Coffee Exporters Limited's Potential Entry into the UK Market

Executive Summary

The United Kingdom presents a good opportunity for selling coffee and ranks among the best coffee-consuming markets in the world. It also ranks among the top ten importers of green coffee with accounts for at least 190,000 tons of coffee per year during the year 2019. Recently, Board members of Kenya Co-operative Coffee Exporters Limited (KCCE) proposed that the company should expand its production capabilities to fulfil requests by some UK importers with whom they currently deal for larger orders that the company is unable to fill. The company is seeking to establish an additional contract with importers in the United Kingdom (UK) to increase the volume of green coffee they sell to the European market. Apart from increasing sales, there are several other business reasons why KCCE require to export coffee into the UK, one of them being a quest to increase profits.

1.0 Reasons for exporting

Kenya Co-operative Coffee Exporters Limited (KCCE) is a Kenyan based company that deals with the production and sale of coffee products. Recently, Board members proposed that the company should expand its production capabilities to fulfil requests by some UK importers with whom they currently deal for larger orders that the company is unable to fill. Furthermore, the company is seeking to establish an additional contract with importers in the United Kingdom (UK) to increase the volume of green coffee they sell to the European market. Therefore, the company intends to maximize its coffee sales within its existing European channels and establish additional sales accounts through a comprehensive export strategy. This paper presents a coffee export strategy for KCCE, which will increase its sales revenue through market expansion.

Apart from increasing sales, there are several other business reasons why KCCE require to export coffee into the UK, one of them being a quest to increase profits. According to Sulaiman et al (2020), there is a large correlation between product exportation and profit increase. As a result of foreign orders, the company will receive more demand than it currently witnesses. While the local market currently orders coffee in small quantities, coffee will be ordered into the UK market in bulk. Besides, as Nguyen & Khoa (2020) argued, products that are considered unique by the foreign markets usually experience a rapid increase in profits.

2.0 Instruments of trade protection

2.1 Tariffs & Quotas

Bown et al (2020) defined tariffs as the taxes imposed on imported products. They majorly seek to generate income for the government and are thus considered the most popular instrument of trade protection. Recently, the UK conducted an economic partnership with Kenya, within which the parties negotiated a trade deal that enables Kenyan exporters to access the UK market under a tariff-free and quota-free agreement (Odhiambo, 2021). This agreement specifically touches on coffee, fresh vegetables, cut flowers and tea, even though it could be expanded to capture livestock, fish and textile.

Before this deal, UK tariffs and quota exemptions were only extended to low income earning countries (Bown et al, 2020). This implied that Kenya, being a lower-middle-income country, was not subject to this benefit. However, after this recent negotiation, Kenya was able to export into the UK coffee free of tariffs and quotas. This implies that KCCE will enjoy the freedom of exporting coffee to the UK without any tariffs, making the UK an attractive export market for the company.

2.2 Subsidies

Having left the UK union, the Common Agricultural Policy (CAP) does not apply in the UK (Cole et al 2020). Rather, because the UK’s agricultural policy is a devolved matter, each of the devolved administration will decide on their agricultural policies. Previously, through the CAP, the UK managed to protect domestic coffee producers from the competition by foreigners by giving the domestic farmers direct payments as subsidies. This was a means of encouraging domestic farmers to produce and help them compete with foreign agricultural products (Kiryluk-Dryjska et al, 2020). However, due to the revocation of CAP, Kenyan coffee produces can take advantage and move in to establish a better market for their produce. Nonetheless, KCCE will have to encounter and deal with the challenges associated with subsidies initiated by the local administration of the areas to which they export their coffees.

3.0 Export strategy

The main strategy is to communicate KCCE’ unique and desired attributes of its coffee to larger segments of the UK markets. The company sells superior products that can still be considered a commodity. Therefore, the company needs to communicate its unique attributes to the UK market – attributes that make it ideal for that market.

