Melbourne Coffee For Business Capstone Project

Melbourne's Coffee Culture

Discuss about the Melbourne Coffee for Business Capstone Project.

Coffee is the world's most traded agricultural commodity. The trade is valued over US$15 billion and annually almost 100 million bags of coffee are moved around the world. Coffee was introduced into Papua New Guinea (PNG) in the 1950s and is now that country's second most important agricultural product (Allen, B. 2014). 

Coffee is not just drink it is a global commodity. Good coffee is practically considered as a birthright and the fever of coffee in Melbourne has beaten Rome, Sydney and Vienna in terms of serving best coffee in the world. Melbourne is the most important coastal city of Australia and it is also known as creative capital of the country. The coffee cafés of Melbourne are the culture of the city and it is a very unique part of the lives of the people living there. The Bluestone Lane which is inspired by the world's renowned coffee culture is found in Melbourne Australia. The coffee culture of Melbourne is actually made up of layers and sophistication. The coffee is the part of Melbourne's fabric and DNA. Nobody can copy Melbourne's coffee culture due to its distinct climate, people and tradition.

Melbourne is often referred to as the coffee capital of the world. Melbourne's café culture is known for its heritage passed within generations. The Australian city of Melbourne in the state of Victoria is all about being a location for coffee with a 'plus', and this is observable in its café culture which is not confined to just excellent coffee - but an experience that goes well beyond in many ways. During the last few decades, coffee has evolved from the popular espresso and latte to a more refined, gourmet beverage with connoisseurs analyzing the different roasts, flavor profiles and blends of the beans. Currently the young Australian entrepreneurs are also taking interest in cafes and coffee business. As the country is obsessed with coffee Australian culture shun American style drip coffee and prefer espresso(Adams, 2012).  

The total revenue expected from coffee business in Australia during the year 2912 to 2017 is 6 billion dollar. The coffee market of the country is growing at the rate of 7.2 percent. Total number of workers employed in the coffee business in the country is around 71,957 and a total of 14411 business firms are involved in the coffee business in the country(Clark, 2013). The current culture of coffee in the country is showing a high-expected growth in the coming years. In the last five years the coffee cafes and shops have expanded and becoming increasingly diverse. The growing number of specialty cafes and coffee shops and culture of Australia have resulted in a high industry competition, low industry concentration and low barriers to entry (Clark, 2013).

Coffee Market in Australia

To meet the rising demands from boutique specialty roasters for high quality green beans, an organization under the name of Melbourne Coffee Merchants has been established in the year 2008. MCM supply coffee around the Australia. According to the Dan Gallo CEO of Melbourne coffee chain Degani Café the total coffee retail market of worth $ 3.2 million are driven by local independents. The coffee market of the city is growing at about 2.37 percent every year(Adams et al., 2016). There is a degree of latent demand of coffee in the city market. In the next few years the city will face the shortage of high quality coffee beans which will ultimately higher prices until the supply meets the demand.

In the last 20 years the size of coffee retailers has been increased from 1560 to 4768 coffee retailers(Adams et al., 2016). The major reason behind this sudden growth in the retail business of coffee seeds is that a huge number of cafes and coffee shops have developed in Melbourne. Consequently, there has been an unprecedented rise in the demand of coffee beans all across  the city.

The biggest coffee chains in Melbourne are Gloria Jean’s Coffee (a total of 79 stores), Hudson’s Coffee (30 stores), McCafe (housed in 118 McDonald’s stores), Starbuck’s Coffee (25 stores) and The Coffee Club (22 stores)(Adams et al., 2016). Noneof them owns more than six percent share of the total coffee market of the city. In terms of total revenue share of coffee shops in Melbourne in different product offerings, coffee sales is contributed 51 percent of the total revenue of all the coffee shops in the city. Other beverages like tea, hot chocolate and milkshakes contributed 21.5 percent and other food like sandwiches, eggs and toast, cookies etc contributed the remaining 27.5 percent of the total revenue (Adams et al., 2016).

To conclude the topic, it is clear that (based on the research information) Australian cities plays a significant role in the world coffee business and is in a fast growing phase. Among all those cities Melbourne is well known for its unique coffee culture, which has operated over the years in a massive scale.

