Review On Instant Coffee Industry In Myanmar By Porter Five Forces

Name – Dr. Khine Zar Lwin
Roll No. – 015
Course – MBA 2nd Batch
Word – 1763
DOS - 31.5.2015

Review on Instant Coffee Industry in Myanmar by Porter Five Forces

Title : Review on “Instant Coffee Industry in Myanmar” by Porter Five Forces Introduction
If we have to talk about coffee, majority of people would think of it as refreshment, stimulant and joyous drink consumed at every time and on every occasion. Coffee industry is the second largest commodity in the world after oil industry. Coffee is also first fair tradable product that is widely available on the market. The industry is connected between developing and developed countries in the world. There are about 60 producing countries and at least around 14 countries that depend on coffee for about 10% of their export earnings.

The origins of coffee can be traced back to the ancient land of Abyssinia presently known as Ethiopia. There are many tales and legends of how coffee was first discovered, but the most distinguished one is a story about an Ethiopian boy named Khardi and his goats. One day Khardi had lost his goats and when he found them they were chewing a strange plant, later known as the coffee bean. He noticed the goats seemed to become very energized from the caffeine after chewing this coffee plant. After experimenting himself, he also noticed the strange feeling of energy he had never felt before. After making this incredible discovery of this magic tree the boy told his dad about it and this is how coffee become part of Ethiopian culture. When Coffee was first introduced it was referred to as “bunn”. Many years later, the word “Khaun” a Turkish word for coffee that the name was originated. People began cooking it in different ways. They were brewing leaves and berries making tea out of it or adding animal fat to make it like a snack in order to use the caffeine to give people energy, compared to what we currently known as energy drinks and energy bars. It wasn’t until around the sixteenth century when people began roasting the coffee beans into coffee ground and making coffee. This was the beginning of the marvelous and widely use of coffee.

Myanmar has a long relationship with coffee that started in 1885 when missionaries began cultivating coffee plants. It has since then taken off and become one of the largest sustainable crops in the country. Myanmar not only produces significant amounts of high grade Arabica coffee, but also a large amount of lower grade Robusta. In fact, about two-thirds of the annual crops are Arabica, and the remaining is Robusta. More than 300 tons of coffee were seen being produced annually by the 2000’s, with about 80 percent of the crops being grown on smaller farms. The coffee industry in Myanmar has long been unsteady due to political unrest and civil rights issues. However, in recent years it has been seeing a steadily growing coffee acreage, with most of the growth taking place in the Northern Myanmar region as this region has shown to have the most potential for growing high quality Arabica due to its high elevation, rich red soil and ample amount of rainfall. U.S. AID grant money has also been a large help for the industry. Below is the picture showing areas where coffee has grown throughout the country. Myanmar coffee typically has a very strong and oily body, often featuring earthy, herbal, and garlic notes. These coffees have also been found to perform very well as a dark roast, and are increasingly being used by roasters as a base for their espresso blends.

Despite the growing coffee farm acreage, Myanmar market has traditionally been dominated by tea consumption rather than coffee. Coffee consumption in Myanmar is relatively minor in world terms, estimated at some 253,000 bags in 2011 (the last year for which data is available). However, it is growing quickly, more than doubling since 2007 alone, up to some 290 grams per capita. Coffee market has increasingly become the focus of the world coffee industry. Likewise, the region is of increasing interest to the coffee sector, both for producers and consumers, and represents a significant potential market for the coffee industry. According to international trade statistics, the market is almost entirely composed of soluble coffee, as indicated below. However, there is a small amount of coffee produced in Myanmar, both Arabica and Robusta, so domestic consumption could actually be higher.

Now, let’s review the Myanmar instant coffee industry with Porter Five Forces.

