‘We’re offering African coffee to African consumers’

Feb 20, 2015

This BBC article on a young Nigerian coffee shop, Lagos’ Café NEO, positioning itself as a new homegrown Starbucks, touched on some themes we think are pretty interesting. Café NEO already has four outlets – three in upscale parts of Lagos and a fourth in Kigali, Rwanda.

The chain itself follows a fairly standard coffee shop format: there is no obvious innovation there. In fact, it could be anywhere one finds a Starbucks. If you search for Starbucks in Nigeria, you’ll only hear about Café NEO, because Starbucks isn’t in Nigeria and the entrepreneurs behind this chain cleverly went to market telling the press they would be the Starbucks of Africa.

But it has an interesting twist in that its coffee comes from Rwanda. Another smart move, not so much because the provenance of the coffee matters much to Nigerian consumers yet, but because it brands the chain to potential investors and acquirers in a way that immediately sets it apart from the international chains that will inevitably arrive.

This is the first trend to note: Nigeria – like many markets across Africa – is a challenging place to do business, and companies can burn through valuable capital and management getting the formula right, putting the supply chain in place, finding the premises and the people and making it work. Homegrown chains like Café NEO fill a vital gap in that period between when international brands know they want to enter the market but before they are comfortable that they can scale with the ease and at the pace they want. Café NEO’s strength is not so much that it is peculiarly African, but rather that it is a successful application of a well-tested international formula. These are the businesses that primarily need incubation and funding.

The second trend to note: we’re not yet at the point, at least in the coffee market, where we have very obvious examples of retail propositions that are built around a wholly new formula – one which a consumer from Seattle or Rome would recognize as distinct from what is on offer in their cities. This is true of much of the foodservice landscape in Africa – there do exist products, services, formats and propositions that are unique to African markets. But they are rarely commercialized, formally, in the way that a chain of coffee shops is – South Africa is perhaps a notable exception.

The next wave of African foodservice brands catering to African consumers with homegrown products will start to emerge in parallel with international brands (and homegrown analogs of those international brands).

Which brings us onto our third trend: the battle between international brands, homegrown analogs of those brands (Café NEO) and more organic homegrown brands that have no analogs outside Africa. That is the real battleground, and one which will test the market insight of brands entering the market on a country by country and category by category basis. The key to understanding how and where local or international brands will prevail is not only things like lifestyle fit and the resonance of marketing campaigns but more fundamentally whether consumers buy into the premium narrative and how pricing strategy manages the challenge of supporting the premium narrative while remaining within reach.

A tricky task – not least because almost everything you read about the size and structure of the middle class is wrong.

 

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