Thirsty Thoughts Coffee Annual Market Quantification December 2011

Coffee market context 2 The South African coffee trade is well entrenched and has been tracked by BMI for more than a decade. BMI segments the coffee market into four categories: Pure ground coffee (also includes coffee beans sold as is) Mixed ground coffee Pure instant coffee Mixed instant coffee The mixed coffee variants include an element of chicory within the composition. In terms of instant coffee production, there are a few key players who dominate the market as the tremendous investment in infrastructure required to enter this category forms a natural market barrier. The ground coffee category is more fragmented with a number of smaller players who import beans for roasting, grinding and further sale. There is a level of local production of coffee beans, but this is very limited and is quite focused regionally. Historically there was some consumer traffic from black tea to mixed instant coffee where this category acted as a natural entry point. In more recent years there seems to have been more consumer shifting within the coffee category itself, with conversion from instant to ground coffee variants as palates become more sophisticated.

2010 Category Breakdown 3

2010 Category Distribution 4

Annual Growth Rates 5 The tremendous decline in 2005 was attributed to supply chain issues. The tapering off of the growth rate in 2009 is evidence of the recession.

Coffee category shows short term growth 6 The coffee market saw relatively good growth (5.3%) during 2010, where this was driven by mixed instant, mixed ground and pure ground coffee volumes. This follows a fairly static market state in the two years prior to that. Mixed instant coffee continues to dominate the total market in volume terms. The substantial 64.7% volume share that it commanded for 2010 meant that the 2.5% annual growth seen for the category automatically put the coffee market growth into the black. Furthermore, positive performances by both mixed instant and pure ground coffee served to bolster the base line growth already achieved. The mixed instant volumes saw only limited growth during 2010 as larger manufacturers placed less priority on this established market. The category saw significant price increases in the last two quarters as it is believed that producers attempted recover sales late in the year. In terms of the mixed ground category, one of the larger suppliers saw good growth in both their product repertoire and revenue during 2010, while the remainder of the market saw only limited growth. Market activity by this single player pushed growth for the category to 7.0% for the year. Price increases slowed as less established players lowered their sales prices in order to compete with the larger producers.

Coffee category shows short term growth (Cont.) 7 One category recorded a volume drop during the base year; pure instant coffee. A key supplier of this category slowed production almost completely, resulting in reduced supply to the market. It is believed that there was a level of traffic to pure ground from pure instant variants as consumers explored competing products. This movement may have been encouraged by the value proposition offered by pure ground coffee as tremendous price increases were recorded for pure instant. Pure ground coffee noted tremendous growth in volumes in 2010, particularly on the wholesale front. A flood of imported beans and packaged ground coffee bolstered South African volumes by 17.8%, this being the single largest growth percentage recorded historically throughout the analysis. The retail trade remains the single largest consumer of coffee with more than half of the market volumes being channelled through this sector. The regional consumption of coffee is skewed to the Western Cape and Gauteng, being metropolitan areas. The coffee market is expected to show limited growth in the short term. Increases of 2.9% and 2.8% are anticipated for 2011 and 2012 respectively.

Thirsty Thoughts Coffee For more information, contact: Jan Wegelin Research Manager Tel: (011) Mobile: