There has been an increased shift towards customisation and convenience over the past few years which has resulted in a rise in vertical marketplaces, those that focus on selling or showcasing one type of product. The coffee industry became the target of several startups in the GCC, all looking to push e-commerce into the sector’s long tail. The biggest among them is UAE-based COFE app, an online marketplace, and on-demand coffee delivery app.
"The coffee industry has long been fragmented despite being one of the fastest growing globally and in the Middle East and North Africa region. On a global level, it is a market worth $500 billion and the commodity itself is the second largest traded after oil,” says Ali Al Ebrahim, founder and CEO of COFE.
More than two billion cups of coffee are consumed worldwide every day. Al Ebrahim points out the value of the commodity by highlighting Coca-Cola’s $4.9 billion acquisition of Costa Coffee and Nestle’s $7 billion acquisition of Starbucks.
“In the region, the coffee market is estimated to be valued at $44 billion, according to Euromonitor, and it keeps expanding in terms of local brands and global franchises," he says. “Coffee is of long-standing cultural and historical importance and is believed to have originated in the Arab peninsula, in Yemen in particular, and then spread throughout the world, and in that sense, we wanted to build a regional coffee-focused platform that goes global.”
The company aims to digitise the coffee experience inside the store from the perspective of consumption and merchandising. It offers pickup, curbside, and delivery services, rewards programmes, and monthly subscriptions service where consumers can pay upfront to buy coffee beans and other products sold at cafes.
While the delivery services are incorporated into the app, delivery generates a small proportion of the company's revenues.
“It has been an interesting journey when it comes to changing user behaviours. We have put considerable effort into positioning ourselves as a lifestyle app that is part of the users' daily routine, rather than just another logistics app. Given that 85 per cent of our business comes from the various pickup services we offer, we really are operating in a niche space, instead of competing in a larger market for a much smaller stake,” Al Ebrahim explains.
COFE recently introduced a 10-minute delivery service that enables customers to order a coffee from cafes in their vicinity and have it delivered to them by delivery runners within a ten-minute turnaround time.
The startup is now one of the most well-funded in the region, having attracted $25 million in investment and it currently operates across the UAE and Saudi Arabia, it also recently expanded to Egypt.
To facilitate expansion into Saudi Arabia, which accounts for 40 per cent of branded coffeehouses in Mena, COFE acquired Kaffeen last year. The latter was founded in late 2018 with the purpose of pushing the pickup model to cafes to facilitate the order-taking process inside the stores across the Eastern Province.
To further shore up its presence, COFE partnered with the Private Investment Fund (PIF)’s Saudi Coffee Company whose mandate is to invest over SAR 1.2 billion ($319 million) in the national coffee sector over the next ten years to increase annual output from 300 tonnes today to over 2,500 tonnes by 2030.
For COFE, Saudi Arabia is its biggest market owing to its ambition to increase local coffee output from Arabica beans grown in the mountainous region of Jazan, which is also set to be home to a free zone.
To add more value to the market, the company works to enable farmers to sell coffee beans directly to the coffee houses and roasteries listed on the app. “That way, [we can] improve profit margins for both farms and coffee places which will translate to the well-rounded growth of the entire industry, eventually leading to more value for the end consumer as well,” Al Ebrahim explains.
He adds that “across the industry’s value chain, the profit margins from farming hover around five per cent, while coffeehouses make around 42 per cent. But there are several expenses that chip away at that margin; roasteries’ profit margin ranges from 70-90 [per cent] from selling directly to consumers and 22 per cent from the corporate-focused business line. We are trying to connect the dots across these points of engagement”.
To capitalise on the growing market of specialty coffee in the UAE, COFE acquired Sippy Beans whose platform works as an aggregator of roasteries. The acquisition counted as an alternative to raising a round for the founding team at Sippy.
COFE has its tech and development team based in the UAE, where it was also selected to be part of the AED 2 billion incubation programme by the Abu Dhabi Investment Office (ADIO).
Earlier this year, COFE expanded to Egypt with a soft launch in a few select cities, with operations to be fully set up in mid-June. For COFE, Egypt is now its fastest-growing market.
“Over nine days, we got 40,000 registered users with minimal investment, the market has a lot of potential for growth,” says Al Ebrahim.
Despite the macroeconomic challenges facing the country, the coffee sector has not been adversely impacted thanks to the entry of more F&B brands into the coffee space and the steady rise in purchasing power.
“There’s a sense of stability in the market despite the price spikes, which constitute an operational headache. But more coffee brands keep opening up new branches and restaurants that used to not offer coffee started integrating it into their menus, at least in the mornings. No F&B brand can do without coffee now, because, if anything, people who could not afford to eat out, they probably would end up getting a cup of coffee,” says Ali Aboutria, country manager at COFE.
Through its rewards programme, COFE hopes to attract brands and help them establish a robust brand positioning and earn repeat customers, with plans to offer on-demand deliveries as well.
Across its key three markets, COFE now works with about 1300 brands and has over 5000 branches on its app.