Nescafé is banking on Brazil’s evolving coffee consumption

coffee investment brazil
  • Nestlé just announced a $196.5 million investment in Brazil’s coffee market
  • This aims to capitalise on the country’s evolving coffee consumption, growing middle class, and Gen Z consumer demand
  • An uptick in internal consumption in Brazil would have implications for the global market

NESTLÉ’S NESCAFÉ brand is making strategic moves in Brazil to capitalise on the country’s evolving coffee consumption trends. The world’s largest coffee producer and exporter has also now maintained its position as the world’s second largest coffee consumer.

The Swiss giant recently announced a substantial investment of $196.5 million by 2026 to expand production capacity – aiming for a 50% increase in the next two years – and bolster out-of-home sales of its Nescafé lines, with a particular focus on attracting younger consumers. 

The Brazilian Coffee Industry Association (ABIC)’s latest report estimates a slight drop of 2.78% in Brazil’s 2023 coffee industry sales compared to 2022. While specialty product prices are rising, all other segments’ prices are decreasing. Nestlé’s investment could possibly be to counter this by doubling down on consumer products, and especially the higher quality ones targeting Gen Z.

While Nescafé has targeted at-home coffee consumption with its espresso concentrate product in China and Australia, the brand’s strategy in Brazil seems geared towards the out-of-home coffee market through business-to-business (B2B) solutions.

This decision reflects Nestlé’s recognition of the country’s growing coffee culture and the increasing demand for coffee solutions in cafes, restaurants, and other out-of-home settings. This is a direct result of Brazil’s growing middle class.

Louis Dreyfus Company has also made investments in Brazil, with its recent acquisition of Cacique, a prominent Brazilian instant coffee exporter – aiming amongst other things to tap into the country’s strong internal coffee market. By investing heavily in Brazil, Nestlé aims to strengthen its presence in the market and establish Nescafé as a preferred choice for on-the-go coffee experiences.

“I believe that Nescafé is focusing on consumers who already enjoy their products at home, extending that experience to out-of-home consumption, thereby leveraging its growth. They have positioned themselves by developing new products with a focus on origin and sustainability, bringing this closer to the consumer”, says Caio Alonso Fontes, co-founder of Espresso&CO in Brazil.

“Brazil is an emerging market with high growth and consumption potential, and presents an excellent opportunity. Part of the investment will be directed towards their production area, including the flexibilisation of lines for the manufacture of different types of products, aromas, and new flavours, as well as initiatives to ensure the sustainability of processes.”

Gen Z is leading Brazil’s changing coffee consumption

Nestlé reports that individuals between the ages of 16 and 24 are leading the surge in higher quality coffee consumption, with growth rates ten times higher compared to other consumer groups. 

Young Brazilians are embracing a diverse range of products, from specialty brews to flavoured coffees and cold options, reflecting a departure from traditional coffee consumption habits. 

Their openness to experimentation, interest in coffee culture, and affinity for on-the-go consumption suggest that they will consume more coffee than previous generations. In fact, according to ABIC, per capita consumption increased by 7.47% from November 2022 to October 2023 compared to the previous period. 

The allure of coffee as a social beverage, energy booster, and lifestyle choice is driving increased coffee consumption among young Brazilians. Teenagers showcasing their TikTok coffee “recipes” has become something of a national phenomenon, and Nestlé aims to ride this wave by getting recipe mentions.

“There is a rapidly growing market of younger consumers in Brazil willing to buy and taste more premium, innovative, practical coffee beverages,” says Caio.

While Brazil’s coffee consumption is exploding, it still remains an emerging coffee market – meaning that trends are not necessarily aligned with other more historically established consumption markets, like the US and Europe. The third wave of coffee hit much later in Brazil, and is still going on.

ABIC finds that the average price of specialty coffees increased by 3.15% between January and December 2023. In contrast, the ‘gourmet’ (premium) ‘traditional’ and capsule segments experienced drops in the range of 7-11%.

“What sets young coffee consumers apart from previous generations is their experimental nature and enjoyment of diverse flavours driven by social pleasure,” says Caio. “They favour coffee shops and complex beverages, value brand experiences, and are more conscious about sustainability. Older consumers, on the other hand, prioritise convenience, often consuming coffee as a routine for alertness at home or work using simpler methods.”

What are the implications for the global coffee market?

An uptick in internal coffee consumption in Brazil could lead to increased domestic demand for coffee, potentially putting upward pressure on prices within the country. 

With Nescafé’s investment aimed at expanding its presence and production capacity in Brazil, the heightened competition for coffee beans domestically may contribute to a rise in coffee prices, benefiting local coffee growers and suppliers in the short term.

However, the extent of the impact on Brazilian coffee prices will also be influenced by factors such as production levels, weather conditions, currency fluctuations, and global market dynamics. While increased internal consumption may support coffee prices, other variables in the supply chain and market forces will also play a role in determining price movements.

Nestlé estimates that Nescafé sales in Brazil’s retail market are expected to grow by up to 15% per year over four years, outpacing the 5% to 6% growth it forecasts for that market in general.

With Nescafé’s investment signalling a focus on the Brazilian market, other coffee companies and competitors may also ramp up their activities in Brazil to capture a share of the growing domestic demand. This increased competition could impact pricing strategies and market dynamics within Brazil and potentially spill over into the global coffee market.

If domestic consumption outpaces production levels, there may be reduced availability of Brazilian coffee for export, influencing global supply levels and prices and price volatility in the global coffee market. 

Nescafé’s substantial investment in Brazil reflects its confidence in the growth potential of the Brazilian coffee market. 

Coffee-importing countries and international traders will need to monitor associated developments closely to adapt to changing market conditions and ensure supply chain resilience.

Coffee Intelligence

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