Detailed analysis of various business sectors in Uganda

Black coffee, no sugar no cream?

Outside Looking In

D E Wasake, FCCA

About my guest contributor:

Gerald Kajubi is a barista (a person who prepares espresso based coffee drinks) at one of the prominent coffee shops in Kampala Uganda. Having taken a barista training course he developed the specialist skill for the sector. He has been doing the job for one and a half years. Gerald has a Bachelor’s degree in Arts in Arts and after seeking for a job for one year with no hope he decided to go and study this skill. His contact is +256(0)71 800 3583

About the writer

For over 10 years I have worked with several clients in Uganda, The Bahamas and the United Kingdom in providing audit, tax, accounting and advisory services. My sector experience with clients in various sectors including consumer industrial products enables me have good understanding of this sector. To see the full depth of my experience, please see my profile

Article summary

The opportunity to invest in a coffee shop and roasting business is driven by 3 key factors:

  • The middle class of Uganda is growing. It is estimated to be 36% in 2013. Up from 28.7% in 2006.
  • Uganda is Africa’s 3rd largest producer of coffee. There is no shortage of produce and we believe it is possible to develop a coffee drinking culture. After all about 6% of the whole population directly relies on coffee in one way or another for their livelihood.
  • Internet access, and hence usage has increased rapidly from only 2.5% in 2006 to 17% in 2012!

The Uganda Coffee Development Authority (UCDA) indeed lists this as one of the opportunities for investment besides primary coffee processing and soluble coffee manufacture.

But how profitable is this sector? This article explores the ins and outs of setting up and running a coffee shop in the spirit of the likes of global brands like Starbucks, Java, Lavezza and Café Nero.

Introduction

When I was writing this article, I searched for a title. I finally settled on “Black coffee no sugar no cream” not because of a similarly titled 1994 song by Heavy D but because I actually used it as a chat up line. It was a Saturday afternoon on a rocky outcrop at Plemont beach in Jersey.

Remembering the corny nature in which I used it, I smile…. she fell for it! Oh the folly of youth. Now I am an old man and instead I reminisce more about the time when every Wednesday evening after a poetry open mic session in Nassau, Bahamas I sat in the Starbucks coffee shop at the Crystal palace Hotel with my poet friends, Obie and Dawn. We often debated so intensely that I was not sure if it was the coffee or the debates that kept us chatting past midnight. I even wrote a poem about these experiences:

At the coffee house,
time escaped our watches,
like sleep, our coffee drowned eyes.

So if love and life has been started at a coffee shop (not counting that my mother was educated from the proceeds of coffee), it is therefore only natural that my interest was piqued to investigate this sector.

Why invest in the coffee café business in Uganda?

There are 4 interrelated factors that are important to consider for this sector.

Middle class and population dynamics

In 2010, Uganda’s middle class was estimated to be 32.6% of the population. An increase from 28.7% in 2006. This represents almost a 1% growth per year. Assuming this constant growth, the middle class is estimated to be almost 36% in 2013.

A similar trend is at play in Africa. The African Development bank report titled the middle of the pyramid stated that by 2010, the continent's middle class had risen to an estimated 34% of its population, up from about 27 per cent in 1980.

The second factor to consider is the age of our population. According to a State of Uganda population Report 2012, Uganda has the youngest population in the world with over 78% being below 30 years of age.

This generation travels (not counting the Ugandans in Diaspora who return home for holiday every year, hence called “Summers” or “kyeyo” as they are sometimes fondly referred to).

It has also grown up watching movies and American TV series (with Hollywood cops grabbing a quick cup of coffee and dunkin donuts). This generation surfs the internet and is generally experiencing a higher standard of living than just 2 generations ago (their Parents’ generation).

The generation is therefore inclined to embrace the global coffee drinking culture!

Internet growth.

