How can coffee shops expand into other international markets?
Around the world, there are many examples of coffee shops and roasters that have expanded into international markets. And while many of these businesses are larger chains, there are several specialty coffee brands which have also been able to open locations in other countries.
However, scaling a coffee brand on an international level obviously comes with a unique set of challenges. Ultimately, however, when executed properly, it can help brands to diversify and understand how successful their value proposition might be in a different market.
To learn more, I spoke with the founder of Bonanza Coffee, Kiduk Reus, and Managing Director at Coffee Island, Alexandros Zapaniotis. Read on to find out what they had to say.
You may also like our article on opening & managing multiple coffee shops effectively.
Entering new markets as a specialty coffee brand
Customer-facing specialty coffee businesses are generally differentiated from more “commercial” brands by their focus on quality.
This arguably makes entering markets a more difficult proposition, as the first challenge is making sure you enter the right market at the right time. Furthermore, it can be tricky for specialty coffee brands to adhere to higher quality control standards as they open more locations.
Alexandros tells me that in 1999, Coffee Island operated one store in Patras, Greece.
“At that time, we only served roasted coffee,” he says. “However, in 2009, we started serving espresso-based beverages as well.”
Alexandros says that the company rebranded in 2013 and then entered its first international market in 2016 when it opened a coffee shop in the UK.
Kiduk, meanwhile, tells me that Bonanza Coffee opened in the mid-to-late 2000s in Berlin, Germany.
“We weren’t just a traditional coffee shop,” he says. “We were weighing doses for espresso and filter and pouring latte art, which many coffee shops in Europe weren’t doing at that time.”
In the years that followed, the specialty coffee market has continued to grow around the world. First popular in Nordic countries in the early 2000s, as well as Australia, New Zealand, and some countries in Southeast Asia, specialty coffee culture then started to grow in the US throughout the decade.
Throughout the 2000s and 2010s, more and more specialty coffee shops started to open in the UK and mainland Europe – as well as in some producing countries like Brazil – before proliferating across the globe.
One of the biggest driving forces behind the global growth of specialty coffee is a rising consumer demand for more sustainable, high-quality coffee. Now more than ever, consumers want to know more information about their coffee – including origin, processing method, and roast profile.
Considering the location
As with any coffee shop or roastery, the first step when expanding overseas is choosing a new location.
Coffee Island opened its first international location in Cyprus in 2009. Alexandros explains the company chose Cyprus because of its proximity and cultural similarities. This, he says, was a key first step in establishing a presence abroad; he adds that there are now more than 50 Coffee Island locations in Cyprus alone.
Alexandros tells me that the company currently also operates coffee shops and roasters in the United Arab Emirates (UAE), Romania, Switzerland, Canada, and Egypt, with plans to expand in other international markets.
He explains that opening locations in some countries can help coffee brands understand how to then enter other nearby markets. For instance, he says that opening locations in Switzerland gave Coffee Island more of an insight into neighbouring Italy, France, and Germany.
“We opened a coffee shop in London, UK in 2016 to test out the brand in other markets,” he adds. “The results were successful, and in 2017, we opened another location in Toronto, Canada.
“The Toronto location helped us to understand a different coffee market and move closer to entering the US coffee market,” he adds. “For us, opening a location in Dubai was also a great way to understand the wider Middle Eastern coffee market and increase brand awareness.”
Understanding regional differences
While opening a new location in a different country can certainly help roasters and coffee shops to understand more about that specific market, it’s essential that they carry out market research beforehand.
First and foremost, coffee businesses should ensure their new location will experience a high enough level of foot traffic to remain profitable.
However, arguably one of the biggest challenges is language barriers. For instance, if a UK roaster was looking to open a new location in Germany, it would be important to work with someone who has expertise in the German market as far as business laws and regulations go. Generally speaking, it would be important to have someone on the team who could speak German, too – for everything from general business administration to speaking with customers.
Moreover, a general understanding of cultural differences is vital, as different markets can have widely varying taste preferences. While certain products and services may be successful in one city or country, they may not be as equally popular in others. This can include particular beverages, roast profiles, or even styles of customer service.
Notably, Starbucks saw considerably lower levels of success in the Australian market – largely because the company tried to expand too quickly in a market which generally favours specialty coffee. In 2008, the coffee chain closed 80% of its stores in Australia, with only 23 locations now operating across the country.
