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Ethiopia is renowned as the producer of some of the world’s highest quality coffee beans. According to the International Coffee Organization, Ethiopia was the world’s fifth largest producer in terms of crop output in 2014. The country has 1.2 million coffee farmers and the government estimates that about 15 million households are either directly or indirectly dependent on coffee for their livelihoods. The reputation of Ethiopia’s large Arabica yield is prominent in the branding of specialty coffee products in North America and Western Europe, in retail and on-trade cafés.
Despite the international reputation of Ethiopian coffee abroad, less attention has been paid to the robust local coffee culture that exists in Ethiopia, where traditional unpackaged domestic consumption and preparation is supplemented (although not supplanted) by a growing subset of premium coffee specialists in Addis Ababa. A thriving retail and on-trade market for local coffee is growing in tandem with the surging Ethiopian economy, with more pressure to retain locally produced coffee to satisfy emerging demand.
In Ethiopia, coffee is still a strongly traditional beverage with a regular place in social occasions, for entertaining guests in the home as well as everyday consumption. Coffee is traditionally both roasted and prepared in a clay pot, with multiple cups consumed during a traditional ceremony. However, this method has meant that locally grown, unpackaged coffee is the market leader, with a number of packaged, local low-cost whole bean products also available at retail and contributing to high consumption of packaged coffee in the region. However, traditional preparation can be a time consuming process, unsuited to consumption on-the-go or outside of the home. Foodservice options include a large number of low-price, high-quality ‘jeubeuna bunna’ independent street stalls, but these outlets lack seating and space to linger and socialize.
On-trade coffee, sold through brick & mortar coffee specialist retailers in the city and prepared in either traditional or European methods, is the newer, premium end of the Ethiopian coffee market. This form of consumption remains expensive. Prospects for on-trade and retail coffee in Ethiopia are strong primarily because of a period of security and economic growth, which has allowed for a small, affluent and growing consumer class in the country’s capital. Ethiopia enjoyed real GDP growth of 7.5% in 2014 – Addis Ababa alone accounted for 70% of total GDP in 2012, despite being home to just 2-3% of the total Ethiopian population. This is largely the extent of the consumer class in Ethiopia, and the base for café coffee consumption. On average, adult urban consumers in Ethiopia spent US$106 per year more in total consumer expenditure on all goods than their rural counterparts, which marks a 34% difference on a national scale. The disparity between the richest urban areas and the poorest rural states is even more staggering, exceeding 70% in places.
Source: Euromonitor International
Demand shaped by the professional, urban consumer class has led to the expansion of premium, Western style chains. Crucially, these chains remain locally owned and operated. Coffee specialist Tomoca originated as a roaster and exporter of coffee to foreign markets. More recently, following the liberalisation of business regulation and growth of the affluent consumer segment in the capital, the company has invested in local coffee bars, with on-premises seating and a menu featuring locally produced and roasted products. The company now operates five locations in Addis Ababa, in addition to its thriving export business for finished coffee brands. The company distributes off-trade to local supermarkets, as well as select foreign retailers. Tomoca have plans to expand into neighboring markets in the near future.
Although the largest, Tomoca competes with a growing number of chains featuring environments that approximate the Western third-wave coffee experience while offering a mix of traditional Ethiopian coffee and European style beverages. These chains include Kaldi’s Coffee, and a variety of independent coffee shops in the capital. In general, long-standing restrictions on foreign chains have restricted foreign companies from making investments in the Ethiopian market. Restaurants and bars remain an area reserved for investment from Ethiopian nationals. Further efforts to liberalize these barriers to international trade will be required before foreign brands can attempt to enter the Ethiopian café scene.
In per capita terms, Ethiopian coffee consumption – inclusive of both packaged retail sales and volumes sold to on-trade operators – is already on par with developed markets like Hong Kong and New Zealand. Value sales, however, are still extremely low. While growing coffee consumption in Ethiopia affords few current opportunities for multinational coffee chains due to regulatory issues, growing local consumption presents new overall challenges to the global market. Weather related supply volatility in Brazil over the past year has demonstrated how sensitive the global market is to changes in the important Arabica markets, of which Ethiopia is a member. Growing Ethiopian local coffee consumption – on-trade and at retail – could force more of Ethiopia’s coffee yield to remain at home. The development of urban coffee outlets in Addis Ababa is the leading edge of an effort to translate Ethiopia’s huge and growing demand for coffee products into the next global hot spot for the coffee industry.
Trends in Ethiopian coffee and wider African hot drinks will be explored in more depth in Euromonitor’s forthcoming African Hot Drinks global brief. Additional insights on African retailing are available in Markets of the Future reports.
Learn more in Top 5 Beverage Trends in Middle East and North Africa