Bargaining Power of Buyers - High
Consumers are sensitive to price, packaging, grams of ingredients inside
Low switching cost
Variety of products (Numerous brands attracting customers & competing for market share)
Rising awareness on hazards of sugar and trans-fatty acid which is the ingredients of 3 in 1 coffee mixes
Promotion and premiums offered
Taste profile (Myanmar people like to have more sweetness and creaminess of coffee )
Bargaining Power of suppliers – Low
Backward integration
Loose government policies and regulations on Coffee plantation, production and manufacturing.
Threats of substitute products – High
Various food and beverages to substitute (e.g. Leading Fizzy drink brands like Coca Cola and Pepsi, Fresh fruit juices, traditional drinks like tea and other ‘Quick grab’ foods apart from pastries, muffins, doughnuts etc.)
Easy to quench thirst and substitute with simple and accessible products (e.g. the simplest product like water)
Accordingly when there are so many substitutes available, the threat is high and seems to be increasing by day to day.
Threats of new entrants – Low
Presence of well-established brands like Nescafe, Premier, Super and Rich.
High start-up capital
Government urges Foreign direct investment of world-wide brand like Nescafe, Starbuck
Competitive rivalry within industry – High
There are about 25 Local brands as well as imported brands in the market.
The leading ones are Premier, Sunday, Rich, Nescafe, Super and Monkey.
Competition between various brands is fierce; attracting consumers with many marketing techniques and struggling to be top-of-mind position in consumers’ mind.
Intense competition among the players to build up their customer base.
Conclusion
Doctors, public health officials and consumers have long wondered about the health risks of coffee. Because coffee is a stimulant, a natural assumption is that drinking too much of it will speed up the body’s metabolic system to the point of causing damage. Interestingly, research hasn’t really supported this concern and may in fact suggest the opposite.
A recent New England Journal of Medicine article looked at 400,000 people aged 50 to 70 and found that the more coffee people drank, the longer they tended to live. The findings correspond with the general trend of coffee research. Low to moderate consumption (up to 3 cups per day) is associated with decreased risk for heart attack, reduced incidence of Parkinson disease and a small, protective effect against Alzheimer disease, depression and diabetes. Although the data is inconclusive and sometimes conflicting, coffee drinking may also be associated with decreased risk of breast, mouth/throat, liver and prostate cancer. In any case, coffee has never been shown to cause any type of cancer. It’s unclear why coffee seems to confer a health benefit. We know coffee contains antioxidants. Also blood tests of people who have just had coffee show reduced levels of inflammation and better insulin sensitivity. However, the specifics of where and how the molecules in coffee do good things remain unknown.
So there are many reasons to believe that the people of Myanmar are benefiting from all the coffee that is consumed at street-side shops and at home. But a large proportion of coffee consumed in Myanmar comes from adding hot water to 3-in-1 powder packets that contain coffee, sugar and nondairy creamer. When there is no health studies that have evaluated the long-term prognosis for people that drink heavy amounts of 3-in-1, the product is concerning for several reasons.
The proportionally high sugar content in the combo packets may negate some of the benefit of coffee by causing rapid spikes in blood sugar. At the same time, nondairy creamers often contain trans-fatty acids, which allow them to be stable at high temperatures but are known to be dangerous for heart health. In fact, food regulatory agencies in developed countries are currently forcing companies to remove trans-fats from food products. Finally, sugar and non-dairy creamer may reduce the antioxidant concentrations of a cup of coffee.
Even without added fake milk and sugar, drinking coffee comes with some risks. We all know that, in addition to alertness, caffeine can cause anxiety, nervousness, insomnia and irritability. People who drink coffee are more likely to drink alcohol and smoke cigarettes. Heavy caffeine intake is known to cause palpitations (a rapid heartbeat) in susceptible individuals, although as mentioned there is no known increased risk of heart disease.
There is a caffeine withdrawal syndrome that occurs in approximately 50 percent of people who suddenly quit a coffee habit. Typically caffeine withdrawal manifests as headache, fatigue, drowsiness, depressed mood and difficulty concentrating. Also, regular caffeine consumption increases the chance of suffering from migraine headaches (paradoxically, a dose of caffeine delivered in a drink or in a pill can be a moderately effective treatment for a headache).
Nevertheless, it does appear that coffee is good for you. Unfortunately the additional ingredients in 3-in-1 are certainly not beneficial and may be harmful. As with many of the public health challenges we face in Myanmar, a strong regulatory agency and consumer awareness will be important in allowing people to safely realize the benefits of coffee.
However, consumption rate of 3 in 1 coffee is increasing day by day due to its user-friendly and convenient usage. Large and well-funded company where capital is not a problem can enter the industry because of easily accessible raw materials existing in the country and also imported from neighboring countries. Likewise, existing brands in the market are also competing aggressively to get a foothold to be a champion in the game. Myanmar remains one of the most dynamic and high potential markets for future coffee demand. It’s coffee share is rising and if current trends continue, the country potential consumption of coffee will be doubled by no time.

Reference
1. CSIS business management lecture notes and books
2. Global Coffee industry: pitfalls, successes and future perspectives
3. Coffee consumption in East and Southeast Asia: 1990-2012 (International Coffee Organization)
4. Introduction to Myanmar Coffee by Coffee Club
5. Coffee benefits may not extend to 3 in 1 (Myanmar Times, 2014)