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Inner strength of soluble coffee on the outer edges of Europe: Dr. Terry Mabbett explores the emerging soluble market through a comprehensive analysis of Russia and the maturing U.K. soluble market.

Coffee is central to all European food and beverage industries, but soluble coffee reigns supreme at the two ends of this wide continent. Consumption of soluble coffee is highest in the west, where high winds and waves of the Atlantic Ocean create a mild climate for the small, though heavily populated (60 million) island nation of the U.K. Equally in the east, where cold arctic winds blow a winter chill across the wider expanse and bigger population (140 million) of Russia, as it spreads out from the Urals right to the extremity of Asia. Soluble coffee still corners more than 80% of the U.K. market, and is nearer to 90% of coffee consumed in Russia.

At the end of 2006, the U.K. and Russian governments were in contention over much 'hotter' topics than steaming mugs of coffee; but their populations still share instant attachment to soluble coffee for its satisfying combination of convenience and quality.

Just how big a hold does soluble have on coffee drinking habits in these entirely disparate nations, one at each end of Europe, and of contrasting culture and history? Well, one is massively bigger than the other, and with different time scales in modern coffee consumption. However, the U.K. and Russia have one thing in common, apart from a strong liking and preference for instant coffee. They are tea drinking nations, in which coffee has been making significant inroads.

Coffee drinking took time to develop as British consumers gradually pulled away from their centuries old love affair with tea. But it may well have been tea, or rather the traditional way of making the beverage that allowed the soluble sector to establish, develop and maintain a hold on the coffee market in the U.K., which is known for its strong and continuing private label tradition in soluble coffee.

Introduction of easy-to-make and instant coffee was a welcome alternative to the time, drudgery and mess involved in making tea before introduction of the teabag. But even today and armed with teabags, dual coffee/tea drinkers (who are the vast majority in the U.K.) tend to opt for instant availability of soluble coffee drinks. The bag option has eliminated most of the 'mess' involved with making loose-leaf tea in a pot. Although it can never quite match the instant debris-free preparation of soluble coffee.

Soluble coffee was first manufactured in Russia, and imported from origin countries like Brazil, well over 30 years ago. However, it was done only in limited quantities relative to the potential market. Soluble coffee consumption only started to spread and take off some 15 years ago, when the Russian market was free with a widespread import of western brands. At this time Russia was a 'paradise' for private label soluble coffee, but since then the spectrum has consolidated around a group of big international and national brands.

How do you get a comparative insight into trade and consumption of soluble coffee in countries that are vastly apart in miles and culture, and with nothing in common except a strong and dominant tea drinking tradition? Where better to look and consult than a company that packs and sells coffee for European private label brands, and contains packing lines in its two biggest and most important markets of the U.K. and Russia.

Loudwater Trade & Finance Limited began as coffee traders in the '80s, but soon became soluble coffee packers in 2000. Stanley Stimler, managing director of Loudwater Trade and Finance Ltd., based in London, is firmly connected to the soluble market across Europe and commutes regularly between the companies' U.K. business and Grand NN in Russia.

The company ships over 6,000 tons a year, which is a significant amount of soluble coffee. Overall, a significant amount of Brazilian soluble coffee is still enjoyed in Russia, but as Bruno Giestas of Brazilian soluble coffee manufacturer Realcafe Soluvel do Brasil says, there is a big difference in the nature of Brazilian soluble that is entering Russia, compared with 15 years ago.

Dual impact of high import tax on packaged soluble and the development of modern high capacity and well-structured packing lines in Russia means the vast majority is now imported in bulk, compared with a finished packaged product. In the west a 9% EC (European Commission) tariff on Brazilian coffee that 'kicked in' on January 1, 2006 has effectively passed the market for soluble coffee, manufactured and consumed in the EU (European Union), to the advantage of other origin soluble producers.

Ecuador is our main supplier for the U.K. and Russian markets, Stimler stated. "We have been buying soluble coffee from Ecuador since the '80s." He added, "We liked what we saw and tasted, and our relationship has developed ever since." In fact, soluble coffee manufactures in Ecuador and Loudwater's coffee trading began around the same time, so in a sense they have grown up together over the years.

The Ecuadorian coffee origin is relatively small, with much snapped as green coffee beans by the U.S. and other markets, but unlike soluble manufacturers in Brazil those in Ecuador are free to import coffee. They continue to develop blends of Ecuadorian beans with Robusta and Arabica imported from South America, Africa and South East Asia. Taste of Ecuadorian soluble suits a wide range of palates being neutral, mild and without harshness, and therefore appealing to mainstream consumers.