Coffee shops typically offer free WIFI and so a 3rd factor comes into play for this sector. Internet usage and its growth. WIFI usage in coffee shops is after all part of the coffee drinking culture. Internet costs are cheaper and there is definitely more usage by the population.

By 2011, according to the World Bank, 13% of Uganda’s population (estimated at 34.5m) or 4.5m people had internet access. The number of users had surpassed 6 million by December 2012, according to a Uganda Communications Commission (UCC) report: “Status of the communication sector in Uganda.” This represented about 17% of the estimated 35m population.

Coffee history and culture

Finally, Uganda being Africa’s 3rd largest coffee producer (after Ivory Coast and Ethiopia) means that there is no shortage of coffee raw material (both robusta and the higher quality Arabica coffee). About 6% of the population directly earns their living from coffee. Indirectly, this is signficantly higher considering coffee is Uganda's largest export.

I therefore believe that it should not be hard to develop a coffee drinking culture in Uganda. Brazil the number one coffee producing country has a strong coffee culture and so there are definitely lessons we can learn from those Samba lovers, but I believe we are at the tipping point of a coffee drinking culture and it takes a few ideas to get us there.

How about the coffee roaster for example offering a coupon to give a free cup of coffee to every one of his coffee farmer suppliers. Imagine how many farmers will want to literally taste the fruits of their labour?

It is this trend that is driving the increase in Ugandan coffee shops such as Cafe pap, Good African Coffee, Javas, Endiro, Ban Café, 1000 cups coffee house and others.

COFFEE TRENDS IN OTHER COUNTRIES

Assessing growth of trends in leading consumer nations helps to assess where the future of this industry might lie and where the Ugandan industry might be in a few years.

The US is the world’s leading consumer of coffee worldwide. In 2013, according to the US National Coffee Association Annual Drinking Trends Survey, 83% of all American adults drink coffee in one form or the other, up 5% from 78% the previous year.

Brazil the world’s leading coffee producer, and second consumer of coffee has a strong coffee culture and according to a report from the country’s coffee association, internal coffee consumption increased 3% from 2011 to 2012 and increased 350% from 2004! This increase was attributed to the trend of preparation of coffee in single servings – for a single cup combined with a demand for gourmet coffee (premium coffee), even for the lowest social classes.

In the UK, according to one December 2012 report, coffee shops grew 7 times faster than the UK economy with a growth of 4% from the previous year and 1 in 5(20%) consumers visiting coffee shops daily compared to 1 in 9 (11%) consumers in 2009. This represents a 9% increase in just 3 years.

WHAT IS THE FUTURE FOR THE UGANDAN COFFEE BUSINESS?

The franchise business

Ugandans are transitioning into the coffee franchise business where most of the investors are now buying the franchises of some of the popular cafés in other countries take for example Café Java’s this is bringing them ahead of the competitive curve as most of the expatriates who are already accustomed to the coffee culture and are familiar with those brand names are frequenting their outing places.

The coffee franchise industry is very diverse. Depending on how much capital a person has to invest, a prospective business person can operate one of a wide range of coffee businesses. A coffee drive thru franchise can be owned and operated for less than a standalone coffee house.

For example in the US Cuppy’s Coffee and More Inc. offers franchises for a Cart Unit, Mobile Unit, Kiosk Unit, Drive-up, and Full Service Unit. The initial franchise fee can vary from $2,500 for a Cart Unit up to $25,000 for the Full Service Unit.

This makes it possible for someone with low capital to start up and run a successful coffee business. The estimated initial investment for a Cart Unit is between $27,700 and $56,900 which includes the purchase of the actual cart. You can access franchises of different coffee cafes from http://www.franchiseopportunities.com

With the expected increase in the coffee franchises, particularly if big name brands (like Starbucks, Costa, Java etc) were to enter the Uganda market, then the smaller independent shops need to find a means of differentiating themselves even further by being more artisan or niche in order to retain their customers.

