Europe is a large market for coffee, it is calculated that approximately around 30% of the global consumption. Thus, the market is expected to stabilize and it remain as an attractive market. In the European countries, Germany is considered as the largest country in consuming the coffee. The country represented as 20% of the total European coffee consumption in 2015 (CBI Ministry of Foreign Affairs, n.d.). Green coffee beans are one of the most imported product in Germany. The total number of Germany imports the coffee grew to approximately 22.5 million bags in the last 2013 until 2014. According to ICO (International Coffee Organization) and the other industry figures that the number will be rise to 23 million bags in the new 2014 to 2015 crop year. In fact, at this level, the German coffee will be forecast to keep increasing (Global Coffee Report, 2015). The German's consumer is seeking to a high-quality product with a light roasted Arabica coffee. The demand of varieties of ground coffee also increasing including the freshly ground coffee pods and specialty coffee. Nowadays, the Germany market also put importance of Organic certification and other sustainability certification for coffee. The extended growth of organic coffee in Germany market, makes the organic certification can be an attractive recommendation for coffee exporters. (CBI Ministry of Foreign Affairs, n.d.).
Indonesia is known to be the fourth largest coffee producer around the world with the average total production of 680.000 tons per year. Robusta and Arabica are two major varieties of coffee that are grown in Indonesia with production distribution of 85% Robusta and 15% Arabica. Indonesian coffee is popular with its strong and rich flavor and their exclusive characteristic have placed them among the best coffees in the world (PT. Bintang Tunggal Sejati, n.d.). Thus, the product the will be focus in this study Arabica and Robusta Green Coffee Beans to enter the Germany's market.
2. Analysis on Country Attractiveness
2.1. Germany's PEST Analysis
The coffee company who wants to do exporting in Germany should comply the regulation which made by the European Union legislation. All the export activities such as import duties, packaging waste, labelling, and environment are governed by the EU legislation. The European Coffee Federation (ECF) control the new regulation, decide the position of the coffee sector, and maintain connection with European Union Institution (European Coffee Federation, n.d.). The EU government also implies the tariff escalation which aims to protect domestic markets in the importing country (International Coffee Organization, 2011). European Union do not excise any tariff escalation on green coffee beans. Otherwise, the EU members imply an import duties on the processed coffee or soluble and instant coffee.
The revenue in the coffee category in Germany is $5,417 million in 2018 (Statista, n.d.). Germany accounts for around 20% of total European consumption, followed by Italy (13%). Other countries that also has large coffee consumption are France (13%), Spain (8%) and the United Kingdom (8%). The Germany calculated that the country's consumption on green coffee is around 543 thousand tons of green coffee or 8.9 million (60 kg bags). Germany coffee consumption per capita above the European average of 5.41 kg per year. Base on the data, the average consumption per capita in 20188 is 5.5 kg and the average revenue per capita is $66.74. source same with revenue.
(Source: CBI Ministry of Foreign Affairs, n.d.)
As the largest coffee importer in Europe with a share of 34%, Germany total imports reached 1.1 million tons in 2016 and the imports being made from 2012 to 2016 remained stable on average (CBI Ministry of Foreign Affairs, n.d.). Based on data the market shares in global imports for coffee product in Germany is 13.67% or approximately $2.9 billion yearly from 1997 to 2016. The leading imports origins of Germany for coffee is Brazil followed by Vietnam and Honduras. Indonesia is ranked 7th as contributed to $90.2 million US dollar (Tridge Global Trade Platform, n.d.).
Sustainability remains as important aspect for European market including Germany. The increasing of demands in the certification present to a growing demand in traceability and transparency of coffee as European consumer are increasingly concerned regarding the ecological and social impact of their consumption. Certification not only becomes as the market requirements but also for some retailers to build the trust. The main production standard in coffee are Fairtrade, organic certificate, UTZ certificate and 4C certificate for coffee quality verification. Furthermore, there is a growing in direct trade between producers to small retailers or retailers. The traditional trade strategy for coffee in Europe is to distribute the raw materials to roasters from the importers. This strategy still represents an effective and attractive in the market, however, the initiatives of direct trade is growing. Since the market is demanding for transparency in the coffee chain, cutting out the traditional middlemen is aims to create direct link with the farmers meanwhile satisfying the demands of consumers by become closer to the source (CBI Ministry of Foreign Affairs, n.d.).
According to Mintel (2016), the method of soaked in coffee in the cold water will extract the flavor and then it targeted to sold in the ready to drink cans and bottles. However, the cold brew innovation is still infancy in the Germany which count as 2.5% of cold brew ready to drink coffee launches in Europe. Moreover, nitro coffee also is one of the attraction for younger markets. Thus, with the young markets shown their interest in the nitro coffee, the German's brand and manufacturers could gain opportunity to targeting their product innovation into young customers (Mintel, 2017)
2.2. Porter's 5 Forces Analysis
• Competitive Rivalry
The competitive rivalry in the coffee industry tends to be high. The main competitor countries that has a big percentage of exporting the green coffee beans product to Germany is Brazil with a percentage of 32% total imports from Germany (CBI Ministry of Foreign Affairs, n.d.). The example of the competitors from Brazil are Green Coffee Brazil. The company has huge experiences in coffee trading, they are offers high quality and specialty of coffee and they also fulfill all the requirement such as certification that most buyers requested (Green Coffee Brazil, n.d.). Even though EU is the biggest market for coffee consumption in the world it also in line with high competitive market for many suppliers.
When it comes to prices, there is no doubt for the buyer to be attracted by the cheaper price which lead to more competitive market.
