Modern times have witnessed the evolution of coffee drinking from an everyday habit to a healthy lifestyle choice.
CCL Products: Brewing growth as global demand picks up, sales volumes rise
Coffee has gained the status of being the most preferred beverage worldwide. According to Statista and International Coffee Organization, the latest estimate for total production in the coffee for the year 2021-22 remains unchanged at 167.2 million bags, a 2.1% decrease versus 170.83 million bags in the previous coffee year 2020-21. Revenue in the Instant Coffee segment amounts to US$116.50bn in 2022.
The market is expected to grow annually by 8.21% (CAGR 2022-2025). In relation to total population figures, per person revenues of US$15.30 are generated in 2022. In the Instant Coffee segment, volume is expected to amount to 1,682.2 million Kg by 2025.
The market for Instant Coffee segment is expected to show a volume growth of 7.5% in 2023. The average volume per person in the Instant Coffee segment is expected to amount to 0.20kg in 2022. World coffee consumption is projected to grow by 3.3% to 170.3 million 60-kg bags in 2021-22 as compared to 164.9 million for the financial year 2020-21.
In 2021-22, consumption is expected to exceed production by 3.1 million bags. However, exogenous factors such as reduced global economic growth and increased cost of inputs, production and trade may affect both supply and demand. In India, consumers have started exploring different coffee tastes, thanks to various flavors, formats which are offered nowadays across different channels.
21% of Indian coffee drinkers perceive gourmet coffee to taste more superior than regular coffee reflects the growing demand for fresher coffee formats and premium offerings. As consumers demand information about the food they consume, it will be key to be more transparent about coffee’s origin and processing method.
Such details can serve as proxies to enhance the quality image of the product. The instant coffee segment’s outlook is bright as consumers increasingly value instant coffee’s simplicity of preparation. Further innovations in the instant coffee segment will keep the growth outlook intact for instant coffee.
CCL Products produces several varieties and blends of coffee including spray dried coffee powder, spray dried agglomerated / granulated coffee, freeze dried coffee and freeze concentrated liquid coffee.
CCL's domestic business has shown little signs of letting up with the introduction of new variants and aggressive marketing in southern markets of India. It would continue to look for market penetration and expansion of the distribution network to boost growth. With the reopening of educational institutions, offices and restaurants, business opportunities have emerged to place coffee machines and consumables at these places in India.
Enthralled by higher coffee demand - reflected in its order book - at Ngon Coffee Company Limited, (Vietnam), CCL has drawn up plans to increase its spray dried capacity by 16500 tons at a cost of $30 mn, largely funded by debt. Ngon Coffee's previously increased capacity of 3500 tons has operated at high utilization last fiscal.
On the domestic side, demand for spray dried coffee has increased compared to freeze dried coffee due to its affordability. The doubling of the Vietnam capacity plant will be completed by Q3FY23. The commercial production will begin from Q4FY23. Domestic branded business is expected to grow by 40% in FY23. The company currently commands a market share of 3.5% in Southern states of India namely Andhra Pradesh, Karnataka, and Tamil Nadu ⎯ With incremental capacity, company remains confident on achieving 20-25% volume growth in FY23 which was around 15% in FY22.
Entry into new markets will be the key focus area for the company. Small packs will be actively targeted. Distribution expansion and market penetration will drive the growth in domestic markets. Opening of offices, Institutions, and restaurants, HORECA segment has started to grow and thus providing an opportunity in placement of Coffee machines and consumables accordingly.
CCL to set up greenfield capacity, The company aims to set up a greenfield facility for spray dried instant coffee through its wholly owned subsidiary in Andhra Pradesh. The total capex outlay will be around Rs3.2 bn. The plant is expected to be commissioned by Q4FY24. With this and existing plants, the company targets strong volume growth in the coming 3-4 years.
CCL has ventured into protein-based products with a brand name Continental green bird in the B2C category. Chhattisgarh, Pune and Hyderabad were the key states where products were launched. Going ahead, focus will remain towards increasing their penetration in H2FY23.
From 12,000 tonnes of small pack facility, 30% (3,000 to 4,000 tonnes) of its existing capacity is being utilised to cater domestic demand while the remaining 70% has been used towards catering the international market. The company is witnessing robust demand for small packs across existing markets of US and Europe. Going ahead, the company plans to expand its base by increasing supermarkets in Europe.
CCL remains confident towards the healthy growth prospects of the company on the back of global demand, higher sales volumes, outsourcing from small suppliers and geographical expansion. The capacity expansion at the Vietnam plant will be complete by Q3FY23. The commercial production will begin from Q4FY23. CCL will also be expanding its geographical presence for its plant-based protein products in H2FY23.
Shuchi Nahar is a Certified Research Analyst. She can be found on Twitter at @shuchi_nahar
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