nestle Waters, Snapple Beverages, and Seagram's as
well as many independent, private beverage companies. Additionally, he began
his career at Coca-Cola Bottling of Miami, then moved to Beverage Canners
International and Cadbury Schweppes. He has his undergraduate degree in
political science from the University of Hawaii, and a Masters in Business
Administration from the University of New Haven. Additionally, Colbert
completed an Executive Program in Corporate Finance and Mergers &
Acquisitions from the University of Pennsylvania, Wharton School.

Introduction to Rabobank
Advisor of choice in food, beverage and agribusiness M&A
Global F&A leadership
Over 160 transactions closed globally since 2003, with
total deal value exceeding US$40BN
Industry insight
Understanding
g of effective strategies
g
in food,, beverage
g
and agribusiness
Over 100 years of banking history rooted in the F&A
sector
Long-term client relationship with industry leaders

Selected global F&A transactions

Saputo

Nestl SA

VION

Acquisition of Morningstar
Foods for US$1.45bn from
Dean Foods

US$11.85bn acquisition
of Pfizer Nutrition

US$255m sale of Banner

Pharmacaps to Patheon

Rabobank has
direct access to
key decision
makers, owners/f
ounders, CEOs and
board members
across the
industry

Constant dialogue with decision makers

Engaged and active industry relationships help spur
credible strategic dialogue
Robust proprietary deal flow in the F&A space

Senior level attention and involvement

Dedicated senior M&A professionals
Ability to manage complex situations and provide
tailored solutions and think outside the box

Pending

2012

2012

Kozy Shack

Barry Callebaut

Trilantic Capital Partners

Sale to Land OLakes

Divestment of its European

consumer business
Stollwerck to Baronie

c.125m sale of
Spumador to
Refresco

Cooperation with Rothschild

M&A and equity advisory for the entire food and
agribusiness
g
sector
Worldwide coverage
Joint advisory subject to client agreement

Benefits of the cooperation

Complementary M&A advisory expertise, geographical
coverage and client base
Substantial industry knowledge, client relationships and
execution skills
Extensive geographic breadth and scale of dedicated
resources
Leverages Rabobanks F&A research
Access to financing for originated transactions

2012

2011

2011

Schreiber Foods

Sara Lee

Brown-Forman

Acquisition of Dean Foods

customer-branded yogurt
business

115m sale of the Spanish

and Portuguese fresh
bakery businesses to
Grupo Bimbo

US$238m sale of
Fetzer Vineyards and
related assets to
Via Concha y Toro

2011

2011

2011

4
6

Strategic relationships throughout the global coffee, tea and cocoa

sectors
Multinational coffee traders

Diversified traders and processors

Roasters, consumer packaged goods and OCS companies

5
7

Rabobanks Food & Agri Research

Proprietary sector research
Food and Agribusiness Research overview

Recent activity in the coffee sector

Food and Agribusiness Research (FAR) comprises a

dedicated and specialized group of industry analysts

FAR supports
pp
the banks M&A clients with access to its
proprietary research

FAR has more than 80 research professionals in 14

countries and 17 offices around the globe

Fundamental sector-based research covering the

entire food and beverage and agribusiness value
chain, from primary production to processors to
retailers

Output in the form of Industry Notes, F&A

Reviews, Commodity Notes, Regional Banking
Reports, World Maps and tailored presentations for
internal and external clients

Key role is to support the efforts of M&A, Leveraged

Finance, Corporate Banking and Credit Risk

Client Advisory Project Strategic Sourcing of Coffee &

Tea: Global Assessment of Volatility, Scarcity and
Sustainability, May-August, 2012

Keynote Presentation OCS Outlook 2012 at Coffee,

Tea & Water 2012; NAMA, Las Vegas, November,
2011

Keynote Presentation Single Joe Coffee Trends

2013 at National Coffee Association Summit,
Philadelphia, October 2012

Keynote Presentation Rethinking the Beverage

Supply Chain, InterBev 2012, Las Vegas, October
2012

FAR Industry Note Raj-accino Indias Growing

Coffee Culture, November, 2012

Global Coffee Outlook; Sintercafe, Costa Rica,

November, 2012

Thirsty for growth 2013 Global Beverage Outlook,

January 2013

Sector coverage
Alcoholic
beverages

Confectionery

Fresh produce

Ingredients and
sugar

Animal protein

Dairy

Grains & oilseeds

Non-alcoholic
beverages

Bakery and snacks

Farm inputs, feed,

biofuel

Grocery

Seafood

68

Strategic considerations in global coffee demand

Key coffee market drivers
Consumers now
demand
convenience,
variety and
premium/quality
taste, both athome and out-ofhome