(Source: ICO, 2015)
Based on the graph, it could be seen that the total price in Indonesia is the second lowest for export coffee in the EU compared to other nations (Nhien, 2016).
• Supplier Power
The power of supplier is quite high. Since the product itself depends on the suppliers by doing direct trading with the local farmers. Thus, the volume that could be produced is depends on the farmers as well as the quality. However, the company also has the authority to select the finest quality of green coffee beans to the suppliers and demand the volume of the products that the company needed from the suppliers.
• Buyer Power
Germany has several largest coffee importers in globally such as Neumann Kaffee Groupe, InterAmerican coffee, Benecke, List & Beisler these are the example of importers that are covers a wide range of quality, varieties of product and certification. However, some are stressing exclusively on specialty type of green coffee beans with a finest quality beans. Germany also has an importer which focusing more in the ethical coffee products. They tend to focused more on the organic and fair-trade markets specification. The example of the importers is CARE Natrurkost, Rapunzel, Gepa and El Puente. Furthermore, for the bulk green coffee beans of standard quality, the exporter
(Source: EOS Series Export Opportunity Surveys, 2016)
could supply to large roasting companies directly such Tchibo, Jacobs, Dallymayr, Darboven Group, Melitta, and Aldi.
For producer, the prices level for organic coffee will be 25% higher than conventional coffee. Thus, if the market prices exceed the minimum price, the producers will be paid at the market prices level. The coffee producer also will get bonus payment for organic and fair trade (EOS Series Export Opportunity Surveys, 2016).
• Threat of Substitution
In Germany, the society tends to have a high consumption level of coffee. However, some of them are prefer coffee without caffeine. Cutting down the caffeine also not the only objectives, but healthy issue also occurs. Thus, there five products to substitutes the coffee such as Teeccino Herbal Coffee, Cafix All-Natural Instant Beverage, Pero, Instant Natural Beverage, Ayurvedic Roast, Herbal Coffee, and Dandy Blend, Instant Herbal Beverage with Dandelion (Bodnariuc, 2017). Since there are few numbers of coffee substitutes, the threat of substitution is low.
• Threat of New Entry
The threat of new entrants of coffee industry in Germany is relatively high. Since the trend of the specialty coffee is increasing, thus, many coffee shops selling the specialty coffee. Furthermore, there will be more of specialty coffee producer will enter the market. (Khlem, 2011).
3. Trade Regulations in Germany
The food safety measuring through it is traceability, hygiene, and control. The objectives of the law are to secure a high level of the protection of human health and life and to assure consumer's interests. (CBI Ministry of Foreign Trades, n.d.).
Regulation for the maximum contaminant level for certain food products (European Commision, n.d.)
Hygiene policy that applicable through food chain (European Commision, n.d.)
Since the green coffee beans are volatile to water absorption, therefore, it should be transported in woven bags made by natural fiber (hessian or jute) which allows the air circulation (CBI Ministry of Foreign Trades, n.d.).
4. Strategies to Enter German's Market
4.1. Marketing Strategy
It is crucial to choose the right market for entrance to sell and deliver the product the company possesses and meet the right consumer. Based on the analysis that the author conducted:
1. Online marketing through website. Through website, the company could promote their product which is green coffee beans. Thus, the advantage of having website is not only that the product will be known globally but also it has cost advantage, less expensive. Moreover, it also increases the relationship between customer through the email that links to the website. Further, it also proves that the company has a credibility. In addition, the company also promote their product through e-marketing such as Facebook ads.
2. To find another market, the company could attend coffee exhibition for example international coffee fair which will be hold on 9th -11th May 2019 in Cologne, Germany (toFairs.com, 2019). The company also can observe the best roaster for their product that has the same goals as the company and observe the other competitors.
3. Since most of importer company in Germany are interested with specialty product that has certification, it is recommended for Indonesian coffee exporter to have the requirement certification which could be more attractive. Thus, the certification also could be display on the company's website.
4. Indonesia is the second lowest when it comes to prices. Price for green coffee in 2013 is 1.877 EUR/TON.
4.2. Distribution Strategy
The process of coffee distribution takes several steps. Usually for a small farm cooperatives, they will sell the raw green coffee beans o brokers who are in charge to do a wet or dry process. Then the coffee beans sold to International trader as an intermediate to the coffee roasting company. Then it follows to retailers until reach to end market (EOS Series Export Opportunity Surveys, 2016).
(EOS Series Export Opportunity Surveys, 2016)
The procedure exporting Indonesia's green coffee beans to Germany is under the European Union Legislation. Thus, Exporting the coffee could be done by two ways, direct export to the Germany's importer or through agents. Since the company's product is offering a bulk green coffee beans it is more efficient that the company is distribute the product to large roaster company such as Jacobs or Tchibo. Through coffee exhibition, the company also could observe the opportunity to sell to smaller roaster which demand on a special and higher quality of green coffee beans such as Supremo and Flying roaster. Cutting out the middle will save the money and increase efficiency since the company can promote the product through their website.
To conclude, Germany is an attractive markets of coffee industry including the green coffee beans. It also has an advantage since the government does not imply any import duties for this particular product. However, the major player exporter of green coffee beans in Germany is Brazil. Nevertheless, Indonesia still has a big opportunity since the coffee market in Germany is growing and as Indonesia is fourth largest producer of coffee around the world, they still can cover the needs of Germany's market. In this case, the efficient ways to distribute the product to Germany is by doing the direct trade, cutting out the middle man has several advantages. The company also could choose the roaster companies in Germany by attending the coffee fair or through the research to find the right buyers. Marketing through website or any other e-marketing tools also recommended for the exporter's company.
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