Coffee house entrepreneurs in East Africa seem to be the only ones smelling the aroma of success this year.
Farmers of the cash crop, though, are in for a tough year after record prices last year.
The price of coffee in the global market has fallen from a high of $4.8 per kilo in January to a low of $2.2 due to the high production of the crop from other leading producers like Brazil, creating a glut.
In addition, Uganda, East Africa’s largest producer and the third largest exporter on the continent, is facing a drop in production because of drought that affected the crop in the eastern part of the country.
But globally, there is a shift in coffee consumption patterns.
The morning coffee ritual, which is popular in Europe, the US and Japan, is sweeping through emerging and developing nations, with many coffee growing and exporting countries witnessing a sharp rise in domestic consumption of the beverage.
In East Africa, although the coffee ritual is still popular among mostly expatriates, the coffee shop seem to offer the place between work and home where people can socialise or hold business meetings.
This explains why coffee houses are sprouting up in East Africa’s capital cities, creating specialist investors who are making money selling a culture as opposed to yesteryears when trading houses and roasters made money from trading the commodity.
A fortnight ago, Emerging Capital Partners (ECP), the American private equity firm, acquired a majority stake in Nairobi based Java Coffee House.
(Read: US firm buys Java House, eyes East Africa)
Java was set up 13 years ago by two American expatriates living in Kenya, Kevin Ashley and John Wagner, and it has expanded from one branch to 13 this year.
Its annual turnover hit Ksh1 billion ($11.5 million) in the year ended June 2011, according to an interview Mr Ashley did with the Kenyan media.
Java plans to open outlets in the region besides expanding to other major towns in Kenya. Mr Ashley declined to comment on the expansion plans and details of the ECP acquisition when contacted by The EastAfrican.
Eric Omondi, the general manager of Dorman’s, which runs a chain of cafes, based in Nairobi said the emergence of the coffee houses was driven by the growth of shopping malls and the prospects of rising consumption by the citizens in the region.
“The quantity of coffee consumed is just a drop in the ocean,” Mr Omondi said, adding that they have seen an annual 15 – 20 per cent increase in the volume of coffee sold. “The market can still accommodate so many more players. We need more foot soldiers talking about drinking coffee,” he said.
On average, an adult Kenyan takes 100 grams of coffee, about 20 teaspoons, in a year. This pales in comparison with a non-coffee growing country like Botswana, where an adult consumes six times more coffee than a Kenyan.
Ugandans are the largest consumers in the region, with each adult taking about 60 teaspoons in a year. Tanzania is at par with Kenya, while the consumption in Rwanda and Burundi is still very small.
Ugandan coffee shop owners are optimistic of expanding their businesses as beverage consumption rises in tandem with a growing middle class.
Café Pap managing director, Joy Ngabirano said the demand for coffee is high.
Eva Mbabazi, a sales executive at Crocodile Café and Bar said an investment is lined up for expansion though its timeframe is yet to be known.
Rwanda has one brand of coffee shops — Bourbon — owned by Crystal Ventures, a local investment company. Bourbon has five outlets in Kigali.
While the frontrunners in the coffee house business seem to have been expatriates, who with their experience in their home countries saw the opportunities, local entrepreneurs are also joining the fray.
Kenya has seen a renaissance of coffee shops in Nairobi’s Central Business District. Paleo, a new coffee and grill shop opened on Tom Mboya Street, this year.
In Kenya, coffee house brands are emerging with Java House, Dormans, Savanna being the most notable ones; Gibsons and the Mug, though relatively younger are also seeking a piece of the pie.
Whereas these brands tend to concentrate in uptown Nairobi, there are brands whose niche is the clientele in downtown Nairobi. Paleo and Coffee World specifically are geared towards this market.
The World Bank estimates the EAC middle class to be the fastest growing and all EAC countries — except Burundi — set to have a per capita income of at least $1,000, which will push them into middle income countries by 2022.
The emerging consumerism evidenced by these coffee shops can only grow, given the influx of multinationals into the region, and the expected dollar inflow once the EAC countries of Kenya, Uganda and Tanzania start to pump recently discovered oil and gas into the world’s markets
But as coffee shops bet on the rising local demand the growing of the crop is coming under increased pressure because of the rapid urbanisation in the region.
Reporting by Emmanuel Were, Isaac Khisa and Peterson Thiong’o