Changing
consumption
patterns and
recent hardware
innovations are
helping to drive
growth in the
single-serve coffee
market

Growing demand in emerging

markets

Regional differences in retail

coffee value and volume

Emerging markets to reach 50% of global

coffee consumption by 2020
2020

Western Europe continues to lead both

value and volume sales of coffee

Growth in instant coffee driven largely by

emerging countries

Asia Pacific second in value but trailing

North America, Eastern Europe and Latin
America in RTD retail volume

Shift from multi-serve

to single-serve

Premiumization

At-home and out-of-home consumption

changed by single-serve systems

Growth focused on differentiation,

brands and quality

Format innovations driving value growth

in mature markets

Premiumization within R&G

Premium offerings also supported by fair
trade, health benefits, organic and origin

Increasing
consumption in
emerging markets

Growing out-of-home offering

Product innovation

Consumers willing to pay more for

convenience

Innovation driving market share gains

and gross profits

Gourmet coffee shops continue to lose

ground in specialty coffee to quickservice restaurants (QSR)

Consumer preference for convenience

and quality driving innovation in singleserve R&G brewing technology

Note 1: Source: P&A Marketing International

79

Security of Supply Becomes a Global Concern

Structural Shifts in F&A Forcing a Supply Chain Response
Coffee moving into
an era of tighter
supplies and
higher volatility

Dedicated Supply Chains Key to Managing Volatility

Much of demand
growth to come
from pricesensitive
developing
markets

Sustainability a
key differentiator
among premium
coffees

Source: Rabobank 2012

10

Strong volume and value growth expected

Coffee value, volume and premiumization trends

Global Coffee Retail Value and Volume Sales Growth (2012-17)

Fresh coffee beans

a small but
growing segment,
bolstered by
premiumization

Coffee

Fresh Coffee Beans

Tendency for
instant to be
popular in markets
where tea leads
coffee in volume

Standard Fresh Ground Coffee

Retail Value RSP

Retail Volume

Overall trend
ttoward
d innovative
i
ti
& higher-quality
products boosting
value growth in all
segments

Fresh Ground Coffee Pods

Instant Coffee

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Source: Euromonitor
9
11

GLOBAL PERFORMANCE

Tea-drinking cultures more receptive to instant coffee

Dominant Hot Drink

by Volume
Coffee
Tea
Source: Euromonitor

12

Traditional consumer markets wont drive growth

Demand growth mainly to be in developing countries

Very large
Vietnamese crop
in 2012, but likely
to fall off in 2013

Consumption Growth by Country Category, 2001-11

MY 2011/12 Share of World Coffee Exports

Others, 17
%
Brazil, 25%

Brazil to become
worlds largest
consumer before
2020

Mexico, 3%
Guatemala,
3%
Peru, 4%
Honduras,
5%

Future demand
growth to come
g
from exporter and
emerging
markets, though
pods a mature
market bright spot

India, 5%
Colombia,
6%
Indonesia,
9%

Vietnam, 2
3%

Source: ICO, Rabobank Research

11
13

The three key drivers of future demand growth

Whats driving demand in exporter and emerging markets?

