Market Situation and Consumption of Coffee Products in Abu Dhabi Market - Term Paper Example

Market situation and consumption of coffee products in Abu Dhabi market Introduction Abu Dhabi is a federal capital located at the center of the (United Arab Emirates) UAE government and is said to be one of the most modernized city in the world. The population is about 1.5 million and headquarters of various oil companies and embassies are located in the city resulting to development. The city has about 420,000 citizens and the others are foreigners, among the citizens each one is worth about 17 million dollars and this conclusion made Abu Dhabi be describes by CNN as the richest city in the entire world (Aaker 500). The city is beautiful featuring large gardens and parks along the roads and streets. There are also sophisticated buildings, international luxurious chain of hotels and sumptuous shopping malls. For long Abu Dhabi has been viewed as a calm and bureaucratic city unlike the neighboring Dubai. To attract more tourists and investors, the 2004 ruler introduced sale of lands to foreigners and the tight restrictions on alcohol were loosened. Massive projects are now underway for example the Yas Island and the Ferrari theme park are under construction. The city is currently experiencing a construction boom with the Saadiyat Island and Louvre Museums that are scheduled to be opened by 2013 (Aaker 501). A devastating storm has been brewing the world’s physical coffee market especially in Middle East region (Hickman 56). This is because the firms that are responsible for the delivery of seeds are being hit by a double crisis. The soaring prices and increased margins have forces exporters and importers to take on more risks for example by abandoning hedges to avoid more financial costs. Coffee handlers have therefore been condemned for increasing their price margins which is the sum paid to maintain an open exchange relationship. The margins increased by about 150 percent for the last six months of 2010 therefore increasing the cost of evading purchases of coffee in future. According to Aaker (503) in Guatemala, which is the highest producer of high quality Arabica beans for example, the financial squeeze became unbearable in a way that export and import trade came as at a standstill. This is because most exporters declared that it was impossible for them to hedge more purchases as this would bring them losses in shipment costs. In Colombia which is the top grower of Arabica coffee, exporters were selling as fixed prices to avoid destroying the future market. The world’s biggest supplier of coffee, Brazil is increasing hedges in order to avoid losses brought about by paying for the increased margins. With the continuing rise of prices, the firms that have not hedged their positions are undergoing losses in the market. The margin squeeze of coffee is compared to the surge in oil and grain prices which led to collapse of most firms especially in 2008. Tabacek (78) shows the impact of this is being felt in smaller clubby coffee markets which have been left out when the commodity was at the boom stage. This affects the smaller local exporters who buy the beans from small farmers and sell them to big companies such as Folgers’ or Starbucks. The small amount of money got is usually not enough to maintain the position of these exporters in the market. The worry is in maintaining the position on exchange and what the position will be is not known. The Robusta Coffee Brand is a chain established in Abu Dhabi which mostly sells coffee and other beverages. This is a big trade mark registered under UAE. The brand is planning to expand its outlets and offer franchise services to fully engage in coffee retailing. Robusta has also dedicates various coffee farms and roasting factory to continuously supply beans. The beans to be supplier are to be of a superior grade of Arabica beans which grows well in balanced soil, sun, rain and moderate temperature. The Arabica coffee was named after the Arabs and it said as the most expensive of all types. The grade grows on semitropical climates for example near the equator and in both eastern and western hemispheres at high attitudes (Tabacek 431). The Arabica cherries fall down when ripe and spoil and to avoid the loss, they have to be carefully monitored. They should also be picked in intervals where the process is said to increase production costs therefore increasing the entire price of ready made coffee. It is also said that the Arabica coffee is the first to be cultivated where it was first grown in Southwest Arabia for over 1000 years. The coffee is said to be superior and is roasted by veteran roast master to perfect from the surface to the heart of the bean. According to Anderson (321) Nescafe’ is the leading instant coffee in the Middle East and has about 88 percent of market share. The producing Company which is Nestle’ is the largest food and Beverage Company in the world and it recently announced that consumption of the instant coffee has increased to about 1.3 billion cups which is a 15 percent increase in a year. The consumption of the instant coffee is said to grow due to its solubility and it is reported that consumption has grown five times since 2000. In the Middle East and especially in Abu Dhabi, the company has used various efforts in promoting the consumption of coffee. Before the introduction of instant coffee the region was mostly consuming tea and cardamom. The instant coffee is now used almost in every home today touching all senses and bringing a better mood to all. Anderson (322) shows Nescafe is appreciated since it is a hot beverage of choice especially to the young people in Abu Dhabi. Most consumers use the beverage to kick start the day and to indulge in everyday activity. Though coffee originates from the Middle East, the introduction of Nescafe was accepted just as it is. It is also consumed while spending special time for example with friends as it is 100 percent pure. It was first produced in Switzerland in 1938 