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SIMRA Industry ReportVersion 1.010 February 2016BackgroundA&A Coffee is a chain of retail cafes, wholly owned by A & A Group. A & A opened its first store in Hornsby, NSW, in 1992, and now operates 22 stores along the five states of Australia. The breakdown of its stores in Australia is as follows: State Store Count NSW 11 VIC 6 SA 1 QLD 3 WA 1 Total 22 A & A Coffee specialises in selling superior Robusta and Arabica coffee beans which are sourced from world’s top quality coffee producers, including El Salvador, Colombia, Kenya and Indonesia. The company has its own coffee roastery facilities which are equipped with in-house roasting equipment.Over the past two decades, A & A Coffee has developed a loyal client base and, unlike many cafes, has long-serving staff members. A & A’s management is fortunate to have a high degree of control over the product line, menu, business model, and store presentation. Unlike some of its competitors, A & A has never sought to sell franchises, and so all store managers report directly to Head Office.20 years after opening its first store, A & A management has decided to analyse the market to gather current information which then will be injected in to the organisation’s strategic marketing plan. The motivation behind this is to establish a solid groundwork based on market facts and remain competitive in the market.In mid-2014, A & A’s performance began to deteriorate (Graph1). In September, it revealed that its 2013-14 year-on-year revenue growth was negative for the first time in the company’s history. Managers gave a number of reasons, including changing customer tastes, rising costs, and an increasingly competitive retail coffee market. A & A management has decided to analyse the market to gather current information which then will be injected in to the organisation’s strategic marketing plan. The motivation behind this is to establish a solid groundwork based on market facts and remain competitive in the market.To achieve this, A & A has contacted Statistica International Marketing Research Agency (SIMRA) to scan the market and provide timely data. SIMRA is an independent global big data analytics agency. It gathers data from the market and provides report to businesses to aid in timely and effective decision making. The company designs, carries out and analyses bespoke market research.A & A Coffee commissioned SIMRA to gathering opinions, beliefs, and attitudes about the current market needs in the industry. The key driver was to gain insight towards consumer tastes and preferences. The Executive Team believes that it is time to bring changes to the company to align itself with the industry. It is vital to understand the trends and developments in the macro environment in order to make healthy decisions.Coffee Market Outlook in AustraliaTable 1 and the Graph 2 below show the current market trends and developments in the coffee industry.Table 1: Figures and trends for the coffee product categoriesGraph 2: Market trends for coffee product categoriesThe graph and data above show the consumption of different type of coffee products in Australia since 2010. The table below describes these products: Type of Coffee Product Description In-store or Take Away Coffee sold by brick and mortar coffee shops where consumers may choose to enjoy their coffee in the shop or as take-away. Capsules A disposal plastic or aluminimum container which contains ground coffee is designed for special pod-coffee making machines in order to brew a single serve of drinkable coffee. Instant Healthy Coffee Products Convenient solution for people who are busy and health conscious. These products have long shelf life and can be drunk cold or hot depending on the consumer’s taste. They are sold in biodegradable boxes with environment friendly coffee bags. These products are fused with other ingredients to maximise their health benefits such as nuts, herbs, and other natural flavours. Single-serve coffee sachets The modified version of ‘Instant & Flavoured Coffee Jars/Bags’ where instant coffee (flavoured or plain) is filled in single-serving sachets. Ground Coffee Beans & Bags Coffee sold in either as a whole bean or pre-ground.  Bottled Coffee Drinks Portable ready-to-drink coffee beverages. These products are free from preservatives, artificial flavours, sugar, and colours. Their shelf life is shorter than the instant healthy coffee products but offer much more variety. Graph 3 below shows the consumption of different type of coffee products in Australia by quarter in 2015. Graph 3: Market consumption of coffee product categories by quarterGraph 4 (see next page) shows the growth in the coffee market industry for the since 2010 to 2015. This data consist of all coffee products including the revenue generated by coffee shops. Graph 5 shows A & A’s market performance within the same time frame. It plots the change in the organisation’s market share compared to the overall market growth within the coffee industry. This chart can be used as a benchmark to analyse the shift in the company’s market standing. Graph 4: Overall growth in the coffee industry [2010-2015]Graph 5: Comparison of A & A’s market standing relative to the growth trend in the coffee industryCompetitor Product Market PerformanceThis section analyses the market performance of competitors and their products.A & A Coffee is still a strong name in the market, however, a considerable downward