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30 Jun
2020

IBISWorld Industry Report H4511b

Category:ACADEMICIAN

SOLUTION AT Australian Expert Writers

Perfect pour: Australia’s vibrant coffee culturehas awoken industry revenueThis report was provided toUniversity of the Sunshine Coast (2133642413)by IBISWorld on 20 July 2019 in accordance with their licence agreement with IBISWorldIBISWorld Industry Report H4511bCafes and Coffee Shopsin AustraliaMay 2019 Bao Vuong2 About this Industry2 Industry Definition2 Main Activities2 Similar Industries2 Additional Resources3 IndustryataGlance4 Industry Performance11 Products and Services12 Demand Determinants13 Major Markets14 International Trade15 Business Locations17 CompetitiveLandscape17 MarketShareConcentration17 Key Success Factors22 Operating Conditions22 Capital Intensity23 Technology andSystems23 Revenue Volatility24 Regulation andPolicy25 Industry Assistance26 Key Statistics26 Industry Data11 Products andMarkets11 Supply Chain21 MajorCompanies21 Retail Food Group Limitedwww.ibisworld.com.au | (03) 9655 3881 | info@ibisworld.com4 Executive Summary 17 Cost Structure Benchmarks 26 Annual Change4 Key External Drivers 19 Basis of Competition 26 Key Ratios5 Current Performance 20 Barriers to Entry7 Industry Outlook 20 Industry Globalization 27 Jargon & Glossary9 Industry Life CycleProvided to: University of the Sunshine Coast (2133642413) | 20 July 2019SOURCE: WWW.IBISWORLD.COM.AUWWW.IBISWORLD.COM.AU Cafes and Coffee Shops in AustraliaMay2019 3Revenue vs. employment growth Realhousehold discretionary income15 610 42500-2-5Year 11Revenue13 15 17 19 21Employment23 25-4Year 14 16 18 20 22 24 26SOURCE: WWW.IBISWORLD.COM.AUEstablishments6.2%2.4%0.6%TAS NT 1.7%SA ACT8.8%WA33.3%NSW18.0%QLD29.0%VICSOURCE: WWW.IBISWORLD.COM.AUKey External DriversReal householddiscretionary incomeExpenditure onrecreation and cultureDemand from restaurantsConsumersentiment indexp. 4Market ShareThere are no majorplayers in thisindustryp. 21$9.9bnProfit2.5%Wages1.7%20,781Industry at a GlanceCafes and Coffee Shops in 2018-19Key StatisticsSnapshotRevenue$465.2mAnnual Growth14–19$2.4bnAnnual Growth 19–24BusinessesIndustry Structure LifeCycleStage MatureRevenue Volatility LowCapitalIntensity LowIndustryAssistance LowConcentration Level LowRegulation Level MediumTechnologyChange LowBarrierstoEntry LowIndustry Globalisation LowCompetition Level HighFOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 26% change% changeProvided to: University of the Sunshine Coast (2133642413) | 20 July 2019WWW.IBISWORLD.COM.AU Cafes and Coffee Shops in AustraliaMay2019 4Industry PerformanceExecutive Summary | Key External Drivers | Current PerformanceIndustry Outlook | Life Cycle StageExecutiveSummary Revenue for the Cafes and Coffee Shopsindustry has grown moderately over thepast five years, supported by Australia’svibrant coffee culture. Industry revenueis expected to grow at an annualised 2.5%over the five years through 2018-19, to$9.9 billion. This trend includesanticipated growth of 1.3% in the currentyear. Despite the industry’s positiverevenue performance over the past fiveyears, competitive pressures have pushedprofitability down over the period.Australia’s coffee culture and itsgrowing number of speciality cafes andcoffee shops have contributed to highindustry competition, low barriers toentry and low industry concentration. Anindustry establishment’s customerservice, the price and quality of itsproducts, and the overall cafe experiencelargely determine its success. Coffeequality is crucial, with the coffee brand,texture, temperature, milk and evencrema in an espresso becomingincreasingly important to customers.Industry players that can understand andcater to specific characteristics ofconsumer demand are more likely to besuccessful. However, some industrybusinesses have found this requirementchallenging. Strong demand for coffeehas led to an influx of new operators,with many artisan bakeries andpatisseries establishing cafe operationsover the past five years.Industry revenue is projected tocontinue growing over the next fiveyears. However, this growth isanticipated to slow as the industryreaches saturation. Consumer demandfor high-quality, convenient food andbeverages is anticipated to supportstrong sales of other cafe products. As aresult, industry operators are anticipatedto focus on premium ingredients andgourmet cafe-style meals in an effort toboost sales of higher margin products.Ongoing consumer interest in health andethical consumerism will likely alsosupport profit margins. However,significant industry fragmentation willfuel intense competition, which isanticipated to cause profitability tocontinue declining over the next fiveyears. Overall, industry revenue isforecast to increase at an annualised1.7% over the five years through 2023-24, to $10.8 billion.KeyExternalDrivers Real household discretionary incomeChanges in real household discretionaryincomes directly affect the industry. Asthe industry’s products are discretionary,higher discretionary incomes