Delivering top quality coffee to millions of South Africans since 2001, Vida e Caffé now has a network of more than 180 outlets. With this number set to rise in the future, even with fierce competition entering the market and global coffee prices looking more and more uncertain, Vida has an extremely robust business and is an example to follow for any customer focussed start-up.
Globally, the coffee industry has taken something of a hit in recent times. Thanks to climate change, uncertainty in commodity markets and the inability of suppliers to meet the ever-increasing demand for quality beans, the industry has seen input prices rise. Like any business, when this happens our coffee shops are forced to pass the increase in cost on to their suppliers or to the consumer, and inevitably this means people will tend to look at alternative, cheaper ways to get their caffeine fix.
Coffee is ubiquitous; some say that there’s no other beverage in the world that has the same respect and reverence. In 2011, some estimates suggested that coffee was a $100 billion industry. Some research even suggests that coffee is now the second most sought after commodity in the world, after oil. So how do you go about managing the costing problems that arise from high demand and low supply? How do you continue to grow? How can you always meet and exceed the quality expectations of customers? You have to ensure your business case is strong and well-planned and that is exactly how Vida e Caffé (Vida) has managed to not only survive but thrive and expand in these tough times.
“The SA Rand is currently not the strongest currency and when your input components come from South America and you’ve got such a weak currency, it does make life difficult,” explains Vida Group Marketing Manager, Nick Smuts. “When you do the kind of quantities that we do, it has a massive effect on the bottom line. There’s been some bleak harvests in South America recently so the quality of bean hasn’t quite been as good as we’d hoped.
“In order to ensure that your roasted product and in-cup quality that you’re serving to your customers is as good as they’ve become accustomed to, you have to make sure you find the best possible beans and when there’s a low supply of that top quality and a high demand, it’s basic economics – the price is much more difficult to make viable. Ultimately, we have to either look at it as a short-term thing and the business has to absorb it, or we have to pass the costs on to the franchise network, across the supply chain, or directly through to the consumer so it’s a difficult thing to manage.”
But even with these macro-challenges, Vida has plans for further growth. This is not a business to rest on laurels; in fact, Vida has secured a partnership with Shell to open outlets on forecourts around the country and this is alongside an ongoing roll-out in traditional locations and business centres.
STILL GRINDING
“We have a new store roll-out plan that’s due to commence in the next few weeks and that’s predominantly in the Shell forecourts. We’ve got about 30 stores planned this year on Shell forecourts and an additional 10-15 planned on the high-street,” says Smuts. “A large percentage of these will be in corporate spaces. For example, we’re opening a second branch in the Foschini Group headquarters in Cape Town. We’re also opening another store in the KPMG headquarters and this is indicative of our growth – it will be less and less on the streets and in malls because we find those areas much more competitive and expensive.” Of course, where there are big mall developments, Vida sees an opportunity for consumers to engage with the brand but they have to be attractive from a financial perspective.
Adding to the companies impressive portfolio at home in South Africa, Vida has also ventured into the exciting markets further north where growth levels are high and first-mover advantages are there for the taking.
“We’ve opened seven stores in Ghana, we’ve got five in Mauritius, two in Kenya, two in Namibia, two in Botswana and we’re looking at Mozambique and Nigeria. On the continent, growth is very exciting for us. We’ve been in Ghana for only two years and already have seven stores and that’s quite significant growth given that these places can be relatively under-developed,” says Smuts.
“We teamed up with a growth partner. It’s a listed company that has about 400 restaurants or FMCG outlets across Africa and the UAE and they have a stable of QSR brands and whenever there’s a new mall or business park, they’ll go in and put in us and one or two other brands. In each of the emerging economies, they have in-country resources already established and that makes rolling out the businesses faster and easier.
“Expansion plans off the continent are probably not likely for the next five years but it’s certainly something we would be interested in when we’ve established ourselves further in Africa,” he adds.
The reason why Vida has managed to grow and take on new markets is partly down to its heritage. A South African brand that was born and bred in Cape Town, Vida’s values are 100% SA and commitment to building the brand at home has provided the springboard for international expansion.