Markets for Soluble Success

The U.K. is a 'mature' European country market, and Russia is a new and rapidly emerging contender, but there are common threads underpinning the continued success for soluble whatever the market history.

Quality is clearly top priority; especially when up against a perceived 'natural' flavor advantage of R&G, and with pods pushing the convenience factor in its favor. But instant technology has increasingly narrowed the gap for premium soluble products in look, behavior and flavor. Freeze drying technology is increasingly producing attractive roast-colored granules, and with taste and aroma profiles that are increasingly similar to the natural R&G model. Even the spray drying process now firmly aligned with associated agglomeration techniques for granulation, which is pushing frontiers forward.

Loudwater places emphasis on innovation in technology like the 'aromatisation' process where coffee granules are sprayed with coffee oil to enhance aroma. The first real moment occurs when seals are broken and the inherent aroma of the blend or origin hits the consumer. This process entitled 'headspace' aroma, is an important step in the coffee making and drinking process, which stimulates sensory cells for the flavor of cupped coffee as the lingering impressions are recorded and memories that will help to secure repeat purchases. Consistency is well catered for and the private label sector continues to focus on moving its blend structure and variety towards those of the brand leaders, which is being accomplished at origin. A lot of blending is occurring in coffee producing countries like Ecuador, and freedom to import coffee, whether green beans or soluble, is one of few advantages it has over giant soluble manufacturer Brazil. Brazilian soluble manufacturers can import green coffee as long as it is manufactured into soluble and re-exported in Brazilian soluble blends.

Packaging is perhaps the area where most mileage can be made in the short term. Coffee has an ancient history, but soluble coffee is a modern beverage with an evolving and increasingly sophisticated profile, which packaging needs to reflect.

There is a lot more that can be done with packaging, states Stimler. By offering a wide-range of jars from premium value-added designs to everyday best-value lines, customers can create a clear positioning and price point for their products in the retail environment.

All sorts of innovations are now abound in lids and closures, but supermarkets in particular have been slow to adopt more stylish and sophisticated containers and jar shapes for their own private label brands.

Consumers in today's supermarket are suffused with sophistication from all directions, so why stick to plain old straight-sided and straight-laced coffee jars when other styles are being utilized that sell everything from marmalade to mustard pickle. Loudwater sees this as an opportunity, and has developed a new range of exciting shape jars now being manufactured in Poland.

From Russia with Love

Russia is renowned for its wide-range and in-depth surveys of industry and consumer trends, relating to all manner of commodities including tea and coffee. They are additionally strong in regards to comparative data with other European countries, which means you can more readily find information on U.K. coffee and tea consumption from Russian surveys.

The only caution is that some terminology can be confused with that used in the wider coffee industry. For instance, the term 'blends' may be used to describe products in which coffee is pre-mixed and sold with complements (e.g. creamer, milk and sugar), like the so called three-in-one mixes that are now increasingly popular in Asia. Or the term 'natural,' which may be used in Russia instead of R&G, otherwise used upstream to describe unwashed sun-dried coffee beans.

Reports from 2001 estimated the Russian market for soluble to stand at 50,000 tons with only 5,000 tons for R & G. By 2006, the total coffee market had virtually doubled, but the proportions were roughly the same with soluble still cornering around 90% of the market. According to the R-TGI (Russia--Target Group Index; COMCON) data for 2004, almost 95% of coffee consumers registered a preference for instant coffee, around 30% for R&G and a further 25% for coffee mixes. Respondents in the survey were allowed to indicate more than one preference. Overwhelming strength of tea drinking in Russia still shone through with almost 95% of Russians expressing themselves as tea drinkers, and barely 60% as coffee consumers.

Commentators picked up on two salient points from the survey relating to tea and coffee drinking and especially preference levels in other European countries. Whereas the difference between self-proclaimed tea and coffee drinkers in Russia is large (35%) the same level of difference does not occur in other countries, irrespective of whether they are 'tea' or 'coffee' nations. In the U.K., which Russians identify as a 'classic' tea drinking country, 88% of the population identified themselves as tea drinkers with coffee drinkers not far behind on 81%. In Germany, which Russians regards as a 'coffee loving' country with 84% as coffee drinkers and a surprisingly high 71% ranked as tea drinkers.