Some of the superior attributes of KCCE’ coffee include its quality assurance, superior product selection and preparation, and efficient distribution channels. These are attributes that the company has developed since it started its business. Some of the most favored tactics that will be used to communicate these unique attributes include personal selling, better communication capabilities through improved information systems, and print media. As part of this scheme, the company will identify three specialty publications in the UK in which it will print ads. Similarly, the company will seek to increase its selling efforts to additional UK importers, especially through an effective referral scheme. Moreover, the company will invite its importers to visit its facilities for further trust and quality assurance.

3.1 Marketing strategies

As earlier mentioned, KCCE’ marketing strategy will mainly include the use of direct selling and targeted print media advertising to importers who sell green coffee to rosters. The company will capitalize on existing European importers who have expressed their willingness to contact potential importers from the UK, with whom they have a business relationship. Furthermore, KCCE have positioned itself as one of the differentiated providers of the highest quality Arabica coffee beans. Therefore, the main goal of all the marketing activities is to effectively communicate with the potential importers.

The following marketing objectives will be adapted for the export strategy:

1. To maintain a steady and growth each quarter

2. To experience an increase in customers who can be converted into long-term customers

3. To decrease customer acquisition cost by 5%

These marketing objectives will be achieved alongside other financial objectives including:

To achieve a 1% increase in profit margin after every two quarters

To hold percentage sales and expenditure at a certain level

To decrease overhead costs as a percentage of sales

3.2 Promotion strategy

The success of any export business significantly relies on relationships (Di Cintio, 2020). That said, British coffee importers have occasionally visited Kenya to see the factories and firms from which they purchase their coffee. Moreover, KCCE have established and maintained contacts an account with European importers through personal contact. The company’s marketing team intends to maintain these relationships. Nonetheless, apart from personal selling, the company has identified several specialty publications within which it can run print advertising or do direct mails in the form of personal letters to communicate with potential exporters. Therefore, the marketing activities will be conducted as follows:

3.3 Distribution strategy

One of the potential challenges to be experienced by KCCE is distribution. With Brexit, the distribution system in the UK has become blotted and constantly changing (Graziano et al, 2020). Furthermore, with the current restructuring of exercise taxes in the UK due to Brexit, the distribution costs are expected to be abnormally higher in the medium term (Thissen et al 2021). While the distribution costs for domestic sales are absorbed by the customer, the company will absorb the distribution cost for all the exports. Therefore, the company aims at increasing its distribution volume to acquire reduced costs through economies of scale.

3.4 Market Positioning

For UK importers of Kenyan coffee who supply specialty roasters, KCCE’ coffee beans are the largest and highest quality beans available. As opposed to other exporters, KCCE’s coffee beans exceed the minimum acceptable quality standards and are shipped within days of preparation to ensure the freshest and largest beans reach the importer. The products are well-suited for the specialty roasting market which constantly seek high-quality coffee.

3.5 Pricing strategy

Because KCCE maintains high-quality coffee products, the price of its coffee is relatively higher than the market average. However, the importation price is largely determined by the UK’s coffee import market. Coffee beans that do not meet KCCE’s quality standards are currently resold in the Kenyan market at the current market. For example, Green coffee in the import currently goes at US$ 213.56/60kg bag. According to the company’s selling strategy, it would import the same quantity at approximately US$ 224/60kg bag. Besides, importers have always been willing to pay an extra cost for quality coffee beans.

3.6 Sales Strategy

KCCE’s primary focus will be on meeting the increased demand for coffee from importers with whom it has established relationships through its other European networks. These importers will be critical to the company’s ability to acquire more accounts in the UK and Europe at large without having to spend a lot of money on sales efforts. Furthermore, the company will focus on increasing sales volume while keeping a constant sales percentage within the Kenyan market. Upon reaching the maximum sales within the existing channels, the company will focus on increasing its import accounts. For personal selling, the company intends to confirm larger quantity orders in writing from the UK importers and wholesalers. Moreover, the company will establish agreements with at least five, possibly ten UK importers.

3.7 Sales focus

The following table represents our sales focus. We project a healthy growth in sales during the year 2022 and slightly smaller growth in 2022. Meanwhile, we project the company to reach its maximum production capacity in 2023, characterized by a larger growth of sales than the previous year.

