Table of contents
Key takeaways
The European coffee market comprises businesses that engage in the production, trading, retail and distribution of coffee products and related machinery. Players in this industry offer coffee beans, ground blends, capsules, (non-)professional coffee machines, roasting equipment and related coffee services. As such, we segmented the European market into: (i) production - coffee products, (ii) production - coffee machines, (iii) B2C, (iv) trading and (v) services.
The European market is considered fragmented across all segments. Herein, the production segment has been subject to multiple consolidation waves in the last decade. Industry experts (interviews by Gain.pro) expect consolidation to persist, however, at a slower pace. Consolidation tends to be heavily pursued by industry incumbents (e.g. Nestlé, JDE Peet’s, Acomo, Lavazza Group) to strengthen their competitive positioning through broader product offerings (e.g. brands). With rising interest rates, cash-negative businesses will be taken over by more profitable peers. Additionally, B2C players (i.e. retailers, coffee shop franchises) demonstrated the greatest growth trajectory, mostly on the back of rapid international expansion.
Sponsor-led interest has been limited with ~32% of identified assets being backed by financial sponsors (March 2023). Private equity investors are primarily detracted by competition from established mega-conglomerates controlling the majority of the market (e.g. Nestlé, JDE Peet’s). However, the industry offers ample consolidation opportunities due to the large pool of small- to medium-sized players.
ESG topics play a significant role in the coffee market. The primary environmental issues revolve around the use of harmful products during the cultivation of coffee and CO2 emissions from roasting and transporting coffee. Reversely, the coffee market is significantly impacted by climate change, limiting the viable cultivation area and increasing variance in harvest yields. From a social perspective, ethical sourcing of coffee beans is at the top of mind for incumbents, with child labour and the lacking impact of the fair-trade label as the main points. An executive interviewed by Gain.pro expects that in the near future, the supply chain will be fully traceable to ensure ethical sourcing.
Company benchmarking
Market growth
Statista (June 2022) estimates that the European coffee market generated ~€113.8bn revenue and is set to grow to ~€150.9bn in sales by 2025 (+7.3% CAGR 2021-2025)
Europe accounted for ~32% of the global coffee consumption in 2021, amounting to ~3.3k tonnes of coffee (CBI, December 2022)
An expert interviewed by Gain.pro expects the European coffee market to grow by ~2-3% YoY in the medium-term based on volume and ~3-5% YoY in terms of total value
Positive drivers
European consumers are shifting from cheap filter coffee to premium coffee blends, indicating an increased willingness to pay (CBI, December 2022). This uptick is expected to persist and raise gross margins by +10-20pp in the medium-term (interview by Gain.pro). Additionally, coffee producers are increasingly introducing higher-margin offerings through product customisations (e.g. personalised blends) and service enhancements (e.g. coffee bean subscriptions; interview by Gain.pro)
Untapped geographies in Eastern Europe and Asia (e.g. China) traditionally known to be tea-drinking countries offer future growth opportunities, mainly through the emergence of modern coffee shops that raise awareness among consumers (Coffee Knowledge Hub, November 2021). Increases in disposable incomes (e.g. +7 CAGR in China 2018-2022) across such markets imply greater access to higher-margin premium coffee products (Statista, January 2023)
COVID-19 significantly boosted the convenience aspect of consumers’ coffee experience with rising demand for pricier single-serve products (e.g. capsules; interview by Gain.pro; CBI, December 2022). In addition, ready-to-drink coffee constitutes healthier alternatives to soda and alcoholic beverages, thereby opening opportunities in adjacent product categories
Negative drivers
Until 2050, ongoing climate change may reduce the area appropriate for coffee cultivation by ~50% (Inter-American Development Bank, March 2023). Such supply-side risk may ripple down the value chain, in which identified small-sized players find themselves unable to compete against scale-advantaged incumbents
Rising inflation for coffee (+17% in 2021 in EU), as well as complementary products (e.g. sugar, milk), may drive consumers away from non-essential products like coffee (Eurostat, October 2022; interview by Gain.pro). Similarly, Lavazza Group reported increased coffee-related costs of +80% YoY in 2022 (World Coffee Portal, May 2022), which cannot be fully passed through to consumers
The 2020 European Green Deal prohibits importing commodities linked to deforestation as a part of fighting climate change and protecting biodiversity (Reuters, December 2022). Non-compliance will result in large fines for coffee producers and traders who need to restructure supply chains to avoid importing products grown on deforested grounds. It is likely that similar EU legislation may target other sustainability goals in the medium- to long-term (e.g. maximum CO2 emissions)
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