The most eruptive point to notice is the massive growth of the sales of the industry and the expectancy to boom so. This will open new market opportunities for many individual and sophisticated investors to participate in a dramatic scale over the coming decade and onwards.

Melbourne Coffee Traders

However, according to the research not all the new entrants will survive, the expected quality and existing rivalry is so high that you cannot survive without something special. The Arabica coffee beans are considered as one of the best coffee beans around the world. It will be a very interesting fact to see the effect of this quality coffee beans make to the industry in Melbourne.

Australian Coffee Trade Association Inc is the coffee association of the country. Currently sustainable coffee is considered as the biggest growth sector in the coffee industry. The annual growth rate of sustainable coffee in the country is between 10 percent and 20 percent. The growth rate of sustainable coffee even exceeds the growth rate of specialty coffee whose growth rate is between 5 percent and 10 percent per year(McKay, 2016).

As a summary, the Australian coffee merchants are following a direct trade mechanism, which helps them to deal with coffee producers in a straightforward method. They use this to build numerous relationships with the coffee growers and to negotiate better deals with due diligence and care. The expected quality and governance mechanisms are so high where merchants are not only looking for the best quality beans but also the sustainable growing patterns.

There is no gain re-stating the fact that Melbourne is considered to be one of the most caffeine-crazed cities in the entire world. Consequently, it is needless to say that the huge consumption of coffee by its residents is accompanied by an incredible high demand for a rich variety of coffee beans. While analyzing and assessing the prospect of importing and selling Colombian Arabica coffee in Melbourne, it would be discreet to know the kinds of coffee beans used by the traders in Melbourne at present.

First of all, the most popular coffee bean in the cafes and the coffee bars of the city, is the high quality green bean. The most impressive feature of these beans is that they come with the guarantee of a superior flavor, and added to that its rich variety of flavor, such as Geisha or Bourbon, make it a favorite among the coffee consumers. Next, apart from these fine high quality green beans, the traders also sell freshly roasted coffee beans. These beans are unbeatable in taste and its power in intoxicating the senses of the consumer, and are widely appreciated for its freshness (Saerens et al. 2016). The blended coffee beans offering the traditional coffee taste are also traded here. For example, the Classic Italian blend, Hipster Barista Blend, or the Melbourne Espresso Blend, are highly popular in the coffee market of Melbourne. Besides, the sale of other coffee beans such as Papua New Guinea Beans and Kenyan Wamuguma beans deserve special mention here.

Major Types of Coffee Beans used by Traders in Melbourne

The process of obtaining coffee seeds from the other part of the city or the world is important, as it enlightens the method by which the Melbourne traders import coffee, and thereby engage in the coffee trading industry. First of all, these traders purchase the coffee beans, from the wholesalers who are responsible for supplying and delivering the most popular coffee beans to the respective traders. The Bennetts, the Crop to Cup, or First Crop Coffee are some of the most popular and recognized coffee beans wholesalers, who are responsible for connecting the coffee traders of Melbourne with the coffee producers of different regions of the world. Besides, the non-profit organizations such as Australian Coffee Traders Association (ACTA) or Coffee and Nut Trading also help the traders obtain high quality coffee seeds from other parts of the world  (Walters and Broom 2013). The brokers play an important role in providing the traders with the coffee beans in Melbourne. It is important to note here that a huge number of suppliers are selling coffee beans online as well, whereby the coffee products are ordered by the traders through the website, and the same are being delivered via the Australia Post e-parcel service. These online sites sell a variety of coffee beans available at a variety of prices.

The logistics management of any product is very important as an effective logistic system helps in the growth in the sale of the product in a consumer market. As it has been already discussed above, the coffee beans are primarily imported from different parts of the world, or different regions of the country, via brokers or the online coffee trading sites. While the coffee beans are transported, the shipping process is properly taken care of (Ye and Wu 2014). The coffee beans are highly sensitive to moisture, and hence require to be shipped in woven bags, that enable free circulation of air. Hence, the protection and the ventilation measures require to be adopted in a cargo ship, while shipping the beans. The LIS, also known as the Logistics Information System plays an important role here, as the transfer of the data from one end to the other is highly important for enabling proper management of both the physical system as well as the consumer orders. The transport managers for example are responsible for collecting and passing on the information, such as the status summaries of the movement of goods. As far as the distribution of the goods is concerned, the coffee seeds are distributed via different online and retail intermediaries.