3.8 Strategic alliances

KCCE most valuable alliances are those it has formed with other European importers, especially those with the ability and willingness to recommend UK-based importers who can purchase larger quantity packages. More alliances will be formed with shipping lines, cargo airlines and trucking companies for purposes of easier logistics.

4.0 Market opportunities and risks

4.1 Opportunities

4.1.1 Market Size

The United Kingdom presents a good opportunity for selling coffee and ranks among the best coffee-consuming markets in the world (Ministry of Foreign Affairs, 2020). From a European perspective, the UK is a significant market for certified coffee. British household consumption is dominated by the sale of instant coffee, even though higher-quality coffee grounds and pods are increasingly gaining popularity (Ministry of Foreign Affairs, 2020). Moreover, as per the Ministry of Foreign Affairs (2020), the popularity of higher quality coffee is also driven by an increasingly larger coffee shop market in the Kingdom.

While there is a relatively low per-capita consumption of coffee in the UK, the country is considered one of Europe’s highest coffee consuming markets. Household consumption of coffee in the UK is an important segment of the country’s coffee sales and is an important driver for the increasing interest in specialty coffees (World Coffee Portal, 2020). On the same note, World Coffee Portal (2020) wrote that that the UK has some of the largest brands of coffee shops in the European market.

The UK is also one of the largest coffee importers in Europe. According to the Ministry of Foreign Affairs (2020, The UK ranks among the top ten importers of green coffee with accounts for at least 190,000 tons of coffee per year during the year 2019 (World Coffee Portal, 2020). Based on data by the Ministry of Foreign Affairs (2020), 95% of these coffees were imported directly from the coffee-producing countries, which implies that Kenyan coffee stands a significant chance of having a good reception in the UK.

The coffee market in the United Kingdom is significantly supported by its large coffee shop, market. According to data by World Coffee Portal (2020), the UK has at least 25,892 branded, non-specialist, independent and non-specialist coffee shops, representing an annual growth of 1.6%.on the other hand, the UK is said to have at least 8,222 branded coffee shops, which account for Europe’s largest branded coffee shop market (World Coffee Portal, 2020).

However, as a result of the COVID-19 pandemic and its impact on household coffee consumption, no growth in a coffee shop in the UK market was experienced in the year 2020 (World Coffee Portal, 2021). However, World Coffee Portal (2021) predicts a positive long-term outlook for the British coffee market because, in the UK, the coffee shop market is considered one of the most resilient markets in the country.

4.1.2 Purchasing power

It is estimated that consumers in UK’s high street coffee market spent at least 4 billion pounds on high streets in 2020 (Mintel, 2020). Furthermore, reports by Mintel (2020) showed that the UK population’s expenditure on big coffee shops such as Starbucks and Costa Coffee hit a new high in 2020, with a jump in sales by at least one billion pounds since 2015. The Mintel (2020) research also reveal an enduring high street coffee market, whereby at least 48% of the UK consumers bought hot coffee drinks at Costa Coffee within three months last year, Starbucks recorded 30% while first food chains ranked 26% in aggregate (Mintel 2020). This indicates a significantly high consumer purchase power for coffee in the UK, presenting an attractive market for KCCE’s coffee exports.

4.1.3 Demand and Supply

Reports by Kunst (2020) shows that in 2019, some 27% of UK coffee consumers drink an average of two cups of coffee every day while at home during the entire week. Other statistics by the Ministry of Foreign Affairs (2020) indicate an increasingly booming specialty coffee market, with much of this market influenced by out-of-home consumption. Similar reports indicate that in the UK, the demand for specialty coffee accounts for 32% of total coffee consumption, with the other 68% of the demand satisfied by the other retail chains (World Coffee Portal, 2021). Compared to 2018, the European average of out-of-home consumption was less than 22% (Ministry of Foreign Affairs, 2020).