Coffee Shops and Wireless Technology

Successful coffee shop owners have moved past just selling coffee to creating environments that encourage longer visits: surfing the Internet, working from their laptops, or communicating with friends, family, and colleagues. Wireless technology is changing the way people live.

Hotspots (internet access areas that deploy wireless technology) can be found in airports, hotels, and coffee shops. Some offer free access while others require paid subscriptions. Offering free wireless Internet in a coffee shop is one sure way to boost the chances of success. People are now given the option to make a connection over a cup of coffee and over the internet.

So with the above in mind, how do you set up a coffee shop?

FIRST THE CONS (WHAT MIGHT HOLD YOU BACK)

Negative public mindset

Many Ugandans look at drinking coffee as if it is a "Muzungu” (white man) thing. According to some reports, many of the Ugandans who drink coffee just drink it because they want to be seen drinking it since they think it is “cool” but not for the benefits that it has to offer.

To counter this, the advanced thinking business man would start a coffee testing campaign where people come and observe the tastes and aromas of brewed coffee at the coffee café at the same time, Ugandans usually love trying out new and free things with that being said you could offer free coffee samples at the supermarkets and malls in Kampala and give people brochures with information about the benefits of drinking coffee.

Occasionally slow business

There is a time during the day when business is slow in the coffee shop especially during the time period of 1:00 pm -2:00 pm because people are having lunch usually during that time people are hardly having any coffee.

To counter this, advanced thinking business man would create specials for the slow hours of the day. If the slowest time for your coffee shop is between 1:00 and 2:00 pm in the afternoon then create a happy hour with a 2 for 1 special. You can market this hour to the employees in the surrounding business offices and learning institutions.

Alternatively, give people a reason to stop in during the slow hours like giving people free wi-fi.

Another advanced thinking tip would be for the businessman to take a look at the slow times and see how many employees are on shift. Reduce the number of employees during these times, saving money and providing the employees on shift with more work to do.

Similarly related to this is the Ugandan weather where temperatures can be pretty high hence detracting from drinking a hot cup of tea.My recent travels to Cyprus indicated an “advanced thinking” tip. Perhaps during these hot days, it helps the advanced thinking business man to promote an iced coffee drink like the Frappe.

Competition

With the growing number of coffee shops in Uganda, the business is starting to realize stiff competition and unless you are innovative you will be left behind the competitive curve.

The solution for the advanced thinking businessman involved in the coffee business would be to create innovative marketing. Develop a marketing campaign that advertises the qualities of the coffee you serve. Market special offers such as giving customers a free snack for every cappuccino that they buy. I know this may be hard for Ugandan businessmen but being different is what makes you stand out of the crowd.

As an example of smart marketing, Global coffee company La Colombe Torrefaction has turned marketing coffee into an art. The CEO goes to the world’s most dangerous countries in search of the best coffee. And he films it hence allowing coffee drinkers to travel on the journey with him.  This “show and tell” philosophy seems to have paid off and in 2012 its sales topped $35m.

Another advanced thinking tip would be for the businessman to create an online presence. Add your coffee shop information to as many online business listing sites as you can. Ugandans are transitioning into a web based generation as highlighted in the introduction. People have started looking for places to hangout (similar to tripadvisor) with an Internet search and you want your company to appear in the local listing results. The major location-based search engines include Google Maps, Yahoo Local, Bing Local and AOL Local among others you can try those listed for a start.

THE PROS

Availability of customers

As highlighted in the introduction, with the increase in the middle class, there is an emerging coffee-drinking culture among Ugandans.  

This will continue to grow and therefore this is a strong incentive for investing, not only in Kampala where the bulk of the urban growth is but to consider expanding the franchise to up market towns (like say Jinja, Mbale, Mbarara and Gulu) where whilst the market might be smaller, the brand recognition would drive sales over all, especially for tourists, expatriates and other travelers within Uganda.

Good return on investments

In this article, we estimate that the Return on Investment for a Coffee shop will be developed as follows:

  • Startup capital of Shs. 81m
  • Revenue of about Shs. 121.5 million
  • Net profit of about Shs. 26 million
  • Return on investment of 3.1 years.

