Case: Coffee Market Strategic Moves
One of the biggest flops in the history of the Western European ground coffee market was the introduction of a new hi-tech roasting technology introduced in 1983. Let’s use this example which we observed first-hand. Let's see which strategies worked and did not. It’s a classic case of how companies failed or succeeded in changing markets.
The coffee industry suffered from little innovation. But it is innovation that is a key driver for growth in the food and beverage industries. In the early 80s, overall growth in the coffee market was sluggish there was fierce competition about market shares.
The ‘Coffee Revolution’: a Costly Disaster
However, there was a new roasting technology coming up: basically, it increased the size of the bean during roasting. This led to greater volume at lower weight. Instead of 500 gram, a coffee producer would need only 400 gram to fit into a same-sized pack. There was no disadvantage to the consumer: the increased bean now had a greater surface, thus releasing more flavor than before. Overall, the taste experience and the number of cups that could be brewed from one pack were the same than before.
Consumer research indicated that consumers would buy into the story, and headlines were created such as ‘400 gram = 500 gram’, to appear in the advertising. Coffee was launched in same-sized packs with big labels ‘400 gram, but all the flavor of 500 gram’
Well, as ‘common sense’ would tell us, consumers felt betrayed and were outrageous. Media stories all over appeared, claiming that this was a trick of the coffee industry to make more money at the expense of the coffee connoisseur.
The introduction failed badly. In fact it led to a complete PR disaster. Just introduced products had to be withdrawn within months after introduction. What was coined as a revolution in the roasted coffee market turned out as a massive financial loss. The strategy to turn a technological advantage into a consumer benefit had to be given up.
The Silent Evolution: Specialty Coffees
It took long for the large coffee roasters to recover from the blows. Meanwhile, the next challenge was looming. The opening of global markets in the 90’s enabled small companies and entrepreneurs to enter the ground coffee market. While their capital was usually low and technological capabilities limited, they started riding on an insight the big players had missed: consumers love to try new flavors and they are open to exotic, special coffees. The magic word: specialty coffees.
The concept was very simple: take a small quantity of green beans from one or several plantations, claim 100% origin, roast it well, brand and market it. Large producers on the other hand usually blended roasts from different origin to ensure stable quality and taste for their brands all year round. Because they knew, coffee is an agriculturel product that strongly fluctuates in quality and quantity, depeinding on weather and other conditions.
But small roasters had an easy play: with a reasonably good product and some smart marketing one can make a buck (or even many more) and grab a small share in the market. The concept of an exotic coffee, highly priced, is very intriguing, particularly if it hits global brands that have no interesting story to tell. Large coffee giants had not only left market entry barriers low, they also had done little to tell consumers about the making and heritage of coffee. One can describe the situation as a result of 'global branding boredom', a result of non-distinctive and rather irrelevant marketing communication. If in such situatoin technological entry barriers are low, small players can successfully enter a market.
It took global coffee producers a while to understand what was happening. But by now, almost all of them have 100% origin coffees. Large roasters went back to the origins of coffee, telling consumers interesting stories about their product and its quality.
Small specialty coffee producers started to face greater competition, unless they had a product that was truly superior in taste, flavor, appearance and marketing. They increasingly felt the heat because of their lack of capital and technology
Back in Charge of Change
Nowadays, big roasters are back in the game. Their next and right strategic move was a well orchestrated technological breakthrough that would lead to a relevant consumer benefit. They realized that consumers increasingly preferred what we would call ‘espresso-style’ coffee. Again, as a consequence of increased travel, consumers had become familiar with coffee brewed with professional equipment in a coffee house or restaurant. A cup of professionally brewed coffee simply looked great and tasted much better than grandma's home-brewed cup. So, they demanded this style of coffee for their in-home comsumption, too.

From a marketers perspective, the challenge was to tie in the domestic appliances industry to produce coffee

brewers at affordable cost, so that consumers could replace their old 'coffee machinge' at home or at the workplace
The next challenge was to pre-packed coffee in units that the consumer could easily use, similar to tea bags. Today, various forms exist. Most common are small round bags or plastic containers. They are highly convenient, clean and easy to store.
The result: large coffee roasters could enjoy a higher margin, raise market entry barriers and offer a product that tastes great. Finally, roasters are back in charge of changing their market. Because, technology has married consumer benefit ….until the next big move comes. -- Meanwhile, small roasters can survive only if they avoid pressure from large retailers, offer superior quality and invest in technology. That's a tough call.
Our Expertise in Coffee
Mai Asia has served firms in the coffee industry in Germany, Vietnam and Laos. Our services include strategic analysis and advise, market development and brand development.

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