after doing a research for almost seven years. This period therefore enabled the producers to collect all the necessary technologies needed in coming up with the best quality. The technologies used have also helped to introduce other new varieties of the beverage. In all the species used by the brand, the flavours and the aromas used in producing are those of the Arabica and Robusta beans. These are blend together to give the Nescafe aroma that is known by the consumers. In Abu Dhabi, coffee drinking is seen as a culture and this has also spread to various parts of the Middle East. Most consumers prefer Nescafe since it understands their drinking habits and trends. It is basically produced by blending the beans and roasting them passionately. Canning (2008) shows the flavor is then extracted from the mixture, which creates a stimulating coffee, experience which is important to the processes of the instant coffee production. The company has mostly benefited in the Abu Dhabi and the Middle East region since before creating a taste profile they first analyse the market to establish the understanding on the local consumer preference. They also analyses the latest technologies that would please their customers and this creates blend that matches the needs of the consumers. In 2002, for example the company introduced Nescafe red mug to suit the taste profile of consumers in Middle East where the beverage is mostly taken. The company also launched Nescafe my cup which is also meant to develop the product in the region (Anderson 154). The brands research and development specialists have also contributed much to improving the taste and the aroma. They have also created new ways of enjoying the coffee. This is by going out there and asking variety of consumers of what they like most in the coffee and what should be added to make it taste better. Canning (2008) shows the company also follows a stringent quality control procedure that ensures that the consistency of the product is maintained. The global coffee production on the other hand ensures that consumers all over the world enjoy the best cup of coffee. The brand is currently working on a brand meant to suit the taste preferences of its consumers in the Middle East region. Nestle market situation Demand The brand manager shows that the new product has solved the complex art of coffee brewing and that about one million sachets are sold monthly. Demand of coffee has also increased and players in the local market have increased their consumption. Nestle has dominated the global coffee market with a market share of 19 percent. This is because the brand relies on direct sales promotion of its finished Nestle coffee brand. Solomon (165) argues that the low priced sachet popular in some parts of Africa has been designed to boost the production of coffee and to retain the regional market share. The brand is now planning to expand its chains in some parts of Africa such as Angola, Mozambique, and Mauritius etc. Large companies are now targeting the mass market in order to increase their earnings and profit margins particularly from sale of low priced products. Competition Nescafe instant coffee caters for a vast number of consumers and the market is comprised of various competing brands. This reason makes the brand develop new promotion strategies for example by using different media advertisements. The brand is seen in billboards, newspapers, magazines, and even in the internet. Recently, Nescafe has been included in the online game called FLYFF where the players go on a quest and retrieve the products used in making the coffee. The player then drinks the Nescafe coffee and boosts his health and other special powers needed in the game. In its promotions, Nescafe has strategized using celebrities as the main advertisers. Some of the celebrities that have been endowed include Kim Chiu, Gerald Anderson, Toni Gonzaga and others who have made the most interesting commercials in the Television and on billboards. Harding (143) explains how the Nescafe promotions are really appealing to the hearts of the viewers and are strategized to target a certain kind of market group for example there is one where a man is surrounded by aliens and the message is that drinking Nescafe instant coffee makes someone feel at home. Most of the advertisements are also shown during the cold and rainy seasons giving a message that Nescafe coffee is the perfect drink to use during the rainy season as it stimulates the body system to build up body warmth. Distribution Nestle has been known as the most successful company in the world. This is by offering diverse products in the market for example Nescafe coffee. The brand is now at its maturity stage and is now the market leader in the instant coffee industry. The brand made a debut in the Philippines and captured the coffee market due to its huge multimedia exposure. Canning (2008) shows the promotions are conducted in prints, TV commercials and can also be heard on radio. The signature jungle is still the song used to day in advertising the brand though it has now been altered and it means that Nescafe coffee is not only drunk when in the morning to kick start the day or in the evening when one is tired. It shows that Nescafe can also be used in social places and to catch up with people and friends who have been away for a long time. It can also be used when one want to make up with a friend or spouse or for just having fun. Nescafe has a vast and diverse target market and this gives it the reason for launching various instant coffee brands to suit the needs of every target group. They have the Nescafe classic which has about 15 variants of instant coffee and they also come in different sizes to cater to cater for the low income consumers who would like to purchase in few quantities. The brand has also improved its market share by changing its packaging for example earlier they used to pack in diamond glass which acted like a drinking cup once the coffee powder was fully consumed. This packaging attracted a