enablesconsumers to allocate more moneytowards industry products. Conversely, adecline in discretionary incomes tends toreduce consumer spending capacity,placing pressure on industry revenue.SOURCE: WWW.IBISWORLD.COM.AU80Year 12 14 16 18 20 22 24 26-4Year 14 16 18 20 22 24 26100900-2130120211046 140Realhousehold discretionary income Expenditure on recreation and culture% change$billionProvided to: University of the Sunshine Coast (2133642413) | 20 July 2019WWW.IBISWORLD.COM.AU Cafes and Coffee Shops in AustraliaMay2019 5Industry PerformanceKey ExternalDriverscontinuedHowever, the coffee segment is moreresistant to changes in discretionaryincome, as many consumers perceivecoffee to be an affordable luxury.Discretionary incomes are expected toincrease in 2018-19, providing anopportunity for industry revenue to grow.Expenditure on recreation and cultureCafes are becoming increasingly popularas places for consumers to spend theirleisure time, or to enjoy as part of otherleisure activities. Therefore, increasingexpenditure on recreation and culturesupports industry revenue growth.However, cafes must still compete withentertainment activities, and otherleisure and recreational pursuits for ashare of discretionary householdexpenditure. Expenditure on recreationand culture is expected to rise in 2018-19.Demand fromrestaurantsRestaurants represent a significantsource of competition for industryestablishments. In many circumstances,restaurants are a direct substitute forcafes and coffee shops. Rising demandfor restaurants can place downwardpressure on demand for coffee shops andcafes. Demand from restaurants isexpected to increase in 2018-19, posing athreat to industry revenue.Consumer sentiment indexThe consumer sentiment indexmeasures how people feel about theircurrent financial situation and widereconomic conditions. When consumersentiment is positive, consumers tend tobe more willing to spend theirdisposable incomes. However, whenconsumer sentiment is negative,consumers tend to curb spending onnon-essential items, such as coffees andmuffins. Consumer sentiment isexpected to decline, but remain positivein 2018-19.CurrentPerformanceAustralia’s robust coffee culture hasdriven the success of the Cafes and CoffeeShops industry over the past five years.Industry operators have benefited fromAustralia’s love of quality coffee, whichhas supported revenue growth over theperiod. Industry revenue is expected togrow at an annualised 2.5% over the fiveyears through 2018-19, to $9.9 billion.This trend includes anticipated growth of1.3% in the current year, as consumerscontinue to seek out high-quality coffee.Resilient consumer demand forhigh-quality and convenient food anddrinks has fuelled the industry’s success.While spending on cafe and coffee shopsis discretionary, many consumersconsider coffee an affordable luxury.Therefore, consumers are often unwillingto forgo their daily coffee. This trendprovides a stable underlying revenuebase for the industry. Increased interestin fair trade and organic coffee and anemphasis on premium-quality food havealso supported industry revenue growthover the past five years.Positivetrends Increases in family and workcommitments have driven demand forindustry products over the past fiveyears.Many consumers are living busierlifestyles, leading to greater demand forfast and convenient food and diningoptions. Cafes and coffee shops havebenefited from this trend, providingmoreon-the-go items and focusing on fast,efficient service. Other industries in thehospitality sector have also benefitedfrom this trend, with demand increasingfor fast food operators and restaurantsover the past five years. As a result,industry operators have faced greatercompetition for customers as otherhospitality industries have sought alarger share of the cafe market.Australia’s strong coffee culture hassupported food sales at cafes and coffeeWWW.IBISWORLD.COM.AU Cafes and Coffee Shops in AustraliaMay2019 6Provided to: University of the Sunshine Coast (2133642413) | 20 July 2019Industry PerformancePositive trendscontinuedshops as many consumers purchasemeals or snacks with their coffee. As aresult, food sold by cafes and coffeeshopshas increased as a share of industryrevenue over the past five years.Trends favouring premium food havebeen reflected in the changing productsoffered by cafes and coffee shops over thepast five years. Many industry operatorshave repositioned their businesses totarget more discerning customers. Menushave changed dramatically as basicsnacks and breakfast items have beenreplaced with gourmet equivalents. Thistrend has provided strong support forindustry revenue as operators havepursued higher margins.Artisan bakeries and patisseries haveincreasingly sought to repositionthemselves as cafes, encouraged by solidrevenue growth and the profitability ofcoffee sales in the Cafes and CoffeeShops industry over the past five years.These new industry entrants have aimedto sell coffee alongside a range ofgourmet pastries, which hasdramatically improved the quality of