Take the Retail Coffee market of Nepal as a case and suggest the appropriate strategy for

effectively competing in the Nepalese market.

Introduction

Coffee, a world-wide popular drinking beverage, is getting popular in Nepal. Coffee was the first
commodity to be fairly traded, and it is still the biggest[ CITATION Jaf14 \l 1033 ]. It is mostly
popular in the major cities of Nepal. Although tea marks the traditional drink of average
Nepalese, because of the growing coffee culture in the cities like Kathmandu, Pokhara and so on,
coffee is becoming popular with the younger generation. Coffee is recognized as one of the
important export potential commodities of Nepal.

Due to rapid growth in coffee consumption, new coffees are being introduced as well as existing
coffees are changing their strategy in the market. There are more than 29 coffee brands in Nepal
that are actively producing coffees according to National Tea and Coffee Development Board.
Himcafe, Everest Coffee, Himalayan Java, Nepal Mountain Coffee, Jalpa Gold, Buddha Organic
Coffee are some of the coffee brands in Nepal. Kathmandu, Bhaktapur, Lalitpur, Nuwakot, Palpa
are some of the places which produce various coffees in the country as per record of National
Tea and Coffee Development Board.

The increase in the number of coffee brands in Nepal has increased the competition in the coffee
market. The new brands are facing the challenge of taking the market share where existing
brands are competing for the share in the market. This study is aims to develop appropriate
strategy for competing in the coffee market in Nepal either for new entrants or existing
competitors.

Objectives of study
 To analyse coffee market in Nepal.
 To develop appropriate strategy for effectively competing in coffee market of Nepal.

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Literature Review
Coffee is a colonial commodity with a complicated past. It was long a heavily guarded secret of
the Arab world, which kept a monopoly over its cultivation. In 1616 the Dutch managed to
smuggle coffee seeds out of the port of Mocha and establish plantations in their colonies of Java.
By 1715 there were two thousand coffeehouses in London alone. Coffee was brought to the
Americas by French colonists, who planted it in Martinique in 1719. French-controlled Haiti
became the first major coffee exporter in the Americas, using thousands of slaves to harvest the
crop. Nevertheless, it was Brazil-where Portuguese colonists planted seedlings pilfered from the
French- that eventually came to dominate world production.[ CITATION Jaf14 \l 1033 ]
According to National Tea and Coffee Development Board, in 1938 AD, a hermit Mr Hira Giri
brought some seeds of coffee from Sindu Province of Myanmar and had planted in Aapchaur of
Gulmi District for the first time in Nepal. In late seventies, expansion of Coffee as commercial
crops to some extent took place when Government of Nepal imported Coffee seed from India for
distribution. The major shift to commercial coffee production took place in mid-eighties. After
the establishment of Nepal Coffee Company (NeCCo) in Manigram, Rupandehi district, in
1983/83, the coffee producer were able to sell coffee. NeCCo used to collect dry cherry from the
coffee producer and processed the coffee for domestic market. Respecting the interest of people
on Coffee and favorable climatic conditions for its cultivation. Ministry of Agriculture decided to
launch Coffee Development Programme in the country. The Government provided technical and
financial support to the farmers; its cultivation has gradually spread to about 40 districts of the
middle hills of Nepal. Lalitpur, Gulmi, Palpa, Shyangja, Kaski, Sidhupalchowk, Kavre, are some
districts known for Coffee production.

In late 1970s, Michael Porter, an economics professor from the Harvard Business School
published an article to develop strategy for any firm to be able to earn a profit. According to
Porter, The intensity of competition is rooted in its underlying economic structure and goes
beyond the behaviour of current competitors. Five basic competitive forces influences the state
of competition as shown in figure 1.1. The collective strength of these forces determines the
profit potential in the industry.[ CITATION Por80 \l 1033 ]

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 Figure 1.1 Forces Driving Industry Competition
Source:[ CITATION Por80 \l 1033 ]

The competitive strategies are derived from an understanding of the rules of competition that
govern an industry and determines its attractiveness. The ultimate goal of competitive strategy is
to influence those rules in our own company’s favour. [CITATION Lov05 \l 1033 ] For any new
competitor or existing competitor, it is necessary to have clear goal and competition strategy to
take share in the market. The competitive strategy influences in the achievement of competitors
goal and gain profit.

