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Discuss this article (0 Comments)Coffee giants eye Gulf growth
by This email address is being protected from spam bots, you need Javascript enabled to view it on Thursday, 04 September 2008
zoomWhitbread-owned Costa already has 200 stores in the region and plans to increase the tally to 300.
Langston also believes that slowdown in the US could be offset through growth in other areas.
"They've slowed down domestically dramatically and will put more emphasis on those international stores specifically the Middle East," he says.
Globalisation, notes Norris, has transformed the coffee shop culture into a global phenomenon. This is inclusive of the Middle East, he explains, and is supported by the economic boom in the region which resulted in the sector's steady growth.
"We strongly believe the coffee shop market in this region is set to continue its rapid growth and is far from reaching saturation point for a good few years ahead," says Norris.
As the region continues to witness the arrival of new brands, Costa and Starbucks, the largest players will stand head to head.
While Norris highlights the company's efforts to turn the coffee shop into a "third place" between work and home as one of its distinguishing features, some analysts say the group could do with an image makeover.
Young says the brand has become "run-of-the-mill". He notes that as the company has become a global player it has also started to act as one - losing the "localness it had". Additionally, customers are being charged premium prices for an experience that is not as "special" as it used to be, he says.
"There's a lot of truth in Shultz's comments in terms of where they lost their way. Since they've invented the McDonald-isation of coffee, they potentially need to review their local appeal and try to give it less of a cookie-cutter approach.
"It's difficult when you're running such a massive chain. It's one of the largest food service chains in the world now," he says.
Langston, on the other hand, says the company has "diluted" itself. "Starbucks is a coffee chain and one of the main reasons why people go there is for coffee, but they started selling movies, music and some food, which diluted the coffee experience."
Young points to pricing to explain Starbuck's slowing domestic growth.
"Compared to outlets like Dunkin' Donuts - some people even go for McDonalds for coffee - Starbucks is a luxury item in a way. Not super-luxury but it's more of a premium offer."
He adds: "American consumers are ok to do coffee and donuts whereas most countries don't have that kind of phenomenon. There's a price differential in the marketplace between Starbucks and other players in the lower-end of the market and hence people are opting for lower-price options."
But what's to be done? Young admits it's impossible to completely "reinvent" a company like Starbucks but notes that some kind of change and review of operations would be beneficial.
Langston is convinced the company is trying hard to get its image back but says it will be at least a year or two before we can see those changes implemented.
We are unlikely to see further closing of stores, believes Young. "They have taken action to closing 5 percent of stores or more. I think that's a substantial amount. It's not a complete whitewash. In terms of their accounts they're still a profitable organisation," he says.
As the region continues to witness the arrival of new coffee brands, Costa and Starbucks, the largest players, will stand head to head.
As Costa aggressively renews its products and offerings, Starbucks might need to look into differentiating itself against the arising competition.
"Costa's brand strategy is to use local customer insight to tailor the brand to meet local needs. On top of that we constantly evolve our in-store environments to deliver customers the very best place anywhere, to take a coffee break," says Andy Marshall, chief operating officer for Costa International.
Starbucks, however, is not about to give up its number one position. The Western world may be tiring of expensive lattés and cappuccinos - but everything is still to play for in the Middle East.
Costa goes East
Starbucks has not been the only coffee chain to spot the enormous potential for growing business in the region. Its competition is brewing up expansion plans too.
Whitbread-owned Costa Coffee announced it has opened its 200th store in the Middle East and North Africa region - with more on the way.
Costa Coffee began with only 60 stores in the region in 2005. Dubai alone has seen an increase from zero to 20 stores in the last 18 months. The last three stores that took the number to 200 were opened on the same day in Cairo.
"The Middle East is successfully repositioning itself as a centre for trade and tourism, and not just for oil. By creating more reasons to come to the Middle East, the region has guaranteed a bright and sustainable future for itself," says Andy Marshall, the chief operating officer for Costa International, which is "great news if you live there, and great news if you have a strong brand presence like Costa."
The chain has redesigned its new stores in the region with the aim of ‘energising and relaxing' customers.
According to Marshall, the uninterrupted rapid growth in Middle Eastern consumer spending, and the retail sector in general, is a strong-enough incentive for Costa to achieve "well over 300 stores in the medium term".
"Consumer tastes are becoming ever more sophisticated - Costa will need to continue to be the customers favourite for better coffee, better food and better stores in order to achieve this level of growth," says Marshall. Like Starbucks, the UAE is Costa's largest market in the Middle East, followed by Egypt and Bahrain. The difference between the markets, however, is staggering.
"The sources of growth in each couldn't be any more contrasting.
"The UAE is driven by cosmopolitan expats and international trade, while Egypt and Bahrain are driven by a young, aspirational local consumers and vibrant emerging economy," says Marshall.
He expects to see "significant long-term growth from developing markets such as Egypt, as well as markets like Kuwait".
While Costa insists the slowdown in the UK has not yet impacted sales, it remains focused on international growth.
"Costa's strategy is fundamentally one of international expansion in order to achieve the scale and profit that our shareholders believe the brand has potential for," he says.
Starbucks has not been the only coffee chain to spot the enormous potential for growing business in the region. Its competition is brewing up expansion plans too.
Whitbread-owned Costa Coffee announced it has opened its 200th store in the Middle East and North Africa region - with more on the way.
Costa Coffee began with only 60 stores in the region in 2005. Dubai alone has seen an increase from zero to 20 stores in the last 18 months. The last three stores that took the number to 200 were opened on the same day in Cairo.
"The Middle East is successfully repositioning itself as a centre for trade and tourism, and not just for oil. By creating more reasons to come to the Middle East, the region has guaranteed a bright and sustainable future for itself," says Andy Marshall, the chief operating officer for Costa International, which is "great news if you live there, and great news if you have a strong brand presence like Costa."
The chain has redesigned its new stores in the region with the aim of ‘energising and relaxing' customers.
According to Marshall, the uninterrupted rapid growth in Middle Eastern consumer spending, and the retail sector in general, is a strong-enough incentive for Costa to achieve "well over 300 stores in the medium term".
"Consumer tastes are becoming ever more sophisticated - Costa will need to continue to be the customers favourite for better coffee, better food and better stores in order to achieve this level of growth," says Marshall. Like Starbucks, the UAE is Costa's largest market in the Middle East, followed by Egypt and Bahrain. The difference between the markets, however, is staggering.
"The sources of growth in each couldn't be any more contrasting.
"The UAE is driven by cosmopolitan expats and international trade, while Egypt and Bahrain are driven by a young, aspirational local consumers and vibrant emerging economy," says Marshall.
He expects to see "significant long-term growth from developing markets such as Egypt, as well as markets like Kuwait".
While Costa insists the slowdown in the UK has not yet impacted sales, it remains focused on international growth.
"Costa's strategy is fundamentally one of international expansion in order to achieve the scale and profit that our shareholders believe the brand has potential for," he says.
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