Similarly, existing statistics indicate that there is a growing popularity for single-serve coffee within the UK’s coffee market. For instance, reports by the Ministry of Foreign Affairs (2020) indicate that in 2018, coffee pods Accounted for 13% of the entire UK coffee market, achieving a 35 increase from 2016. This means that an estimated 12.6 million UK household had a coffee pod machine in 2018, representing 48% of the total British households (Ministry of Foreign Affairs, 2020). These pieces of research indicate that there is still good growth potential for coffee pods in the UK, indicating a promising increase in demand.

4.1.4 Infrastructure

Existing data indicate a considerably vast coffee processing infrastructure in the UK that makes the country a good candidate for our export. For example, research by Conway (2020) indicated that the total coffee and tea processing turnover in the UK between 2008 and 2018 was 2.15 billion British pounds. Similarly, reports by Conway (2020) indicate the significant infrastructural capabilities of the UK’s coffee industry to refine and produce consumer coffee products through the wet, dry and semi-dry methods. As illustrated in the map below, the UK several coffee rosters spread across England and Ireland, making it a suitable destination for pre-processed coffee imports.

Each of these roasters can dry, sort and process coffee. Upon importation, as per the Ministry of Foreign Affairs (2020), the coffee beans are taken to the roasters, where various processes such as the convection roasting process are adopted to produce high-quality extraction.

4.2 Risks

4.2.1 Economic risks

One of the most significant economic risks KCCE are likely to face while exporting coffee to the UK is the risk of competition. According to the Ministry of Foreign Affairs (2020), there is generally high competition between traders in the market that focus on mainstream coffee with little added value. As per the Ministry of Foreign Affairs (2020), this segment is mainly dominated by major coffee suppliers who deliver large quantities at competitive prices. This makes it difficult for small or medium-sized suppliers like KCCE to compete in this segment. However, the Ministry of Foreign Affairs (2020) acknowledges that there is a generally low level of competition in the specialty coffee market, where suppliers focus on smaller volumes and with a strong preference for quality, sustainability and origin. However, this entry point is higher and might require a larger investment for KCCE to gain market position.

4.2.2 Country Risk

Exporting any product overseas may present various country risks. For instance, the business culture in the UK is different from that in the UK Crowley et al (2020), and this may destabilize KCCE as it tries to develop a broader market base in the UK. Similarly, different regulations are the company might have not dealt with before, including the strict rules that deal with food safety and hygiene, quality requirements (e.g. specifications regarding the region and altitude of origin, botanical variety of the beans, bean size, bean density and roast appearance). Specifically, according to the Ministry of Foreign Affairs (2020), any coffee import into the UK is graded according to its fragrance, aftertaste, acidity, sweetness, balance, flavor and cleanliness. Failure to match these grading standards may render the coffee unfit for sale in the UK. The company intends to conduct comprehensive market research to ensure that its coffee meets these grading standards.

4.2.3 Political risk

Having just exited from the European Union, KCCE will face some potential political risks, including a sudden introduction of new import controls. Similarly, in case one party breaks the non-tariffs trade agreement between the UK and Kenya, KCCE might suffer from the risk of the sudden introduction of tariffs and quotas for all the coffee exports into the UK. To mitigate these risks, KCCE intend to conduct more research to find out more about the UK’s politics, culture, business environment and economy, so that it is not caught up in unexpected situations.

5.0 Logistics

5.1 Mode of Transportation

KCCE intend to use various modes of transportation to have the coffee reach the UK. For instance, coffee will be transported from the farms to its Nairobi factories by road, where the coffee beans are sorted and packaged. After packaging, the coffee beans will be transported to the UK through cargo ships via the Mombasa Port. Recently, Kenya introduced double-stack trains to speed up the evacuation of cargo at the Mombasa Port and deal with the ever-increasing congestion. Consequently, container handling at the port has improved, reducing costs and enhancing transport efficiency (Kimetal, 2017). The company intends to take advantage of this efficiency to ensure the coffee consignments arrive in the UK on time.

5.2 Documentation

A series of documents be required to facilitate the final delivery of the coffee consignment to the importers. First, the company agree and sign the delivery term documentation including consignment and delivery notes. Secondly, a couple of payment documents will be arranged with the buyer, including invoices and payment cheques. Furthermore, because the company will explore the option of trade financing, various documents in this category will be arranged and signed, including guarantee and guarantor documents. Other pieces of documents that will be arranged include legal documents to show compliance with import custom procedures (e.g. custom tax) and export insurance documents.