Michael Porter has identified the five competitive forces that determines profitability in an
industry:
 Entry of new competitors into the arena
 Threat from substitutes based on other technology
 Bargaining power of buyers
 Bargaining power of supplier’s
 Competition between companies already established on the market
[CITATION Lov05 \l 1033 ]

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Analysis
The coffee market in Nepal is growing and the competition for the market share is increasing.
There are more 29 national coffee producers in Nepal according to National Tea and Coffee
Development Board.

Different Coffee Brand and Producers

S.N Producers Brand
1 Highland Coffee Promotion Himcafe,
Company Limited Necco
2 Royal Everest Coffee Mill EVEREST Coffee
3 Nepal Organic Coffee products NOCP’s Himalayan Arabica
Coffee, Morning Fresh
4 Beans Coffee Pvt. Ltd. Mustang Coffee, Trekkers Easy
Dripping Coffee
5 Himalaya Coffee Products Himalaya coffee
6 Planteck Coffee Estate Pvt Jalpa Gold (Espresso blend, Jalpa
Ltd. Gold,
Mount Everest Supreme
7 Nepal Mountain Coffee Prod- ucts (Shut down) Nepal Montain Coffee
8 Buddha Organic Coffee Indus- tries Pvt. Ltd. Buddha Organic Coffee
9 Coffee Cooperative Union Ltd, Lalitpur Lalitpur Organic Coffee, Jureli
Coffee
10 Organic Coffee Cooperative Dhaulagiri Coffee
11 Alpine Coffee Estate Katman’Du Coffee
12 Lekali Coffee Estate Lekali Single Estate Premium
13 Annapurna Organic Coffee Mareng, 3 Argakhanchi
Industry
14 Pathavaiya Deurali Gharelu Machhapuchhre Flying bird
Coffee uddyog Natural Coffee

15 District Cooperative Union Gulmi Coffee

Gulmi
16 Gazzab-Co Tea Industry Danda-Pakha Organic Coffee
17 Nepal Tea and Coffee Promo- tion Center Tealaya Rare & Organic Coffee
18 Camel Coffee (Nepal) P. Ltd. (  
Kaldi coffee, japan)
19 Greenland Organic Farm Pvt. Ltd. Himalayan Arabica
21 Great Himalayan Organic Cof- fee Estate  
22 Machhapuchhre Organic Cof- fee Uddyog Machhapuchhre Organic Coffee,
Himalayan Drip Coffee
23 Himalayan Java Himalayan Java
24 Himalayan Ontop Organic Cof- fee Estate  
25 Nepal Everest Coffee Mill Pvt Everest Coffee
Ltd
26 Everest Lauda Coffee Industry Everest Lauda Coffee
Pvt Ltd
27 Himalayan Espresso Pvt Ltd  

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 28 Shivapuri Tea and coffee Nuwa Coffee
Industries Pvt Ltd
29 Dhaulagiri Organic Products Parbat Coffee, Mygdi Coffee,
Baglung Coffee
Source: National Tea and Coffee Development Board.

There are district coffee cooperatives union, district coffee producer’s associations which are
directly or indirectly involved the coffee development of Nepal.