trend can be observed: Competitor 2015 Market Share 2014 Market Share 2013 Market Share Roasted Amigos 24.2% 17.8% 13.4% Mocha Del Mar 17.4% 14.6% 11.1% Arabicana Colombia 11.9% 10.2% 11.4% Caliente Canephora 8.1% 11.2% 13.5% Magic Robusta 7.2% 8.4% 6.2% Coffee Razzi 6.1% 7.2% 9.1% Rooffee 4.9% 5.2% 7.8% *A & A Coffee* 15.9% 20.6% 25.3% Other 4.3% 4.8% 2.2% Table 2: Market Share by competitor [2013-2015]Roasted Amigos and Mocha Del Mar seem to have had the highest jump over the last two years due to their successful R & D strategies. Roasted Amigos has specialised in supplying single-serve sachets (flavoured and plan) and coffee capsules whereas Mocha Del Mar has hit the market with healthy alternatives.Summaries of these two major competitors are given in the subsequent sections.Roasted AmigosEstablished in 2008 as a local company, Roasted Amigos began its business specialising in selling Mild Arabica and Robusta beans. The beans are sourced from a variety of locations all around the world.The company also has coffee shops around Australia as outlined below: State Store Count NSW 14 VIC 12 QLD 9 SA 3 Total 38 Roasted Amigos has its own coffee roastery facilities which are equipped with in-house roasting equipment.By 2010, the company decided to become a major supplier for single-serve coffee sachets and coffee capsules that are compatible with the coffee machines sold by global providers. These sachets and capsules are being sold in giant supermarket chains including Woolworths, Coles, ALDI and IGA, all around Australia.Over the past five years, the overall market shares for single-serve sachets has significantly increased from 4.4% to 9.2% whereas capsule has inclined from 8.8% to 16.%. Currently, Roasted Amigos captures 42% and 26% of the Australian single-serve coffee sachet and coffee capsule markets respectively.It is believed that the shift in consumer behaviour in terms of buying instant coffee products is due to their convenience and lower cost in long-term. For example, a decent coffee costs no less than $3.00 in a local coffee shop; on the contrary, a single capsule – for the most expensive selection – costs only $0.74. This means that anyone, at any time of the day, can have a decent coffee just in a few minutes with minimal effort and for less than a dollar.The below table outlines Roasted Amigo’s current product line that are currently available in its own stores as well as in supermarkets. Product Line Sales Price (AUD) Capsules Espressos $0.50/capsule Single origin $0.62/capsule Decaffeinated $0.68/capsule Luxury set (limited edition) $0.82/capsule Milky Way $0.74/capsule Single-serve sachets 10 pack $0.47/sachet 100 pack $0.37/sachet 200 pack $0.27/sachet 500 pack $0.22/sachet 1000 pack $0.17/sachet Ground Coffee Beans & Bags Mild Arabica $13.80/kg bag Robusta $14.50/kg bag Juice Fresh Juice $7.50/serving Long life juice $5.50/bottle Other Menu Items Pastry $4.50/serving Muffins $9.50/muffin Cake $7.50/serving Mocha Del MarEstablished in 2002 as an Australian beverage company, selling coffee beans and cold coffee beverages has been Mocha Del Mar’s main focus in the market.The company is the main competitor for A & A Coffee and Roasted Amigos in relation to supplying Mild Arabica and Robusta beans. The beans are mainly sourced from Indonesia and South American countries and then bottled in Mocha Del Mar’s on-site facilities in the source country.The company also has coffee shops around Australia as outlined below: State Store Count NSW 18 VIC 8 QLD 12 WA 3 Total 41 As opposed to Roasted Amigos, the company has its own facilities in source countries which are equipped with in-house bottling equipment. The idea is to roast the beans fresh and use in the manufacturing of cold bottled products prior the import process to keep its freshness. Nevertheless, this is not the only competitive advantage of Mocha Del Mar’s; none of the products contain any preservatives, artificial flavours, sugar, colours, etc. that are considered to be an unhealthy choice for consumers. For instance, stevia is used in the production of these products to give the sugary taste without the side-effects of real sugar.In 2010, the company launched two products with the health conscious people in mind: instant healthy coffee products and bottle coffee drinks made of stevia. These products are not being only sold in the company’s nationwide stores, but also in gyms, Woolworths, Coles, ALDI, IGA, patrol stations, and convenience stores such as 7-Eleven.The idea behind each product is as follows:Instant Healthy Coffee Products: convenient solution for people who are busy and health conscious. These products have long shelf life and can be drunk cold or hot depending on the consumer’s taste. They are sold in biodegradable boxes with environment friendly coffee bags. These products are fused with other ingredients to maximise their health benefits such as nuts, herbs, and other natural flavours.Bottled Coffee Drinks: portable ready-to-drink coffee beverages. These can be consumed at leisure, at work, or before/during/after a workout. These products are free from preservatives, artificial flavours, sugar, and colours. Their shelf life is shorter than the instant healthy coffee products but offer much more variety. Since the launch of these two products, the overall market performance for instant healthy coffee products has jumped from 6.2% to 12.3% whereas the overall figures for bottled drinks rocketed from 3.4% to 8.1%. As at 31 