Conversely, specialty coffee is significantly less popular in countries such as France and Italy (especially when compared to other European countries like Norway), as traditional coffee beverages such as café au lait and intense, dark roasted espresso shots are more prominent respectively.
Another important point is the price sensitivity of different markets. For instance, consider Italy; most consumers in the country are unwilling to pay much above the market rate of 1 euro for an espresso, so much so that price increases are actually regulated.
This became a particular issue for specialty coffee roaster Ditta Artigianale, which was fined €1,000 ($1,056) following a customer complaint about prices earlier this year.
“[It’s important that businesses] are aware of how certain markets work to make sure they provide innovative products for consumers,” Alexandros says. “We always follow a similar process when expanding our business so that we can improve our performance.
“However, in retrospect, there are certain business practices that we would avoid implementing in particular markets,” he adds. “We try to apply the best practices from one market to another.”
Even regional weather patterns are an important factor for coffee shops to take into consideration when expanding overseas. For instance, opening a new location in southern Spain or Greece means that temperatures could reach as high as mid-30°C (86°F) for more months in a year. Therefore, offering cold beverages, such as cold brew, for longer periods during the year could be a unique selling point.
Other factors to consider
Although there are obvious benefits to opening new locations in other countries, there are a number of factors that coffee shops and roasters need to consider before making any commitments.
Naturally, business owners will have to deal with legislation and bureaucracy in other countries. This can be considerably challenging, so careful planning and a thorough understanding of a specific country’s legislation are essential.
“Someone approached us who wanted to open a Bonanza location in Moscow, but we had never had any business relationship with them, which made the situation difficult,” he says.
“They had a particular vision of our business, but after several meetings, they realised opening a franchise would be more challenging than they thought.”
Another factor to consider before entering a new international market is the level of competition that the coffee shop or roaster will have to contend with.
Ultimately, both Alexandros and Kiduk say that coffee businesses should have a clear vision of their brands so that they can maintain quality, integrity, and values. However, they emphasise that businesses also need to remain flexible by adapting to different cultural and social differences if they want to succeed in other markets.
What about franchising?
Franchising is a popular way of expanding your brand in the coffee industry. This is when a business owner licences its operations, products, and branding to another party in exchange for a licensing fee. This provides a solid base of brand recognition, theoretically making marketing much easier.
Some believe that franchise models may not fully align with the values of specialty coffee businesses, mostly because it can be more difficult to monitor factors such as quality control and customer service. This is largely because it is challenging to maintain consistency across all locations – especially if they are located further away.
However, there are several examples of specialty coffee shops and roasters who have franchised successfully while still maintaining quality standards.
Kiduk says that he was contacted by a customer in Seoul, South Korea who wanted to open a franchise location using Bonanza Coffee’s branding and products.
“Around four or five years ago, someone asked if they could use our brand to sell coffee in a shop in Seoul,” he explains. “After I met them, we agreed that there would be no franchise fee and that they could sell our roasted coffee.
“The reason why is because the person loved Berlin and wanted to replicate the city’s culture in Seoul,” he adds. “We sold them our beans, despite the high shipping costs.”
There are now several coffee shops in South Korea which sell Bonanza Coffee products, which have seen high levels of success.
“Last year, the person managed to find an investor, so they’re now opening a 400 square metre roastery,” Kiduk says. “They will use our name and brand, and we will supply them with all of their roasting equipment.”
Alexandros tells me that Coffee Island also has its own franchise model. The company invests in research and development and training to support potential franchisees, including the Coffee Island Coffee Campus training facility.
This is particularly important as the initial steps of opening a franchise location can be challenging, especially for franchise owners. Start-up costs and initial investment can be expensive, so support is essential.
In turn, it’s generally easier for coffee shops and roasters to scale more quickly and become more established international brands – also helped by less marketing expenditure and reaching a wider range of consumers.
There is plenty to consider when expanding your coffee shop or roaster brand into a new international market. And while many have done it successfully, there are a number of significant challenges.
Scaling internationally may not be a viable option for some coffee businesses. As such, business owners should carefully consider the associated risks and difficulties before making a decision.
Enjoyed this? Then try our article on changing your business’ strategy after Covid-19.
Image credits: Bonanza Coffee Roasters
Perfect Daily Grind
Want to read more articles like this? Sign up for our newsletter!