According to National Tea and Coffee Development Board the coffee industry of Nepal has
following state:
Export / Import
Fiscal Year Import Value (Rs ,000) Export Quantity (Kg)  Export Value (Rs, 000)

2066/67 13861 69044 24363

2067/68 12513 279762 93089

2068/069  20894 109442 43095

2069/070 31733 85672 45259

2070/071 34815 66462 52395

99304
2071/072 56456 99847
 
2072/073 55597 112378 108191
(Source: National Tea and Coffee Development Board)

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 Plantation and Production
(Source: National Tea and Coffee Development Board)

Fiscal year Plantation (ha) Production (MT) Green Bean

2066/067 1630 429

2067/068 1752 502

2068/069 1760 523

2069/070 1750 457

2070/071 1911 429.4

2071/072 2381 463.58

2072/073 2618 434

Porter’s five forces model for the development of coffee and its competition in Nepal to analyse
the effect of external forces acting on existing industry and its operation.

1. Threat of New Entrants

As the market grows, the supply and demand of the product is increased. If the existing
suppliers are unable to supply necessary demand in the market then the threat of new entrants
is seen in the market. The new entrant can seriously impact the share in the market of other
competitors. Similarly, in the coffee market also the threat of new entrant is imminent.
However, there are various barriers for the new entrant to take the market share. The capital
investment, product differentiation, scale of economy, distribution channels etc. are some of
the barriers for new entrant. For example, Himalayan Java is the new entrant in the coffee
market of Nepal. Himalayan Java has a product differentiation in the market, due to which
Himalayan Java has successfully been established in the Nepali coffee market.

2. Competition among existing companies

It is the nature of producer to yield more market share than their competitors, which
builds the competition among existing companies. Price offers, advertising, product launches,
customer services, etc. are some of the techniques that are used by the competitors to gain
advantageous position in the market. Porter points to a number of factors that determines the
intensity of competition:

 Large number of competitors with well-matched strength.

 Slow growth rate in the industry.

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  High manufacturing costs.
 Competitors of different kinds.
 High strategic value.
 High exit barriers.
[CITATION Lov05 \l 1033 ]

There are number of competitors in the coffee market of Nepal as well. The large
manufacturing international brands like Nescafe, Bru are also competing in the coffee
market of Nepal. The domestic brands does not possess the large capital, due to which the
strength of international brands are higher in the market. The national brands like
Himcafe, Everest Coffee, Himalaya Coffee, etc. have to develop strategy to increase their
share in the market with international brands. The product differentiation, price offers,
festival offers, advertising, etc. are the strategies that they have implemented. However,
the national brands can develop their strategies in the cost leadership because of the
domestic product which reduces their transportation cost. But due to political instability
of Nepal, there are number of barriers for the domestic as well international brands of
coffee. The unwanted strikes, power shortage in the industries, corruption in the
government level, etc. can have undesirable impact on the market of Nepal.

3. Bargaining power of buyers

Buyers are those who ultimately consume the goods that are manufactured by producers.
The buyer has the power to determine the cost of commodities, they can exert the
pressure on prices, negotiate for higher qualities and services. Most of customers are
price sensitive and aware of their rights. Higher the choices of commodities, higher is the
bargaining power of buyer. The slight change in the quality and price of the commodities
can change supply and demand which as a result may change the status of market surplus
and deficits.[ CITATION Man08 \l 1033 ]
However, as per literature and personal experience, the buyers in Nepal has less
bargaining power in the market. The consumers in Nepal are not actively involved in the
market. Due to unstable political condition and corruption, the bargaining power of buyer
is less in Nepal. Although according to National Tea and Coffee Development Board, the
export quantity of coffee in Nepal is higher and increasing every year.

4. Bargaining power of suppliers

Suppliers are the producer who produces the commodities and supply to the consumers.
The suppliers also has bargaining power according to the supply and demand in the
market. In case of monopoly in the market, the suppliers has the most bargaining power
and new entry is difficult in the market. Supplier is powerful when few companies are in
the market, less or no substitute of the product, product differentiation, cost leader and
manufacturing efficiency.
In case of Nepal, there are number of suppliers in various parts of the country and the
commodities are exported to other continents more than domestic supply. The
international brands are more popular in the market. According to National Tea and
Coffee Development Board, in the past 7 years, the export of coffee is gradually
increasing from 69044 kg in 2066 BS to 112378 kg in 2073 BS. However the production
of coffee in Nepal is as good as consumption. The increasing plantation and fluctuation in

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 production of coffee in Nepal indicates that the techniques adopted in the farming of
coffee beans is ineffective. The plantation in 2066 BS was 1630 Hector and increased to
2618 Hector by 2073 BS where the production of coffee is fluctuation from 429 MT to
434 MT in the last 7 years. The supplies should address this issue soon in order to
increase their market share.

