1.

Introduction to the industry

Coffee is one of the world’s most popular beverages, marking its position as the third-most
consumed drink in the world, surpassed only by water and Tea. Coffee made its way from
Ethiopia and the Sudan into Yemen and Arabia, most likely carried by slaves. It was in Yemen
that farmers began to cultivate coffee trees, and the cultivation and sale of coffee beans from
Yemen, through the port of Mocha, was well-established by the 1500s.

In Sri Lanka, most famous beverage has been tea since 1880s as a result of tea being one of the
largest income generators from the export business. Coffee is also famous but tea has been
prominent in the market. Tea being the most famous beverage, Sri Lanka has more number of
coffee shops than tea shops as coffee shops has provided a high social status level for those who
visit those shops. Coffee was 'King' over a century ago till the blight wiped it out and made way
for Tea which dominated Sri Lanka's economy ever since. But over the .past few years coffee has
emerged as one of Sri Lanka's important Traditional export crops. From exports of only 132,100
kgs in 1973 coffee exports registered sustained increases over the next ten years to reach a record
3,124,400 kgs liy 1983. The acreage under coffee has also shown consistent expansion and is
estimated to be well over 30,000 acres today. The latest International Coffee Agreement which
came into force in October 1983 has defined quotas for producer countries, including Sri Lanka,
containing the unmitigated expansion of coffee acreage for exports.

2. Introduction to the company

Global Happiness (Pvt) Ltd. is a newly formed company targeting on Tea and Coffee business as
strategic investments. After a careful evaluation, Global Happiness has decided to go ahead with
the coffee business first.

2. Task 1 – Market Environment Audit

2.1 Micro Factors influencing the business

2.1.1 Consumer Analysis

Sri Lankan beverage market is led by tea. Being a tea manufacturing country for more than two
centuries, Sri Lankan consumer has been used to drink tea as a daily beverage. Compared to tea,
the consumption of Coffee is low but every household’s shopping list includes coffee as a
necessity because although people consume tea as the main beverage, coffee is also consumed as
a secondary beverage. Coffee is most of the times consumed with milk in Sri Lanka and plain
coffee is also preferred by the consumers at different climate conditions. Still tea takes a bigger
portion of the shopping basket of a typical Sri Lanka

According to below shown table, nearly 85% of local tea distribution takes place through
supermarkets, groceries and other stores while only 5% is delivered through Coffee shops.

Type Percentage
 Supermarkets 25 %
 Grocery retailing 30%

 Convenience stores 30%

 Coffee Shops 5%
10%
 Other

As per the table shown below, tea consumption in Sri Lanka is higher than the other beverages
while domestic consumption of tea in Sri Lanka stands at 28.9 metric kgs as per the data as at
2016. But when it comes to value growth we can see that contribution from tea is the lowest out
of the other popular beverages.

Item Share of throat Value growth

Tea 26.5% 9%
Coffee 2.5% 22%
Malt 15.5% 23%
Soft drinks 36.0% 23%
Other 19.5% 43%

2.1.2 Market Competition

There are many local and imported coffee brands in Sri Lanka. These brands are price at
different price points to show different values of the respective brands. As an example “Lavazza”
coffee brand is high priced due to the premium level of product that they offer where as
“Harischandra”, a Sri Lankan and a locally manufactured coffee brand is low priced. Below are
the coffee brands available in Sri Lanka including both local and imported coffee brands.
  Harischandra
 Island
 Nescafe
 Bru
 Lavazza

Apart from the above mentioned local coffee brands where people purchase, go home and
consumer, there are coffee shops that provide luxurious atmosphere and suitable for hanging out
with friends mostly at a higher cost than consuming coffee at home. Some of the coffee shops are
given below.

 Coffee Bean & Tea Leaf 

 Barista Lavazza
 Commons Coffee House
 Java Lounge   
 Cafe Pasucci 

2.1.3 Existing Channel Distribution mechanism

The locally operated coffee brands are often following the extensive distribution strategy where
brands are available in every shop, that makes sure the products are available at a mass scale.
Products are manufactured, marketed and distributed by the company itself.

2.2 Macro factors influencing the industry

2.2.1 Economic condition affecting the industry

Sri Lankan economy is not behaving in favor of any business in any industry these days.
Inflation has been increased along with the downturn in economic growth. The GDP growth rate
of 7% in mid-2015 has come down to 3% in mid-2018. Cost of living of the people has been
increased while the income of the people has not been increases, resulting in low disposable
income. In a situation like this, consumers always try to limit their consumption by cutting down
non-essential items in the shopping basket and coffee could be one of it as tea is an essential item
in any consumer’s shopping list.

2.2.2 Social and cultural impact on the industry

The coffee market must adapt to change in consumer attitudes or else it may be threatened by
health and lifestyle issues. Youth are becoming more health conscious which makes coffee a
less attractive choice as the increasing numbers of alternatives available such as health and
energy drinks are becoming competitors in the coffee industry. Therefore higher focus should be
given to promoting health benefits of coffee.

2.2.3 Ecological parameters

Coffee is a drink that people believe as a good solution for cold weather. They believe that coffee
fades the cold whether away when they have a cup of coffee so there can be a cyclical impact on
coffee sales in rainy season.
3. Understanding the consumer market

Segm Demographic Geography Behavioral

ent Age Income Occupation Life Style
1 Below 14 Depend on Students Playful, Urban  Seeking taste
parents enjoyable  Giving
priority for
parents
choices
2 Below 14- Depend on O/L and Playful, Urban  Seeking for
19 parents A/L enjoyable, Suburban new
Students fashionable experience
Care free  Price
sensitive

3 20-25 Less than Undergradu Busy Urban,  Price

50000 ates Fashionabl Suburban sensitive,
Interns e  Not brand
(mainly Jr. Trendy loyal might
depend on executives sporty switch to
parents) Trainees Energetic competitor
products
 Limited
usage
4 26-35 50,000- Managerial Busy, Urban,  Freedom
150,000 positions fashionable Suburban expectation
Ambitious  Hard core
Married loyal

36-50 150,000 + Corporate Busy Urban  Hard core

executives Married loyal
with kids  Product
 involvement
5 50 -65 Retired or Top Wants to Urban  Loyal
very high Managemen get away
salary t from busy
life
6 Above 65 Pension, Retried Calm and Urban  Hardly visits
EPF ETF patient, other than
engage loyal
with customers
religious
and family
activities

4. Summarized SWOT analysis

Strengths
  Government has focused more on providing financial and tax benefit support to
plantation related sectors with the intention of increasing exports
 Plantation related sectors still has access to cheap labour in Sri Lanka so the
manufacturing cost could be reduced.
 Sri Lanka has earned a reputation for planting tea and coffee for a long period of time.

Weaknesses

 It is questionable whether the new company has enough experience in coffee business.

Opportunities

 Sri Lankan consumers prefer hot beverages like tea and coffee

Threats

 Threats coming from multinational brands

 Unfavorable weather conditions

References

Central Bank Report 2018

https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/statistics/otherpub/economic_and
_social_statistics_of_SL_2018_e_0.pdf

http://www.sundaytimes.lk/130512/business-times/sri-lankans-are-we-tea-or-coffee-drinkers-
43625.html

http://www.ico.org/about_statistics.asp

https://worldteanews.com/tea-industry-news-and-features/tea-consumption