Premiumization

Rising incomes
& middle class
growth

Emerging caf
culture in key
countries

76% of
Volume
Growth
to 2016
Source: Rabobank, Euromonitor
14

Asia: Young Urban Professionals Key to Success

Economic development, premiumization driving demand growth
Growing middle
class

Selected Macro Indicator Performance, 2000-11

Expected
2012
Retail
Coffee
Market
Demand
Value CAGR,
and Forecast
Selected
Growth
Markets
Rates
% CAGR
18%

Young populations

13.3%

Vietnam

6.7%

Emerging caf
culture

16%

China
15.0%
2012-17

1113

9.7%

South Korea

14%

3.6%

Key Brands

12%

9.7%

Philippines

1,113

0.9%

Vietnam
6.8%
2012-20

10%
9.7%

Indonesia

8.7%

India
6.0%
2012-20

8%

South
Korea
7.6%
2012-17

1421
180

13.2%

India

452

6%

3.6%
4%

Philippines
4.8%
2012-20

17.9%

China

14.6%

GDP CAGR

632

719

Urban Pop Share Growth

2%

Indonesia
6.2%
2012-20

0%
Source: Rabobank Analysis, Euromonitor

Source: World Bank

15

China: Booming Coffee Shop Industry

Significant consumption growth driven by instant and coffee shops
Domestic Chains

Chinese Coffee Consumption by Segment (000 bags)

00 07
CAGR

07 12E
CAGR

Instant
Coffee

16%

9%

Fresh Coffee

15%

12%

800

700

Rapid Expansion of Coffee Shops (# of Outlets)

16,000

14,000

600

12,000

500

10,000

400

8,000

300

6,000

200

4,000

100

2,000

Multinationals

2000

2002

2004

2006

2008

2010

2012E

Source: Euromonitor, Rabobank analysis

16

India: Caf Culture Growing Fast, Lead by CCD

Huge growth in coffee shops, caf culture
Leading specialist
chains

Growth in Specialist Coffee Shops: India vs APAC

Starbucks

US

JV with Tata, targets

undisclosed

Dunkin'
Donuts

US

100 shops in next 5

years

Costa Coffee

UK

300 shops by 2015

Gloria Jean's

AUS

100 shops in next 3

years

Di Bella

40000

Specialist Coffee Shops India

35000

AUS 50 shops in next 3 years

Speciality Coffee Shops in Asia

Leading off-trade
retailers

IND 2000 shops by 2014

2500

Asia Pacific

2000

30000
25000

1500

20000
1000

15000
10000

500

5000
Krispy
py Kreme

US

80 shops
p in next 5 y
years

Coffee
Republic

UK

In talks, but no plans

yet

Source: Industry sources, news, 2012

Speciality Coffee Shops in India

Planned Chain Expansion

Caf Coffee
Day

0
1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011 2012E

Source: Euromonitor, Rabobank Analysis

17

Indonesia: Burgeoning Middle Class Thirsts for

More
Local brands compete with internationals by tailoring products
Off-trade leaders

Annual Growth %: Overall GDP vs Service Sector

Domestic

Consumption,

MY

2000/01-2012/13

bags)

10
8
6

4000
3667
Specialty Retailers

(000

4
2

3500

0
3000

2833

2500
Source: World Bank, Rabobank analysis

Middle Class Growth Expected to Continue

2000
1676
1500

1000

500

0
2000/01

2006/07

2012/13

Source: ICO

Source: Euromonitor
18

Vietnam: Local Brands Compete Through

Targeting Local Tastes
Big growth in instant coffee and caf culture
Local Caf Leaders

Rising Domestic Consumption Share through 2020

Retail Sales % by Company, 2012

16%
16.6
15%
33
14%

Nestle
Vinacafe

13%

18.1

Trung Nguyen

12%

Others

11%
32.2

10%
International
Entrants

Source: Euromonitor

9%
8%

3-in-1 Instant Mix Market Share % by Company, 2012

7%

27
Targeting Vietnam

38

Trung Nguyen

Domestic consumption as a % of production

Vinacafe

Vietnam exports as a % of world consumption

Nestle
Others

31
Source: ICO, Rabobank estimates

Source: USDA
19

Key Points to Consider

What does this mean going forward?

International brands have the muscle, but local firms can

compete through locally-tailored product offerings, or
localvation

Mid-sized, growing cities may provide untapped expansion

opportunities

Strategic sourcing, especially through integrated supply

chains, provides opportunity to add value and manage
supply risk

20

Thank You ICO!

For more information contact:
Ross Colbert, Global Strategist-Beverages
Rabobank International
245 Park Avenue 36th Floor
New York, NY 10169
ross.colbert@rabobank.com

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