big number of consumers and especially families with small children who were purchasing just because of the cup. The coffee is now sold in jars and aluminum packs available in different sizes. Solomon (89) shows there is the family pack, economic pack, sulit and gift set. Nescafe instant coffee is also available in variety of flavours for example there is Nescafe classic, Nescafe decaf, Nescafe gold bland, first pick, viva vanilla, intense 3-in-1 and many more. The price of the brand depends on the flavor chosen and the size. Consumer Behavior According to Canning (2008) consumer behaviour entails the psychological processes that consumers go through in the recognition of their needs, in finding ways of resolving these needs, when making purchasing decisions, when interpreting information, when making plans and when implementing these plans. By studying consumer behaviour, firms are able to understand the psychology of how consumers think, feel, reason and select between different alternatives of brands. Consumer behaviour is also essential in the understanding of how consumers shop and make other marketing decisions. Firms are in a better position of understanding how consumer knowledge or information processing limitation impact on decisions and marketing outcome. Consumer behaviour is essential in the understanding of what motivates and helps in decision strategies between products with varying importance. The subject is more important in helping marketers to adapt and improve their marketing campaigns and marketing strategies to effectively reach the consumer. Solomon (165) describes that consumer behaviour is applied in the marketing strategy to make better marketing campaigns; in public policy, in social marketing to get ideas to consumers instead of selling something and to make people to be better consumers. One of the questions that consumers ask themselves when making decision on buying a luxury fashion brand concerns the country of origin of the brand. Thus in the study of consumer behaviour in the fashion industry there is need to consider the impact of country of origin on product choice of consumers of that particular group in order to understand which campaigns to adopt while marketing the product. The belief about a country of origin of a product has a great influence on perception of consumers about the quality and luxury associated with such a product. Thus the understanding of consumer behaviour in relation to product’s country of origin is essential when a firm is trying to market its product in the international arena. It has been necessary to investigate how the service workers consume Nescafe instant coffee. One important thing is to know how the market prioritises in drinking coffee. The research on this aims at gaining a clear understanding of customers’ perception and their experiences. Carrying Out a market research is also necessary as it helps people who would like to find their way in the instant coffee world business. Nescafe 3-in-1 is said to affect service workers in their daily consumption and mostly targets the consumers such as security guards. Brand strategies As a result of the brewing war in the instant coffee market for example with the Cerebos Australia which has taken a bold step of launching a double roasted coffee brands, the Nescafe instant coffee brand has also introduced various marketing strategies of increasing consumption of their brands. Brabeck (23) shows Riva is one of the new competitors in the market and is at its maturity stage. Nescafe has re-launched its brand and campaigns are intense through Mojo which won the Nescafe business in 2002 from McCann of Erickson. The campaigns are meant to pose a question to consumers of how they like their coffee and the objective is to getting more people drink an extra cup of coffee daily than what they have always taken. According to Anderson (90) this is estimated to increase sales by 70 million dollars since every about 94 billion Nescafe cups are sold around the world. The strategies introduced are aggressive and involves broadening consumption and taking the product direct to the consumer whenever, wherever and however they want it. The main goal of the brand is to be within arms reach whenever the consumers demand it. This can be achieved through setting up more coffee bars in shopping malls, movie theatres, and convenient stores including on campuses and stations. Nescafe is also planning to redefine the automated coffee dispenser into a gourmet delight that is more efficient and convenient. In the Asian market, the strategies include adding new ready to drink beverages and to implement more coffee shops with Nescafe as a franchising chain. 4 Ps of the marketing mix Product The product has really benefited from the increase in demand for premium coffees. This is by educating its consumers about the health benefits of the beverage therefore improving their consumption. However some reports have shown that the instant coffee market is losing it position to the ground coffee. Nescafe has continually evolved over the years therefore perfecting its flavours and aroma since the first version of the product was too simple and did not taste as well as the today’s brand. The earlier version of the brand used carbohydrates in stabilizing the product and it took some time to effectively retain the coffee flavours. In 1980s the Gold Blend flavor was launched that had a smooth rich flavor followed by Alta Rica which was a combination of grade ‘A’ coffee beans grown in Latin America (Brabeck 2001). Nowadays, various choice of coffee has been introduced such as cappuccinos, lattes and mochas. Nescafe products are about 20 of different types therefore developing the brand market in the world. This shows that there is an exclusively utilitarian consumption which has evolved from just an instant coffee to a more hedonic coffee consumption. In Middle East instant coffee drinking is seen as their culture and it is now used in friends meetings, and at home. The brand is also popular in