The import mechanism practiced in Melbourne by the coffee traders is quite simple and effective. In case, the coffee products are entering from any foreign country, the process of importing however is not going to be too easy. Te coffee beans, while entering the city from any other country, will require to be enquired and examined by the Australian Quarantine and Inspection Service (AQIS) authority. Besides, any coffee product that will be arriving in Australia from a foreign country, for commercial purpose, must have a phytosanitary certificate, along with an invoice, packing list as well as the ICO certification (Adams 2012). While the coffee beans are usually duty free, a merchandise processing fee and a harbor maintenance fee will be applicable.

As per the market report the global production forecast for coffee production for the coming year will be around 154 million bags. The biggest coffee producer countries are Brazil (52 million bags), Vietnam (30.4 million bags), Indonesia (11.2 million bags), Colombia and the America's (12 million bags), Africa (1 million bags) etc.(Adams, 2012). On the other hand global demand for coffee beans is expected to be lower. In the year 2014-15 the total consumption of coffee was seen at 150.2 million bags but for the year 2015-16 the total consumption will likely to be flat (Adams, 2012).

The import of coffee beans by Australia was growing at the rate of 5 to 10 percent every year till 2015 but the total import of coffee beans was flat in the year 2016(Adams, 2010). Australia imports coffee from a number of countries. The imported beans are both arabica and robusta. Arabica is mostly used in roasted market and robusta is mostly used in the instant coffee market. Traditionally the biggest exporter to Australia is Papua New Guinea followed by Vietnam. Indonesia, Brazil, India, Thailand, Colombia and Costa Rica are the other coffee supplier countries for Australia (Adams, 2010).

Importing coffee can be used as the most rational method since Australia does not have the relative advantage of natural resources such as climate and cheap labor compared to the other coffee grown nations. This implies us the notion of the absolute advantage theory where a country must specialize in the products which it has an advantage of producing.

In conclusion, to fulfill the needs and requirements of the market associated with demanded quality and quantity, it is better to import good quality coffee from the bigger and better producers than focusing on the small and different quality domestic production.

In the past year Australia served 1.5 million cups of coffee out of which 43 percent of cups were preferred of lette coffee followed by followed by 20 percent ordering flat whites and 12 percent of ordering cappuccinos(McKay, 2016). The 16 percent of coffee cups were made up of hot chocolate, iced beverages, teas, mochas, filter coffees, chai lattes and other unspecified beverages.The rest 9 percent cups were preferred for long blacks and espresso coffee. In terms of size the small coffees take 80.7 percent market size of total coffee market(McKay, 2016). Coffee is deeply embedded in the culture of the country and this is the reason behind the preference of coffee over tea by the local people of Australia. Australians are one of the highest consumers of instant coffee in the world. Australians prefer to but outside coffee(McKay, 2016).

Australia is a significant consumer of tea but in the recent year the preference has been shifted towards coffee consumption. In terms of coffee consumption Unfiltered coffee and mesh-filtered coffee is the most preferred coffee in Australia. These forms of coffee have high levels of cafestol and kahweol(Chen & Hu, 2010). In the terms of service quality the coffee outlets of the country are increasingly becoming competitive in providing effective service quality to its customers. Service quality influences the symbolic and functional value of customers. As per the study conducted by Chen and Hu (2009), coffee consumption in a coffee outlet is not just the matter of getting symbolic values and functional values but it is the matter of traditional customer values. Symbolic values in service quality include social, aesthetic, emotional and reputational values. The core attributes coffee quality and F&B play an important role in driving value perception of a coffee outlet in Australia. These two core attributes play major role in influencing customer's judgment in terms of symbolic and functional values(Chen & Hu, 2010).

