Not only has there been an explosion of new coffee brands in the last 12 years (up from 350 to well over 2000 and counting), but the unreported store here is how the consequence of all this extra capacity is applying some negative downward pressures upon the roasted coffee market in Australia.
For a while now, a series of unhealthy signs shows a significant gap between excess supply and a slower-rising demand side.
It's not affecting our mycuppa.com.au business, but our colleagues in the industry, specifically those I talk with, often lament the tough prevailing conditions caused by literal "drive-by" damages when brands steal customers.
Yet despite the challenging trading conditions, few coffee companies are being offered up for sale or going bust.
That's a stark contrast to the thousands of cafes, either officially or unofficially, on the market at any time.
Any cafe owner will gladly part with their operation for the right $$ without blinking an eye.
A coffee company will rarely trade or change ownership.
In the suburb where we live, more than 80% of the dozen or so cafes, some only a few years old, are up for sale.
Those up for sale have been on the market for more than 12 months.
That got me wondering why a continuing fragmentation or a lack of unified structure in our local Australian coffee industry prevails.
Is this because there are zero consolidations taking place in coffee-roasting businesses?
The coffee industry in Australia has remained immune from any major structural change - putting it in a unique category.
Look at almost every other industry; some consolidation will always be at play.
The handful of acquisitions or investments over the last decade have involved relatively large players such as Coffex (Malaysian interests, went bust in Australia, scooped up by Segafredo), Toby's Estate (acquired by Moccopan, who UCC also developed), Veneziano (The Coffee Club), Di Bella (Retail Food Group), Campos (JDE).
There are all big kilo Companies, but they only account for a handful of the selling brands in Australia.
Over in the US, there is always a higher level of market transactions for coffee companies selling via Merger or Acquisition (M&A).
This may be because of the easier access to debt capital and the larger market size, which help to de-risk the transaction process.
Yet for the small to medium sector of the market (known as the dangerous middle in any industry), there is a fierce battleground fighting to hold onto existing customers to preserve market share.
But it doesn't stop some brands from launching brazen or desperate attempts to steal customers from competitors using aggressive incentives.
This market segment includes the many new microroasters and established companies that need a distinct point of difference, a.k.a. the me-too brigade.
The factor holding back the market consolidation in Australia is the lack of tested valuation principles applied to coffee roasting companies.
Benchmarking has proven to be a challenge for most businesses, as many significant deals have been reported with confidential financial details.
Most coffee brands are either founder or family-run.
That brings an emotional element from building something into a viable enterprise - all those years of toil and millions of $$ invested, sometimes without payment.
Goodwill and customer stickiness become very intangible factors in any enterprise valuation calculations, and this particular metric is only possible for brands.
With the number of new coffee drinkers in Australia sitting around 2 - 4%, it never rises at the same rate that added capacity is added by new players and brands entering the market.
Unsurprisingly, the smallest segment of coffee drinkers is the age group from 18 to 29 years old.
That means the influential demographic, the social-media-addicted young adults, those with abundant energy, the most opinionated and vocal we try so hard to win, are less likely or interested in coffee.
One age segment is a total shock as to the high percentage of coffee drinkers, the 14 - 17 year olds.
Yes, I had to look back at that surprising statistic a few times.
As we regularly talk with roasting equipment suppliers, they claim no end of new systems and upgrades in the pipeline for Australian Coffee Companies.
Some Coffee Companies are increasing their total capacity by more than 400% in the hope that orders of roasted coffee will flow soon.
Many of Australia's mid-sized coffee companies' growth plans focus on a more gradual, organic, incremental rise.
Very few, if any, are counting on mergers and acquisitions with prevailing caution in a market that shows limited signs of maturity.
For a while, coffee companies relied upon competitors stumbling, pinching customers from competitors or the need for a new opportunity landing in their lap unexpectedly.
Those lucky breaks are few and far between in a mature market like Australian coffee drinkers.
When tipping points occur, smart thinking companies join forces to bring scale economies or synergies to a better position to compete in the market.
Until then, expensive cost structures will continue to rise as the affordability of labour, real estate and energy increase at faster multiples than the retail selling price of roasted coffee.
In this game, margins are squeezed, which causes prices to drop faster than usual.
