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The evolution of global drinking culture can be easily summarized: Over the past decade, drinking habits have been steadily transitioning from the traditional to the modern, led by the spread of specialist coffee shop culture and a wider variety of format options for beverage-focused social occasions. However, in 2013, cafés in Latin America still performed very well, even despite similarly strong growth in specialist coffee shops. In fact, Latin America saw the fastest value sales growth rate of any world region in both categories, with growth in each of 18%. These figures speak to divergent dynamics in the region’s cafés and coffee shops landscape, as well as to the potential for long-term opportunities for chained cafes and other tangential concepts. Latin American consumers have shown that despite economic conditions, they’re still willing to spend at cafés, and this paired with strong growth across multiple format types makes the market a very attractive target.
Independent cafés made up by far the largest portion of café and coffee shop values in 2013, contributing US$9.7 billion of the combined US$12.1 billion in total value across the two categories. This isn’t altogether unexpected in a developing region, but what is notable is that the relatively mature segment is still seeing impressive growth. Independent cafés grew 18% in 2013, making them a primary driver in the combined category.
This is the result of the strong role cafés play in the local dining culture, particularly in Brazil, which contributed US$3.6 billion in independent cafés value in 2013. Traditional Brazilian cafés, or lanchonetes, are small, often densely-concentrated neighbourhood establishments that sell snacks or small meals along with coffee, typically at very low prices. Brazilians visit these cafés often throughout the day, sometimes enjoying coffee in the morning, afternoon and evening. These cafés also serve as part of a larger culture of traditional neighbourhood cafes and bakeries that serve as convenient dining options, community centres and social hubs. The similarly positioned bakeries, known as padarias, serve coffee, pastries and sometimes fuller meals to a customer base of loyal locals. Both categories enjoy high traffic, with the latter contributing 11% of all the foodservice transactions in Brazil in 2013.
All of these figures show the importance of traditional café culture in Brazil, as well as help to explain how cafés are still seeing such strong growth despite global trends that would seem to predict otherwise. For example, cafés still saw an increase in transactions in 2013 despite a 6% decline in foodservice transactions across Brazil as a whole, the result of consumers cutting back as prices rise. It follows that cafés are so firmly entrenched within the rhythms of daily life for Brazilians, that demand for these occasions is less elastic than other areas of foodservice.
This is not specific to Brazil alone, however, and both Argentina and Venezuela saw similarly strong growth in traditional cafés despite facing economic challenges. Both markets are home to similar traditional cultures of cafés and bakeries, which serve as quick, local options for inexpensive coffee, snacks, or meals. Together with Brazil, these two markets make up the largest portions of café demand in Latin America, and inflation is high in all three. And yet, both markets saw café value increasing, with a rate of 57% in Venezuela and 19% in Argentina. While much of this is of course due to high inflation rates, in constant terms the two café markets were still among the fastest growing in the world, at 14% in Venezuela and 8% in Argentina.
Despite independent cafés dominance, this growth area also speaks to opportunities for chains. Chained cafés saw US$294 in sales across Latin America in 2013, with the majority of value in Brazil and Argentina. In Brazil, the chained café segment is dominated by two local chains, Rei do Mate and MegaMatte, both of which specialise in mate tea, coffee and snacks. Likewise in Argentina, a handful of local chains top the rankings, including Delicity, Abuela Goye, Piacere, Tentissimo and Gazebo. With the exception of Delicity due to outlet closures, the other four leaders all saw double-digit value growth in 2013, a testament to the breadth of the competitive landscape.
Ultimately the chained segment is still very small, which can somewhat ambiguously indicate either untapped demand in the region or conversely, a complete lack of it due to an abundance of independent options. In the case of Latin America however, the fact that strong growth is still being experienced in both independent and chained cafés suggests that the region has not yet reached the point where growth needs to be seen as a zero-sum game. Rather, there is still enough organic growth in the market to support both traditional and modern formats—and both chains and independents—without cannibalising demand.
In summary, Latin America is a region where the café segment is still growing both in value and in transactions, where consumers are willing to spend on drinking occasions despite economic conditions, and, according to growth figures, where competition is not yet high enough to limit opportunities for new and existing players. As a result, cafes, and the larger coffee and tea-based dining category as a whole, could serve as a unique opportunity in what’s already seen as one of the most important growth regions over the long-term.