In our model, we assume that the return on investment will be achieved on the following basis

  • That the investor will establish the café in Kampala where there is a big number of elite people who are adopting the coffee culture.
  • That the investor will have a MENU similar to that of his competitors say café Java’s ref  http://cafejavas.co.ug/index.php

Our model is below:

Coffee Shop return on investment model

P.S Clicking the above link will take you to the Inachee Databank where the full version of this document can be dowloaded after you register.

My Guest writer weighs in.

When my brother told me he had gotten me a job at a coffee shop I thought to myself that this was one think I would do effortlessly. Then he mentioned that I had to go and study I wouldn’t imagine spending money to go and study how to make tea sorry coffee any way all in all I ended up going to study at Barista pro coffee company and after that course am now making coffee. It’s a good business and I like it and if am to say it’s profitable as well or we wouldn’t still be in business.

Now the basics you must get right

Being organized

Stay organized and keep your coffee shop running as smoothly as possible. Organization is imperative for the success of any business, so make sure you stay on top of things like inventory, billing, employee scheduling, taxes and overall budget. A barista training course is a start. In addition to the Barista Pro Coffee Company (Roberts Mbabazi: gatesi.rm@gmail.com), you can tak a training offered by the Uganda Coffee Development Authority.

Quality coffee products

Use only high quality coffee products in your shop. In order to build a solid customer base, it's crucial to stand out from the competition and carry top-notch coffee blends. This can be accomplished by sampling numerous types of coffee from a variety of wholesalers. You should also be aware of trends within the coffee industry to stay ahead of your competitors.

In more advanced countries, there is trend towards gourmet and soluble coffee, it is therefore worth making yourself well conversant with global trends.

Customer service

The typical coffee drinker is like a “crack addict”. They must have their coffee fix daily and so you can expect that most of your business is going to come from repeat customers. You therefore MUST develop a scheme of recognizing these customers and rewarding them.  Larger franchises have loyalty cards and similar schemes.

Connected to this, train your employees properly so that they can provide excellent customer service. All employees should be knowledgeable on your shop's products and provide friendly customer service to the public. It's also important for employees to be able to handle stress during rushes in peak hours.

We have written an advanced thinking article on customer care. Find out more here

Marketing

The sector is highly competitive and so marketing is the key to driving customers into your coffee shop. You must do research on the area and determine who your customers are, what other coffee shops and stores are offering customers and what the other businesses are not doing that you want to do.

Having the right marketing ideas for your coffee shop will help get customers in the door, get customers to buy more coffee and other products, and get them to return to your business.

There are over 20 marketing strategies we believe can use to double your customers.  

Final word

The coffee culture is exploding in Uganda. We expect that there will be an increase in the number of coffee shops, not counting the possibility of global franchises entering the market.  

With such a competitive market, it's important to rise above the competition. In order to establish a successful independent coffee shop, it's crucial to have superb management skills (including books of accounts as the margins can be tight).

As a consumer industry, your marketing and customer service are crucial to success, if all fails, just sell to your customers the good ol black coffee, no sugar, no cream….

Otherwise, best of luck and of course if you need some help, do not hesitate to speak to us to get the ball rolling, Inachee after all represents Home Grown Energy in Motion.

END

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And now the disclaimer: While I have taken steps to research this information as well as based on my experience, you should not solely rely on the information given here to base your investment decisions.

You should seek business advice from a professional knowledgeable of your specific circumstances. I (or Inachee) shall therefore not be held responsible for any loss you may incur when acting on this information.

9 thoughts on “Black coffee, no sugar no cream?

  1. Hey,thanks so much for all the research and relevant information you provide for us concerning differnt investmentnts.however,am ayounger entreprenuer with little capital to start but all your budgets show initial capital of so much money.please advice me.

    thank you.

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