1. Domestic Consumption of Coffee has been growing fast in Indonesia – despite the recent fall in exports

Indonesia’s domestic coffee consumption has been increasing in the last few years. Domestic consumption accounted for almost half of coffee production in 2020 versus less-than a third in 2017. A good part of this growth has been driven by the increasing adoption of the coffee-shop culture, in our view.

As per our study > 80% consumers follow a morning coffee ritual and ~75% consumers prefer drinking coffee during work. On average, a coffee drinker consumes ~3 cups/day during the week and ~4.5 cups during weekends.

Note: Assumption – 8 gms of coffee is consumed per cup

2. The market comprises of different types of stores – all of which faced the COVID headwind with varying intensity levels… 

Indonesian Café market has wide range of offerings to cater to the needs of diverse set of consumers coming from different age and income demographics. All these different channels bore the brunt of the pandemic, which affected their revenues and earnings. Consumer preferences too changed massively given the circumstances, which led to decreased preference for Dine-in stores and Street vendors while Delivery and Grab-and-Go channels became popular.

Indonesian café market structure

Note : Cost for two includes cost of food items consumed along with coffee

3. …but the market rebounded in Q3-Q4 reaching Pre COVID levels enabled by timeline supply side initiatives…

The coffee shop culture took a massive hit due to the lockdowns. Players were forced to shut majority of their dine in stores as fixed costs began to bite. New Age players were relatively more agile and adapted quickly to the consumer preferences. These players increased their focus on the Grab-and-Go and Delivery channels. Legacy players also added delivery and Grab-and-Go capabilities to their existing stores.

We noticed that most players benefited by introducing Grab-and-Go stores/facilities at their existing outlets. However, the New Age players were able to make disproportionate gains. They acquired new customers and built a loyal base. Directionally, we see the New Age players cornering a higher share of domestic coffee consumption pie. Hence, it’s no wonder that players like Flash Coffee want to scale up in Indonesia and the rest of the region.

Indonesia café market- Pre-COVID vs 2020, Q-o-Q recovery curve

Key Supply Side initiatives

Note: The list is not exhaustive

4. …catering effectively to the changing consumer preferences

With the Lockdowns in place, consumers switched to making coffee on their own which led to a higher preference for at-home coffee consumption in the first two quarters of 2020.
But both New Age and Legacy players were quick to introduce RTDs and DIY Coffee sachets by the end of Q2 to deliver consumers their favorite coffee in a compact and consumer friendly pack keeping in mind the concerns around safety. As a result, the NPS scores of some of these agile Coffee chain operators showed a sharp improvement during the last four quarters.