From homes to offices, the consumption of coffee has increased among Nigerians, blending into their lifestyles, particularly in urban centres. There are just two coffee brands leading this drive within the country —Nescafeand others.
The others have been evidently non-existent for the last 30 years, thereby limiting the options of coffee consumers to just one choice, which inevitably made Nescafe the ‘preferred‘ brand in the coffee market.
Produced by Nestle Nigeria, Nescafe has grown to become a market force, controlling product price and availability. The company has been a dominant player in the coffee market, dictating its pace and structure. From tin package to economy sachet packs, Nescafe has innovatively positioned itself as a product for all levels of income earners.
As a way of penetrating deeper, the company has gone a step further from being just an end-product manufacturer, to serving consumers caffeine-on-the-go with its mobile coffee carts. However, the stronger Nescafe’s grip is on Nigeria’s coffee market, the more danger its dominance poses for the market.
There’s a need for a coffee war
For over two decades, Nescafe has enjoyed the advantage of being the market’s first mover, and it has continued to monopolise the coffee business to an extent that the market could shake to its foundation if Nescafe sneezes.
By 2020, consumption of coffee is projected to climb beyond the 1000 tons mark, and the majority of coffee products will be provided by Nescafe which has 75% market share. This means that Nescafe will account for most sales then, if not all sales.
Such control is unhealthy for the growth of the market, and it’s time to loosen the grip of the Nestle subsidiary on distribution and sales through a ‘coffee war’. Customers end up being winners in such wars,considering the advantages that come when brands battle for market share, and the financial implications of having a monopoly.
What Nigeria is losing to monopoly
The growing consumption rate is creating an opportunity for small and medium-sized roasters to capture a larger market share and increase the revenue of the coffee market to the country’s GDP.
A competitive coffee market will boost local production,as roasters will source for coffee beans within Nigeria. The lack of rivals has reduced the production output of coffee farmers, coupled with the fact that Nigeria isn’t considered a force to be reckoned with among coffee exporters.
This has compelled coffee farmers to abandon the venture for more lucrative seeds. But with the competition, coffee farmers will record a boost in demand, thereby, causing an increase in the number of farm jobs to meet demands. Then, they can share thespotlight with Kenyan farmers who were said to have earned $41 million within four months in 2018 for coffee seeds sales.
The country is losing job opportunities in the coffee market which in Ethiopia employs 15 million citizens. With coffee being the second most exported commodity in the world behind oil, Nigeria can increase employment opportunities through this market.
Also, with Nescafe playing God in the coffee market, revenue generated from farm to end-product will not be as significant as when the market is competitive. Note that in countries like Uganda and Ethiopia, coffee production alone earns both nations £634 million and £846 million respectively.
How Nescafe’s dominance can be broken
Coffee intake is currently on the rise in Nigeria. With urbanisation hitting 51%, it’s a good time for new entrants to make their way into the market, or for existing players like Cafe Neo and Kaldi Africa to consolidate in order to strengthen their capabilities and better compete against Nescafe. Operating as lone wolves against Nescafe in the market will only tame their growth further, until they have nothing to offer their customers.
Currently, small coffee shops are operating in Nigeria,predominantly in Victoria Island, Lagos, but surviving the coffee market requires extensive financial resources to market their offerings, and consolidation of resources will provide this needed capital.
If the French could consume about 366,000 tons of coffee and its entire population is nowhere close to Nigeria’s urban population, then there are still large numbers of under–served coffee-heads and millennials who Nescafe have been unable to service, and it’s only a matter of time before demand becomes a burden.
While Nescafe enjoys a first mover advantage which has helped it capture a large customer base, their customer-loyalty is yet to be tested by a formidable competitor, but consolidation among smaller coffee chains and partnerships with Quick Service Restaurants, as being applied in the United States to break Starbucks monopoly, could begin the end of Nescafe’s dominance. (Nairametrics)