5.3 Incoterms

Before signing the sales contract, the company will agree with the buyer on various import terms, with the delivery terms selected based on the buyer’s preferences. For instance, based on the EX Works rules by the International Chamber of Commerce, the company will only be responsible for delivering the coffee beans to the importers’ named location while the buyer will be responsible for any other task such as import clearance, insurance and carriage will be arranged by the importer (Davis &Vogt, 2021). similarly, based on the free-carrier rules, the company will only deliver the coffee bags to the buyer or any person nominated by the buyer, with the parties agreeing on the location of delivery (Stojanović & Ivetic, 2020). Any risk after the delivery passes to the buyer. Other ICC incoterms rules that the company will abide by including Free On Board, Cost and Freight, Cost Insurance and Freight, Carriage Paid To, Carriage and Insurance Paid To, Delivered At Terminal, Delivered At Place, and Delivered Duty Paid (LLamazares, 2020).

5.4 Payment Terms

As recommended by Hwang & Im (2019), the company will agree on payment terms with the buyers before signing any contracts. Meanwhile, the company will adopt the Cash Against Documents (CAD) form of payment, which is one of the common forms of payment for the international coffee trade (Kim, 2021). The company will be paid by the importer through the bank after the delivery of required documents (e.g. bill of lading and invoice). The customer will receive these documents after paying the bill of exchange, which may be guaranteed by their bank. Ideally, the CAD implies that the party who owns the documents owns the goods.

5.5 Freight forwarders

Due to its high value for trade efficiency, KCCE will rely on an efficient and reliable freight forwarder to facilitate a fast, effective and efficient shipping of its coffee consignments from Kenya to the UK. For this purpose, the company will rely on its already existing relationship with various freight forwarders including Aeromarine Capital Group, which has been offering road, rail and sea freight forwarding services to the company since its inception in the year 2000. Aeromarine not only forwards the cargo but also follows up the custom clearing process at the freight destination.

5.6 Information technology

5.6.1 Electronic Data Interchange

Technology is one of the most important tools that KCCE have adopted to facilitate its international and local business. For the proposed exports to the UK, the company will adopt technology in the areas of data management and convenience. For convenience, the company will rely on technology to communicate with importers through sharing of pictures, documents and other relevant materials of trade that can be shared online. This will be done through a computer to computer electronic data interchange (EDI), whereby documents can flow straight through computer applications on to the recipient’s computer. Through computer-to-computer EDI, will eliminate people’s involvement in the communication process, which normally slows down the communication process (Ahrouch & Erramy 2020).

5.6.2 Radio Frequency Identification

At some point during the export process, the company will rely on Radio Frequency Identification (RFI) to wirelessly conduct online transactions. According to Ali & Haseeb (2019), RFI is a form of wireless communication that uses electrostatic coupling in the radio-frequency part of the electromagnetic spectrum to conduct a unique identification of objects, people or animals. For the case of KCCE, the company will use RFI to read tags on coffee bags without having to use line-of-sight scans. Similarly, the company will rely on RFI to automate the collection of data regarding export batch numbers and other relevant pieces of data.

6.0 Ethics

Considering the important role that ethical standards play in the company’s brand and reputation, the company commits to upholding the highest ethical standards throughout its export dealings. As an exporter, the company might experience difficulties in getting shipments through the custom processes, or with paperwork. In the process, some people realize that bribery can help things move along and they may not see it as a form of bribery. Instead, they see it as just a way of facilitating the process. Such is a scenario that the company will avoid by following all the due processes involved.

7.0 Implementation and Analysis

There are several approaches that the company might use to evaluate its export potential. However, for the sake of the coffee exports, KCCE will rely on an analysis of its domestic and European sales to evaluate its exports potential. Because the European market has almost the same market conditions as that in the UK, the company will assess the UK sales against the UK sales to predict how the new venture will perform.

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