FULL OF BEANS SINCE 2001
“The company was founded in 2001 so this is our 15thyear,” says Smuts. “It was founded by Rui Esteves, that’s where the Portuguese heritage comes from, and his partner Brad Armitage. They opened the first store in Kloof Street in Cape Town. They had previously owned a coffee shop in Durban and when they sold that, they bought with them their six baristas. The first coffee shop had a nice vibe and the charismatic, eccentric baristas. We became one of the pioneers in the speciality, high-street espresso bar coffee culture in South Africa.
“We also have a range of food that compliments a coffee shop; everything from muffins and confectionary through to sandwiches, wraps and salads.”
After running Vida for five years, Esteves and Armitage accepted an offer from one of the franchisees who was a JV partner at one of the stores in Cape Town. They left the business in the safe hands of two driven entrepreneurs. “The new owners William and Grant Dutton went on a growth drive and wanted to roll out nationally and over the last ten years it’s been a family run business with Grant as CEO and William as COO. They grew the business from five stores in 05/06 to around 120 stores when they exited as shareholders and senior managers in 14/15,” details Smuts.
“Today we have 180 stores and the business is majority owned by a private equity firm along with some smaller shareholders.”
It is this historic success that has positioned the business in such good stead today and right now is an extremely important time to be strong as there are some big names starting to make moves in the industry.
HIGHLY CHARGED COMPETITION
In London, New York, Barcelona, Paris, Sydney or most other major economic hubs, coffee is a staple. It’s just part of the scenery; people include it as part of their routine; it’s become the norm. ‘Coffee culture’ has strong roots. The likes of Starbucks, Costa, McCafé, Dunkin Donuts, Caffé Nero, Caribou, Tim Hortons etc are some of the most recognised brands around, and when they make moves in market people take notice. Starbucks, probably the biggest of them all, made its move into SA recently but instead of feeling threatened, Smuts says that competition from international brands brings welcome attention to the industry.
“It comes with positives and negatives,” he says. “It means that the international competitors come with their brand equity clout – when they arrive, they arrive with a bang. Starbucks has 22,000 outlets globally and is probably thename in coffee shop franchising. I think that South Africans are protective of their local businesses and the big names coming into the industry brings attention and where there’s attention on the industry, there’s mentioning of us.
“I like to think that competitors are partners in disguise. It brings conversation around the industry and converts people who were previously not coffee drinkers and we can convert them into our own consumers.
“Franchising has come on leaps and bounds recently and the coffee industry has grown massively in the last five years with Starbucks, Krispy Kreme and Dunkin Doughnuts all entering the market. It’s going to be an interesting time for local businesses.
“There are coffee franchises that have been around in SA for longer than Vida and some of those have strong brands but in terms of trendy high street espresso culture, I don’t think anyone else is known for it as well as Vida. We try and replicate what you might find in Las Ramblas in Barcelona or in streets in Italy and Portugal. We are not a large format sit-down restaurant; we have smaller, more intimate coffee shops.”
TARGETING DRINKERS
As competition grows, and as Vida continues to roll-out new stores, marketing and PR will become more important than ever as more businesses vye for market share. Vida already has a strong brand and a loyal customer base thanks to a strong product range but the company has no plans to relent when it comes to putting the name out there and targeting a range of customer profiles.
“The youth are a big part of our market strategy and our brand ambassadors serve the purpose of trying to generate content for social media. Do we predominantly target the youth? No. our consumers are generally between the ages of 25 and 45 and that’s a young market but it’s not 18-30. I’d also like to target an older generation and we hope to bring in new brand ambassadors who are doing positive work in the entrepreneurial space and the social upliftment space,” says Smuts.
“Because of the nature of our locations, on business parks and in high streets, we also get a lot of people having business meetings in our stores and visiting on their way to work. I’d like to think we actively target the full spectrum of the 25-45 age bracket,” he adds.
With such a strong store-network around South Africa, and also in neighbouring countries, and with more outlets to come, Vida is perfectly positioned to continue its dominance of the high street, espresso bar style format in southern Africa. Vida coffee is some of the best out there and, despite the imminent arrival of more international coffee chains, it looks likely that this South African success story will endure and continue to create jobs, create trade and create beautiful coffee that fuels joy and pleasure.
Starbucks has a 45 year history, Vida has just 15. Given that the industry has seen a 7.1% increase in income since 2014, what sort of height can Vida reach in the next 30 years?