December 2015, Mocha Del Mar captured 38% and 22% of the Australian instant healthy coffee and healthy bottled coffee drink markets respectively.The below table outlines Mocha Del Mar’s current product line that are currently available in its own stores as well as in supermarkets. Product Line Sales Price (AUD) Bottled Coffee Drinks Vanilla Espresso $4.20/bottle Guarana Blast $5.50/bottle Decaf Mocha $3.30/bottle White Cinnamon $3.80/bottle Cacao Maca Latte $6.75/bottle Instant Health Coffee Boxes 10 pack $0.62/bag 100 pack $0.54/bag 200 pack $0.48/bag 500 pack $0.36/bag 1000 pack $0.24/bag Ground Coffee Beans & Bags Mild Arabica $19.00/kg bag Robusta $16.50/kg bag Juice Fresh Juice $11.00/serving Long life juice $4.50/bottle Other Menu Items Pastry $5.50/serving Muffins $10.50/muffin Cake $6.50/serving Australia’s Health and WellbeingHealth and Wellbeing Statistics Australian adults are overweight or obese More adults are overweight or obese than 1995 63% 10% Australian children are overweight or obese Australia’s 2nd highest contributor to disease 25% Overweight & Obesity More people living in outer regional and remote areas are overweight/obese than people living in major cities 15% Almost 2 in 3 Australians are overweight or obese 1 in 4 Australian children are overweight or obese Source: Australian Institute of Health and WelfareHealth and Wellbeing Trends Health Esteem There has been an emerging trend in the society towards taking ‘fitness selfie’ pictures in various contexts (e.g.; gym selfies, post-workout, celebrities, etc.) and posting to social media. This has caused a push to ‘everyday Australians’ to challenge themselves with  healthy eating habits and committed workout regimes. Healthy Eating Habits Years of warnings by health officials and grim news on the bathroom scale appear to finally be having an impact on the nation’s eating habits; Australians are trending toward a healthier eating uptake. Parents have become much more engaged with their children’s eating habits. The resulting trend is –hopefully– a generation of children with a longer and healthier life expectancy. Coffee as a Performance Booster Caffeine is a natural stimulant for humans and a cup of coffee contains enough to increase one’s metabolism before and during a workout. Having coffee before exercises enhances that effect and makes people burn more calories throughout the day. With that in mind, people who regularly exercise seem to drink bottle-blended coffee products prior training. Save the Environment Packaging plays a basic role in keeping food safe and maintaining its quality. Consumers are turning towards more biodegradable packaging products to cause less impact on the environment. Australians are consuming between 2.5 – 3 million coffee capsules each day and as an environment-friendly society, the country has woken up to the potential harm. Healthy Shops Consumers are looking for healthier alternatives in stores. A recent online poll yielded that 43% of Generation Z, 32% of Generation X and 18% of the Silent Generation stated that they would be willing to pay more for healthier options in stores. Moreover, regular coffee shop visitors are looking for wholefoods, certified organics and sugar-alternatives in coffee products with nutrition information provided. Interview with the Focus GroupA & A Coffee commissioned SIMRA to gathering opinions, beliefs, and attitudes about the current market needs in the industry. The main motivation was to gain insight towards consumer tastes and preferences.To achieve this purpose, SIMRA arranged a focus group comprised of 100 people with the following background:marketing professionalsbaristasregular and irregular coffee consumers which consists of a mixture of local and international personscoffee shop owners.Below are the key outcomes of this meeting. Why consumers drink coffee?Majority of respondents (82 out of 100) stated that they drink coffee because they enjoy the taste and need caffeine to stay focused. The remaining eighteen participants drink coffee every day to socialise with others. The respondents offered a number of reasons for their decision to consume coffee regularly: Reasons Frequency Distribution of Respondents health reasons: ­ increase daily fiber intake 5.5% ­ lowered risk of Type 2 Diabetes 2.7% ­ to increase the metabolism to burn more fat prior a workout 81.1% ­ to improve fitness physical performance 89.0% ­ to get essential nutrients 4.8% ­ to inject antioxidants to my body 18.9% ­ a much better alternative to sugary hot chocolate 21.5% social reasons: ­ to wake up in the morning 87.2% ­ to socialise with people during break at work 71.4% ­ to look cool drinking popular products 11.7% ­ enjoy having coffee and reading newspaper, listening to morning radio talk shows or watching news early in the morning 74.9% ­ it is a cultural thing 25.4% miscellaneous: ­ just for the taste, no particular reason 21.6% ­ smells great 18.3% ­ love to see latte art 6.8% ­ warms up in cold days 15.4% ­ stimulates my brain at work 75.4% ­ goes well with cigarettes 7.2% Why consumers select a particular coffee product?Graph 6 below shows the frequency distribution of responses collected from the focus group. This output visualises why they select a specific coffee product.Note that these products include purchases from a coffee shop combined with sales in supermarkets.Graph 6: Responses of focus group during face-to-face interview

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