Another key point discussed by observers was the commonality of 'tea drinking' in nations like the U.K. and Russia, moving to duality with coffee going strongly and overwhelmingly for soluble coffee. The R&G fraternity in Russia predictably said this was conditioned by class, mentality and low income of the population. But this idea is at odds with simultaneous sociological and demographic findings showing those consumers drinking most soluble coffee are skewed heavily towards groups with higher education attainment, above average to high incomes and city dwelling, with consumption in all groups tailing off into Eastern Siberia and Far Eastern Russia. One telling comment was that coffee drinking is a preserve of 'working' Russians (meaning those in employment rather than working class) as opposed to those in retirement.

Stimler points to the massive uptake of freeze dried granules in Russia at the expense of spray-dried powder products even with the four-fold price differential. Since 2005, the demand for freeze dried in Russia has gone up 40% says Stimler, with a demand for freeze-dried exceeding supply across Europe and particularly in Russia. Russian consumers drink premium quality and more expensive freeze-dried, because it makes them feel richer (and better) he says, but they are still with soluble coffee even at the higher cost. Compared with the British, Russians seemed to have skipped a 'generation' of instant coffee drinking by going straight into freeze-dried granules and avoiding spray-dried powder formulations.

Other reasons given for soluble supremacy in Russia are similar to those prevailing in the U.K. Soluble coffee provides a fast, convenient and increasingly sophisticated pick-me-up product that can be taken without disrupting a daily routine with the long drawn out brewing requirements of R&G. There is a general perception in Russia that full benefits of R&G can only be gained with special brewing equipment and a good degree of skill; feelings that probably prevail in the U.K. though not widely documented.

It is easy to see why Russia has 'fallen in love' with soluble coffee by just looking at some of the coffee language used to describe consumer preferences there: good aroma, not too acidic, no bitterness, and thick bodied without sediment and sufficiently robust to push the coffee flavor through any milk and cream complements. This points to good quality Robusta coffee, like Brazilian Conilon that is freeze dried using the latest technology to maximize and preserve aroma.

UK's Mature Market'

The U.K. is regarded as a mature market although coffee drinking on a wide scale is no more than 45 years old. Like Russia, preference for freeze-dried is overwhelming and now extends to the 100% single origin Arabicas from all four corners of the coffee growing world, including Central and South America, Jamaica, East Africa, Indonesia and Papua New Guinea. Although approximately 5% of the U.K. soluble market single origins are regarded as niche products, it is increasingly important nevertheless, and clearly playing a significant role in the education of mainstream British coffee drinkers on the wider origins and variety of coffee.

Not a lot of mileage is seen in organic coffee at Loudwater but Fair Trade, says Stimler, is a different matter. When big brand names "dip their toes" in the whole concept of fairly-traded and environmentally sustainable coffee, the private label producers should take note. From Kraft's Kenco Sustainable Development, and coffee grown under sustainable conditions by the Rainforest Alliance and Nestle's Nescafe Partners Blend (Fair Trade certified) are sold in the U.K., which represents two of the most attractive soluble coffee 'packages' gracing supermarket shelves in the U.K.

Coffee certified for improved financial return to growers and enhanced sustainability are increasingly popular with U.K. consumers, but the actual driving force behind increased sales is not altogether clear. In truth, it is probably a consumer blend of genuinely wanting better returns for farmers and preserving the environment, assisted by exotic and colorful advertising that accentuates the natural, clean and pristine growing conditions of such origins.

The modern U.K. coffee market is now 45 years old with Russia's pedigree just one third of that since western coffee products first entered a freed up market some 15 years ago. In spite of the overwhelming superiority of soluble in both markets, there are always reports of its imminent demise with consumers set to indulge in an orgy of R&G. Worried members of the soluble fraternity should look to the famous quote of North American author Mark Twain--"the reports of my imminent demise are vastly exaggerated."

Those at Loudwater agree, seeing soluble in the U.K. market, as far as private label brands are concerned, there is no sign of soluble coffee sales diminishing in the U.K. There is a similar situation coming from the Russian market. The soluble mass market always meets a practical need, and with products getting ever closer to R&G (appropriately called 'natural' in Russia) any look, feel, taste and aroma differentials are fast disappearing. As in the U.K., R&G will always be ideal for a nice morning break at Starbucks, the leisurely meal at a restaurant or dinner party at home. For the routine daily pick-me-up and a course of refreshment, soluble stays supreme.
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Title Annotation:Soluble Market
Comment:Inner strength of soluble coffee on the outer edges of Europe: Dr.
Author:Mabbett, Terry
Publication:Tea & Coffee Trade Journal
Date:Feb 1, 2007
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