5. Competition between companies already established on the market

There is always huge competition in the market between already established companies.
The competition to gain profit and increase their market share. The competition can be
intense in terms of price, quality and services provided. The unhealthy competition can
arises barriers or conflicts in the market which could make market unstable. There are
well established coffee producers in Nepal as well. Highland Coffee Promotion Company
Limited, Royal Everest Coffee Mill, Nepal Organic Coffee Products, Beans Coffee Pvt.
Ltd., Himalaya Coffee Products, etc. are some of the well-established coffee companies
in Nepal. The each brand has their own product differentiation and cost.

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Conclusion and Recommendation

The coffee consumption in Nepal is increasing in a high rate in cities. Along with that, the
new entrants in the market are also increasing to meet up the supply and demand. The coffee
market share is getting highly competitive with increasing investment in the industry. Import
and export of coffee and its related goods are also increasing with the market. The coffee
market can become one of the highly exported goods in Nepal if appropriately managed in
the country. The political stability, government bylaws, product differentiation from
suppliers, consumer awareness, etc. can help to grow this industry. Consumers in Nepal are
not active, so the power of buyer is not effective. If the buyers are energetic and keenly
participate in the market, then the suppliers will supply cost effective and quality products in
Nepal.
Here are some of the recommendation for coffee industry.
 Product Differentiation: It is one of the very important criteria for any industry to
compete in the market. According to Porter, product differentiation is a key strategy
for competitive market. Buyers tends to select variety of products in the market and
the product which stands out in the market can grasp the opportunity to increase its
share in the market. Highly different product may be able to establish monopoly in
the market which would increase the bargaining power of the suppliers.[ CITATION
Por901 \l 1033 ] Either new competitor or established companies can adopt this
strategy to stand out in the market and increase its market share. For instance
Himalayan Java has a different product and it has successfully amplified its market
share in the coffee market of Nepal.
 Cost leadership: The cost of merchandises are the crucial element for any buyer to
select or discard the product in the market. Firms that have a cost leadership strategy
strive to become the low-cost producer in the industry. The sources of cost advantage
vary and depends on the structure of the firm’s industry. [ CITATION Eld09 \l 1033 ]
The change in cost of any product can shift the supply and demand of product in the
market. However, the cost effective can be challenging for the suppliers because they
may have to compromise the quality of the product. The decrease in quality of the
product can have reverse effect in the market for any suppliers. Cost efficiency for
any supplier is an important strategy to effectively establish themselves in the market.
For any new entrants in the coffee industry of Nepal, the cost effectiveness can make
or break their market share.
 Rate of production: The rate of production of any commodities can lead suppliers to
supply their product in the market quickly and grasp the opportunity to increase their
share during the product shortage in the market.
 Market Efficiency: The balance in the market is very important for any supplier as
well as buyer. The consumer surplus and producer surplus are the basic tools that
economists use to study the welfare of buyers and sellers in a market.[ CITATION
Por80 \l 1033 ] The supplier and buyer both can get benefits from the efficient
market. Both supplier as well as buyer can get quality product in the effective cost.
 Service and quality of product: The service and quality of the product can have a
major impact for any suppliers. With the development of technology and knowledge,
the consumer are selecting the products based on service and quality of the product.
This could be a good strategy for the competitors to gain more share in the market.

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The suppliers can make their product different in terms of service and quality of
product.

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