A study was conducted by Wang et al. (2015) to analyze the coffee and caffeine consumption and depression. The objective of this study was to analyze the relationship between coffee intake and risk of depression. Espresso coffee is getting growth in Australian market as compared to roast and ground coffee market. To study the results data was collected from 11 articles. A total of 330677 participants were taken from the seven studies in the coffee depression analysis. A random-effects model was selected for the study with 95 percent confidence level. The result of the study stated that there is a significant association between coffee and caffeine consumption along with decreased risk of association. In Australia coffee drinking has become an everyday common pursuit. The society of the Australia seems unable to function without the intake of coffee every day. Third wavers of Australia separate themselves from espresso drinkers through their sophisticated flavors and taste of coffee (Wang et al., 2015).

In the year 2015 total amount of coffee export by the country was amounted at 30.5 US million dollars. Colombia is the world's leading producer of mild washed Arabica coffee. It produced a total of 1.3 million coffee bags (60 kg each) in the year 2015 which was a 10 percent increase as compared to the year 2014. Colombia is the second biggest coffee producer of coffee. In terms of Arabica coffee is it the largest producer of Arabica coffee. Arabica coffee is considered the highly quality bean of coffee. Colombia export coffee to many countries. The biggest importers of coffee from Colombia are United States, Germany, Japan, Italy and other European countries (Brien & Adams, 2012).

References

Adams, J., 2010. Thoroughly modern coffee. Text Journal, (8), pp.1-13.

Adams, J.E., 2012. Marketing Tea against a Turning Tide: Coffee and the Tea Council of Australia 1963–1974. M/C Journal, 15(2).

Adams, J., 2012. Australia's American coffee culture. The Australasian Journal of Popular Culture, 2(1), pp.23-36. [Accessed 2016].

Adams, J.E., 2012. Marketing Tea against a Turning Tide: Coffee and the Tea Council of Australia 1963–1974. M/C Journal, 15(2), p.8.

Adams, B., Gans, J., Hayes, R. & Lampe, R., 2016. Does Organizational Form Drive Competition? Evidence from Coffee Retailing. NBER Working Paper No. 22548, 1(1), pp.1-29.

Allen, B. 2014, "FROM MODERN PRODUCTION TO IMAGINED PRIMITIVE: The Social World of Coffee from Papua New Guinea", Pacific Affairs, vol. 87, no. 1, pp. 198-200

Brien, D.L. & Adams, J., 2012. Coffee: A Cultural and Media Focussed Approach. M/C journal, 15(2).

Chen, P.-T. & Hu, H.-H., 2010. How determinant attributes of service quality influence customer-perceived value. International Journal of Contemporary Hospitality Management, 22(4), pp.535-51.

Clark, L., 2013. Taking on the coffee competition. B & T Weekly: Trade Journals.

McKay, B., 2016. Coffee Consumption: Evil Foe or Helpful Friend? Australian Medical Student Journal, 1(1).

Patterson, P.G., Scott, J. & Uncles, M.D., 2010. How the local competition defeated a global brand: The case of Starbucks. Australasian Marketing Journal, 18, pp.41-47.

Saerens, S. and Swiegers, J.H., Chr. Hansen A/S, 2016. Enhancement Of Coffee Quality And Flavor By Using Pichia Kluyveri Yeast Starter Culture For Coffee Fermentation. U.S. Patent 20,160,058,028

Walters, P. and Broom, A., 2013. More than one billion cups of coffee are consumed in cafés, restaurants, and other outlets each year in Australia, with an increase of 65 percent over the last 10 years. 1 While Australia is still lagging behind nations such as Italy and Japan in terms of drinking coffee outside the home (Ryan. Café Society, p.185.

Wang, L., Shen, X., Wu, Y. & Zhang, D., 2015. Coffee and caffeine consumption and depression: a meta-analysis of observational studies. Australian and New Zealand Journal of Psychiatry, 50(3), pp.228-42.

Adams, J.E., 2012. Marketing Tea against a Turning Tide: Coffee and the Tea Council of Australia 1963–1974. M/C Journal, 15(2).

Ye, H. and Wu, J., 2014. Selection of a Logistics Service Provider Based on Analytic Hierarchy Process (AHP) Approach: A case study of Swedish Coffee Manufacturer—Gevalia.