Egypt for example people mention Nescafe when referring to any soluble coffee. Price According to Canning (2008), Nestle has promised a low cost ready mix brand of its coffee brand that will be used in entering the market. The demand of the coffee brand has significantly increased for example with the availability of small prices sachets of 15g which are mixed with sugar and cream. These small quantities allow consumers to make a cup of coffee by adding hot water and sugar. This strategy is said to help lure even the low income consumers by eliminating the need for milk and sugar. For along period, the brand has heavily relied on sales from middle and higher income consumers who have dominated the consumption of coffee but by introducing small sachets of 15g which is especially used in high end hotels and among the low income consumers. The brand has been capable of increasing its consumption in various parts of the world and especially the Sub Saharan Africa (Harding 76). Promotion In its promotion strategies the Nescafe uses market positioning where the company product are made to fit in the market and attract potential customers. Canning (2008) describes that the major elements of market positioning include pricing, quality, service, distribution channels and packaging of the products. This is a competitive strategy that enables companies attain core competency in the market. This is determined by how marketers create a good image about their products to the target market. A company may decide to reposition which involves changing the identity of the product relative to other competing products. De-positioning of products may also be used and it involves changing identity of competing products in the market in order to make it look as the identity of own products. The brand has a visual tag net that enables internet users to add any idea or give opinions about the brand and what should be done to improve the brands’ image. The concepts associated to the brand are also known for example by giving different tags by nationality. The main global concept associated with the brand is the fact that it is coffee and the second one is that because it is instant. The others following these two include the fact that it is cheap, hot and used mostly in the morning. Place Place is an important aspect in marketing since it shows how the product gets to the final consumer. This involves many distribution channels and market coverage which is inclusive, exclusive and selective marketing. The brand is also distributed to warehouses where the retailers buy and sell in their retail shops. To achieve this, transportation and inventory management have to be maintained. Hickman (98) explains that order processing should also be effective in a way that the needs of customers are maintained. The Nescafe 3-in-1 is for example distributed in warehouses and then to wholesalers and retailers. It is also bought by consumers from the warehouses to the supermarkets, convenience stores and sari-sari stores located around different countries around the world. There various establishments for selling the instant coffee in the Middle East city. According to Harding (67) these include Starbucks, McDonalds, Figaro and others. This market segment is necessary to use in an industry where there are many kinds of customers for example the instant coffee industry. These different customers become numerous. Customers may also become more distinct in the products they prefer and may also be large in numbers. Creation of market segmentation is not easy since every segment has to comply with the type of product that the customers prefer. Globalization and increased competition are major factor that makes segmentation difficult. Ecommerce also contributes to exposing customers to diverse markets. To determine a market segment, there are factors that have to be considered such as homogeneity of people. The people in the market may have similar preferences or may be different and this affects segmentation. Conclusion The Abu Dhabi market and its establishments for example with a chain of Chinese restaurants the city is also home to fast food joints such as McDonald’s or Hardees which have introduced coffee shop styles and cappuccinos in their stores. This strategy is meant to target customers who purchase fast food and at the same time want to drink. The instant coffee market is said to be increasing everyday and holds a market share of 88 percent in the Middle East and 70 percent in China. Although there are many rivals in the market as well as substitutes, the instant coffee is said to introduce new strategies in every market target meant for maintaining consumers throughout the world. The company survival has also been contributed by forming customer loyalty and by providing products according to the needs of its customers. Some factors that have made Nescafe a success in the world is by having about 200 different products under the same name and that each product has its own features which contribute to adding more value to the brand. Works cited Aaker, J. Consumption Symbols as Carriers of Culture: A Study of Japanese and Spanish Brand Personality Constructs. Journal of Personality and Social Psychology. 81. 3 (2001): 492- 508. Anderson, Scott. Nestle water ads misleading. Canada: Canada green groups. 2008. Brabeck, P. Winning and Maintaining Leadership. Zurich: Switzerland, 2001. Canning, Simon. Nescafe blend takes on green-tea market. Sydney: The Australian Business. 23 April 2008. 20 April 2011. http://www.theaustralian.news.com.au/story/ 025197, 24344985-7582, 00. html Harding, A. Inter-brand Best Global Brands, Creating and Managing Brand Value. New York: Macmillan, 2008. Hickman, Martin. Online protest drives Nestlé to environmentally friendly palm oil. London: Springer, 2010. Solomon, Michael. Consumer behavior: buying, selling, and being. 7th ed. New York: Prentice Hall, 2006. Tabacek, Kai. Nestlé uses NGO to clean up palm oil supply chain. Michigan: University of Michigan Publishers, 2010. Read More