theindustry’s food offerings. This trend hascontributed to growth in industryenterprise numbers as businesses haveadded profitable coffee services andseating to their core operations.Industry employment numbers havealso risen, particularly for part-timeworkers, to help operators cope withincreasing demand.Profitability Industry profitability has declined overthe past five years as strong competitionhas restricted margins. However, soliddemand has limited these falls. The worldprice of coffee fell sharply in 2014-15 afterreaching a peak in the previous year. Anoversupply in coffee in 2017-18 also led toa sharp decline in the world price of coffeein that year. These price declines havehelped ease pressure on profit. Weatherconditions in the world’s primary growingareas can affect coffee prices, causingmargins on coffee sales to bevolatile.Some industry operators havestruggled to maintain profit margins in afiercely competitive environment overthepast five years. Many establishments,particularly basic coffee shops, tend tocompete on price due to the industry’shighly fragmented nature. Coffee’s lowcost and largely homogeneous natureallow consumers to easily switch betweencafes. As a result, operators have beenforced to maintain competitive prices,despite changing costs. This trend hascaused many operators to implementstricter cost controls by minimisingwastage. Trends favouring premiumquality food have also supported marginsover the past five years, despiteprofitability declining.Coffee culture Australia’s vibrant coffee culture is a keyfactor in the industry’s success. Coffeeisgenerally considered an affordableluxuryand a daily ritual for some people. Anemphasis on quality across the industryhas led to independent coffee housesgrowing at a faster rate than coffeechains. Additionally, demand for qualitycoffee has boosted demand for rareblends, fair trade coffee and organiccoffee. Industry operators can charge apremium price on all of these products.Australia’s strong coffee culture hassupported higher industry revenue andsustained demand for cafes and coffeeshops over the past five years.Some operators havestruggled to maintainprofit margins in a fiercelycompetitive environmentWWW.IBISWORLD.COM.AU Cafes and Coffee Shops in AustraliaMay2019 7Provided to: University of the Sunshine Coast (2133642413) | 20 July 2019Industry PerformanceIndustryOutlookThe Cafes and Coffee Shops industry isprojected to continue growing over thefive years through 2023-24, asAustralians continue to value qualitycoffee. However, industry revenue isprojected to grow at a slower ratecompared with the previous five-yearperiod, as the industry reachessaturation. Consumer demand forhigh-quality coffee and convenient foodproducts is anticipated to underpinrevenue growth. Industry revenue isforecast to increase at an annualised 1.7%over the five years through 2023-24, to$10.8 billion. Trends in healthconsciousness, premium foods andethical consumerism are projected todrive this revenue growth. Theprevalence of small, specialty operatorsand intense competition will continue toaffect the industry, requiring participantsto achieve greater operating efficiencies.High demand for coffee and theaffordability of most industry productsare anticipated to support industryrevenue growth over the next five years.Rising discretionary incomes areanticipated to encourage further industryrevenue growth as households continueto spend on discretionary products suchas coffee, snacks and meals from cafesand coffee shops. Increasing demand willlikely support growth in industryenterprise numbers over the period,albeit at a slower rate than the previousfive-year period due to competitivepressures. Industry employmentnumbers are also projected to grow overthe next five years, due to an emphasisonquality service. However, some industryoperators will likely limit employmentgrowth to control wage costs and supportprofit margins. Trends favouring smallerestablishments could also limitemployment growth. Despite operatorsreducing staff hours through hiring morecasual employees, the industry willremain highly labour-intensive. Thistrend will likely lead operators to seekgreater cost savings elsewhere.Convenience Consumers are anticipated to spend moreon eating out over the next five years,which benefits industry operators.Demand for convenient food andbeverages will likely help drive industrydemand, as many consumers are livingincreasingly busy lives. Consequently,cafes are anticipated to provide a widerrange of fast and convenient meals,particularly catering to lunchtime traffic.Cafes are anticipated to take somemarket share from restaurants as manyconsumers move away from formaldining, towards more convenient cafestyle meals and snacks. The quality offood served by many cafes is anticipatedto rise, encouraging more consumers toeat at industry establishments ratherthan traditional restaurants. Manyrestaurants are anticipated to expandtheir cafe-style operations in an effort towin back customers, resulting in strongcompetition for industry operators.Consumer demand for healthy andpremium food and beverages is projectedto also support the industry’sperformance. Cafes offering diversemenus that emphasise fresh and premiumingredients are anticipated to be the bestperformers, as discerning consumerssearch for quality. The industry’s focus onquality will be particularly intense forIndustry revenue6 4 2 0-2Year 11 13 15 17 19 21 23 25SOURCE: WWW.IBISWORLD.COM.AU% changeWWW.IBISWORLD.COM.AU Cafes and Coffee Shops in AustraliaMay2019 8Provided to: University of the Sunshine Coast (2133642413) | 20 July 2019Industry PerformanceConveniencecontinuedcoffee products as coffee enthusiastsbecome increasingly discerning.Consumers can easily access reviewwebsites, such as Zomato, to rate cafes fortheir quality and service. This trend isanticipated to encourage operators toallocate funds to higher quality coffeeblends and premium ingredients in meals.Competition Small and specialised operators areanticipated to remain popular over thenext five years. Franchised operations willlikely struggle, as consumers generallyassociate quality, ambience andexperience with smaller independentcafes. Consequently, the industry willlikely remain highly fragmented, withlarger chains struggling to expand theirmarket share. Operators will seek todifferentiate themselves to drive sales,with competition focusing on price andquality. Industry operators will need tocontrol expenses to support profitmargins, as price competition tends tolimit revenue growth and demand forquality products causes costs to rise. Manyindustry operators will seek to minimisewage and purchase costs, and reducewastage. Efforts to increase profit will alsoresult in a stronger focus on highermarginproducts. Demand for coffee is anticipatedto remain solid, with cafes focusing onselling quality meals and enhancedbreakfast and lunch offerings. Despite thistrend, strong competition is projected tocause profit margins to fall slightly overthe next five years.Opportunities Niche markets will provide opportunitiesfor industry operators over the next fiveyears, with ethical consumerism trendsbeing particularly prominent. Manyindustry players will promote theirethical business practices by using fairtrade coffee and food products. Fair tradeproducts aim to ensure that multinationalcorporations are not exploiting coffeegrowers and food producers in thedeveloping world. Fair trade growers andfarmers typically have better workingconditions, obtain higher prices for theirproduct and receive education aboutsustainable agricultural practices.Ethically sourced products areanticipated to become increasinglypopular and attract premium prices asconsumers become more concernedabout food and beverage origin. Thistrend is anticipated to support industryrevenue growth over the next five years.WWW.IBISWORLD.COM.AU Cafes and Coffee Shops in AustraliaMay2019 9Provided to: University of the Sunshine Coast (2133642413) | 20 July 2019Industry Performance
LifeCycleStage
Industry value added is growing at aslower pace than the overall economy
Enterprise numbers have increasedover the past five yearsTechnology improvements are improving efficiencyWWW.IBISWORLD.COM.AU Cafes and Coffee Shops in AustraliaMay2019 10Provided to: University of the Sunshine Coast (2133642413) | 20 July 2019Industry PerformanceIndustryLifeCycle The Cafes and Coffee Shops industry iscurrently in the mature stage of its lifecycle. Industry value added, a measure ofthe industry’s contribution to the overalleconomy, is projected to grow at anannualised 2.2% over the 10 yearsthrough 2023-24. This represents anunderperformance relative to theeconomy, with GDP forecast to grow atan annualised 2.6% over the same period.The industry’s slower growth is typical ofa mature industry.The industry’s low rate oftechnological change, which has largelyfocused on efficiency gains, supports theindustry’s mature life cycle. The industryhas also turned to technology formarketing and promotion, withoperators cultivating a strong onlinepresence through company websites andsocial media. Online review websites,such as Zomato, have also changed theoperating landscape. Consumers areincreasingly using online sources tochoose cafes, with the ability to quicklyaccess information such as operatinghours, prices, menus and reviews.Industry establishment numbers haverisen over the past five years, supportedby strong demand for coffee. The numberof industry products has also increasedover the same period. Industry operatorshave opportunities to capitalise on newconsumer preferences. Organic productsand fair-trade coffee are becoming morewidespread, driven by trends in healthconsciousness, ethical consumerism andan increased focus on productprovenance. Industry operators cancharge a premium for these products asconsumers become more concerned withethical sourcing.This industryis MatureWWW.IBISWORLD.COM.AU Cafes and Coffee Shops in AustraliaMay2019 11Provided to: University of the Sunshine Coast (2133642413) | 20 July 2019
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