Brewing up a storm

THE logic that typically prevails during an economic downturn is: when money is tight, the luxuries fall by the wayside.

Until recently that was certainly the fate predicted for Irish coffee culture, which was one of the defining and most ostentatious characteristics of the Celtic Tiger boom years.

But, almost three years into a recession, the coffee market in Ireland is proving to be surprisingly resilient. That’s not to say that there haven’t been shifts in both the market and in customer’s attitudes and expectations. One of the biggest changes is the increase in popularity of home coffee-making machines: if the low-fat, double-shot, extra-hot latte in fashionable take-away cup with recycled heat-protection sleeve was an ubiquitous image from the boom years, the plastic portable coffee flask containing home-made brew is one for the post-Tiger era.

One of the big coffee success stories of recent years is Nespresso, a Swiss offshoot of Nestle, which specialises in producing machines that allow the user to make espressos and coffees like a coffee shop barista. Some 16 different coffees are available in capsule form — called Grand Crus — which make one cup of coffee.

It’s a simple idea, and seems to be one that has caught on. In 2010, Nespresso recorded sales of over €2.3 billion, while in Ireland and Britain, the company grew its market share in coffee machines by almost 29% compared to the previous year.

Although 25 years in the business, it has mainly been in the last decade that Nespresso seems to have hit upon its strategy for penetrating the crowded coffee market. Key to that is exclusivity — in Ireland, the machines are only for sale in Nespresso ‘boutiques’ in Brown Thomas in Cork and Dublin — as well as a savvy marketing campaign (see panel).

But companies such as Nespresso also acknowledge that customers have grown a lot more sophisticated about their coffee in the last 10 years, much the same as they have about wine, beer, and even tea. People might be watching what they’re spending anymore, but for caffeine aficionados at least, they don’t seem to be willing to compromise enough to resort to instant granules once more.

It’s this same loyalty — for want of a better word — that is helping many coffee shops and chains to sustain themselves and even thrive in such a challenging economic environment. Starbucks, celebrating its 40th anniversary this year, initially took a big hit everywhere when the downturn began. The Seattle-based giant announced it had to make savings of $500 million (€354m), closing some 600 stores across the US and about 50 in Britain.

Today Starbucks has around 700 stores in Ireland and Britain, and recently released figures show a bounce in both profits and share prices. But the company chiefs seem to realise that accompanying price increases may yet result in another hit, and so have embarked on a major rebranding of its chains to reinvent and reposition itself within the market.

The changes include ditching the writing from its logo, and replacing its heavy mugs with bone china later this year. Over the last few weeks, newspapers have carried large ads of smiling and laughing groups of people sitting in Starbucks chains, under the tagline, ‘It’s not just coffee’, a slogan that clearly aims to tap into our aspirational lifestyles.

“Conditions have been tough for consumers and retailers in Ireland over the last few years, but customers still want a place to take time out, and they still want great coffee,” says Darcy Willson-Rymer, managing director of Starbucks UK and Ireland.

“The recession in Ireland revealed that we’d opened some stores in the wrong places, and for the long-term health of the business, it was right to close them. However, it was important that we looked after our employees, and we were able to redeploy everyone who wanted to stay with the company. We know we have to offer Irish customers and our employees more rather than less.”

Part of that plan has involved wooing customers with loyalty reward schemes and pre-paid Wi-Fi. Tellingly, Starbucks has also started branching out into the home coffee market, through Starbucks VIA Ready Brew and an upcoming deal with Green Mountain Coffee Roasters to produce machines that will serve Starbucks coffee packs.

Meanwhile, Insomnia, the largest coffee chain in Ireland, has also tried to move quickly in order to keep or increase levels of footfall and profit. “It hasn’t been easy, we’ve had the same problems as everyone else,” admits Insomnia chairman and Dragon’s Den star Bobby Kerr.

“We’re doing alright — I don’t want to overplay it — but we’ve slugged it out and we’re certainly doing enough to stay in the game. We’ve only had to close one shop in three years. We still have 60 around the country.”

“I think we were probably one of the earlier players to react. We did a few things: introduced strong promotions, like a coffee and sandwich in the shop for €5 and coffee and a pastry for €3.50. That was a price reduction of 30%, but those two combined now represent over 50% of our sales, and managed to keep the number of people coming into the shops.

“We also have a loyalty scheme (the Zapa Tag), and we featured prominently on Operation Transformation. From that we’ve started displaying all the calories of our products in store, which has brought in a new wave of customers.”

It’s not just the huge chains that are cautiously optimistic about the resiliency of the coffee market. Colin Harmon, the Irish Barista Champion for 2009 and 2010, opened his own coffee shop, 3fE (Third Floor Espresso), in The Twisted Pepper on Middle Abbey Street, in Dublin, a little over 18 months ago — hardly the ideal trading environment in which to be launching a business.

“In a weird way we don’t know if the coffee market is good or bad, because we just opened in the bad part,” Harmon says. “Week on week, we find our place getting busier. I think when it comes to luxuries that people are still spending money, but they’re choosier about quality. They mightn’t be splashing out on new cars or holidays, but a good coffee, even once a week, is an affordable luxury.”

Surviving in this climate is all about generating some sort of buzz or gaining an edge over the competitors.

“You have to creative,” Harmon admits. “You look at pubs in Ireland. For a long time they were just a licence to print money, but it’s getting to a point now where pubs realise they have to up their game, and have good customer service. It’s the same for coffee shops.”