by Reg Butler

In the early 1990s, the political changes in Central and Eastern Europe opened up the prospect of a fast-expanding coffee market. Many optimistic projections were made for the medium- and long-term opportunities in these markets.

These prophecies were mainly based on the actual and the potential coffee consumption per capita. At the time, average consumption per head in Poland, Hungary, and the Czech and Slovak Republics was around 2 kilos per year. In contrast, the Scandinavians were consuming 10.7 kilos, while the populations of Germany, Benelux, France, Switzerland, and Austria averaged 7.9 kilos.

Western coffee companies reasoned that, with the opening up of trade barriers, a free market in Central Europe would see a dramatic rise in consumption patterns. Surely, they reckoned, within a few years the citizens of Warsaw, Prague, Bratislava, and Budapest would be reaching towards the consumption levels of their Western European neighbors?

Hence came the heady expectation of a coffee market that could expand at the very minimum 10% a year. There was another great temptation for producers of Western coffee brands. In general, the local coffee products in 1990 were of inferior quality, heavy on Robustas - surely the newly-freed markets would be wide open for the higher qualities available in the West.

Industry observers in Vienna could see for themselves in the early 1990s that thousands of Czechs, Slovaks, and Hungarians poured across the border every day, seeking out the coffee-buying opportunities rather than the Austrian capital's cultural sightseeing treasures. Just look at the historical statistics. In Austria, during the difficult early postwar years under four-power occupation, the average coffee consumption was only 0.6 kilos per head annually. By the 1960s, consumption was still below 2 kilos - the same level as the Eastern European neighbors in 1990. Yet, by 1990 the consumption in Austria had apparently risen to the high point of 11.6 kilos per year. The explanation is that around 30% of Austrian production of roasted coffee was being carried away across the borders by day-trip shoppers from Hungary and Czechoslovakia. In fact, the true consumption per capita in Austria was 8.0 kilos (where it stands today), while 3.6 kilos per head disappeared in baggage trade over the frontier, without entering into the official import-export figures.

Bearing in mind that Austria is almost entirely pure Arabica country, the obvious conclusion was that consumers behind the former Iron Curtain were yearning for more coffee as well as better grades.

In practice, the intervening decade has seen only a slow increase in total consumption. In 1992, the estimated market total for Poland, Hungary, and the Czech Republic was 93,500 tons of roasted coffee. Presently, it may be around 115,000 tons. A consumption increase of some 23% in 10 years is nowhere near the glowing expectations of merchants in 1991.

The main explanation is that the financial means for buying the luxury product coffee have been restricted by the gradual withdrawal of subsidies on basic food, rents, and energy. In turn this led to price wars with resultant decline in average coffee quality. The problem of declining quality is that consumers then start choosing other hot beverages or soft drinks as alternatives to coffee.

However, one point stands out: although the overall volume development has been disappointing, the principal international companies - Douwe Egberts, Jacobs, and Tchibo with Eduscho - have established a dominant market share in Hungary and the Czech Republic, and have captured about one-half of the Polish coffee markets. However, the anticipated fast payback of the initial investment has not materialized.

The market leader in all three countries is Tchibo. After the big political changes in eastern and central Europe a decade ago, and the opening of the market, Tchibo immediately became active in the region. Despite difficult and unfamiliar market conditions, Tchibo soon established a foothold and reached a powerful market position.

In Hungary, Tchibo/Eduscho is today the market leader with a 39% market share, closely followed by Douwe Egberts, and with Jacobs in third position. It is the same in the Czech Republic, with 24% of the market held by Tchibo, and again followed by Douwe Egberts and Jacobs. In Poland, Tchibo has 21% of the market, followed by Jacobs. Tchibo also has a lead position among multinationals in the Slovak Republic with 16% market share.

The success of this entry into the former Iron Curtain countries shows in Tchibo's trading statistics. In 1992 around 10,000 tons of roast coffee was sold by Tchibo in central Europe, rising to 20,000 tons by 1995. In 1998 the volume rose to 28,000 tons, and about 32,000 tons in 1999. Some of that recent increase was due to the buy-out of Eduscho in 1997, as Eduscho's sales had been particularly strong in Hungary.

Total sales by the German company in the Eastern block reached 420 million D-marks (US $200 million) in 1998. To reach that successful level of market penetration, Tchibo had invested 150 million marks (US $72m), and has engaged a workforce of 1,100 employees.

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