Running head: INDUSTRY OVERVIEW OF COFFEE SHOP INDUSTRY 1

Industry Overview Of Coffee Shop Industry

Student’s Name

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Course Title

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10/14/2020
The Coffee Shop Industry 2

Contents
Size of the Industry..........................................................................................................................3
Growth of the Industry.....................................................................................................................3
Major competitors in the Industry...................................................................................................4
Analysis of the Marketing Environment..........................................................................................4
Cultural Environment......................................................................................................................4
Political Environment......................................................................................................................6
Economic Environment:..................................................................................................................7
Demographic factors:.......................................................................................................................8
Technological environment:..........................................................................................................10
Natural Environment.....................................................................................................................11
Conclusion.....................................................................................................................................12
References......................................................................................................................................14
The Coffee Shop Industry 3

Overview of Natural Factors in Coffee

Size of the Industry

In the Middle East, UAE is one of the most developing coffee markets. Additionally,

tourism and global business have led to increased demand for coffee shops in the UAE. The

coffee chain market in the United Arab Emirates is rapidly growing. Consumers have become

aware of good quality coffee and variety and the conditions for their growth and processing.

According to a result released in 2018 by the Licensing and Business Registration Board found

in the department of the economy (DED) in Dubai, the total number of coffee shops, restaurants,

and cafes was 11,813 (Wan, 2019). Since then, the number has been increasing due to Dubai's

conducive business environment and well-developed infrastructure.

Growth of the Industry

The Coffee Shop Industry 4

UAE coffee chain market is highly dominated by international brands operating through

franchises. Local independent coffee specialty is also found within the market space. In the

coming years, an increased influx of exceptional coffee brands, coffee houses, cafes, and product

innovation will further drive market growth (Allegra World Coffee Portal, 2018). The increased

number of coffee shops in UAE is also promoted by increased taxation of sugary soft drinks

(fifty percent) and energy drinks (a hundred percent excise taxes) (Allegra World Coffee Portal,

2018). Digital transformations have accelerated the coffee market's growth through increased

sales to target consumers (Begum, Yavuz, & Piotr, 2020). The increasing number of coffee

shops, restaurants, and café has created employment for local and international populations.

Major competitors in the Industry

Local coffee specialties are faced with stiff competition from international coffee brands.

Sustainable procurement practices have kept significant players in the market afloat. Major

coffee shop competitors are Starbucks, Tim Hortons, Café Bateel, Costa Coffee, Caffe Nero,

Gloria Jean's Café, Dunkin Donuts, and Caribou coffee (Marzouki, 2020). These coffee chains

compete based on price, customer experiences, promotions and brand image, quality,

customization, geographical coverage, ambiance, services, and environmental atmosphere

(6Wresearch, 2020 report).

Analysis of the Marketing Environment

The Coffee Shop Industry 5

 Cultural Environment 

Coffee consumption is widespread in the United Arab Emirates and is part of the culture

and tradition of the Emirati. UAE is known for a strong coffee tradition (Allegra World Coffee

Portal, 2019). Arabic coffee has over the years been used in the UAE and is considered as a

symbol of generosity among the citizens of UAE which represents a critical aspect of the cordial

hospitality of the Emirati. Consumption of Arabic coffee is considered one of the esteemed

characters and personalities of the Emiratis and is a critical tradition of the Emiratis (Department

Of Culture and Tourism -Abu Dhabi, 2018). The Emirati tradition has given coffee

consummation a social status and drinking a cup of coffee has been recognized as a sign of

reconciliation and tolerance between two conflicting individuals and it amplifies warm

receptions.

 The coffee shops market is growing rapidly in the UAE owing to the exponential

increase in the demand for coffee. Consumers in the UAE have become more aware of new

coffee shops in the UAE and they appreciate choice and quality and are more critical when

deciding on where and the type of coffee they should consume. The market has significantly

transposed from the tradition coffee outlets to modern coffee shops that provide variety,

customized, and high-quality coffee to customers (Arun, 2020). Customers are now demanding

particular coffee verities such as Robusta. They also demand a certain method of the coffee

process such as the Semi-Dry Process. Additionally, with the increasing rise of tech-savvy

people in the country, customers are turning to an online platform to order and facilitate

payments for coffee. Above all, they are more interested in the specialty coffee and what it offers

to them (Sadaqat, 2018). As such, consumers have become more sensitive to the type of coffee

they are given and the sensory experiences of the coffee they take. Additionally, with the
The Coffee Shop Industry 6

growing number of choices of coffee varieties, consumers are getting more educated on the art of

coffee making especially for specialty coffee and it is expected the coffee culture in the UAE

will continue to grow.

Political Environment 

  The UAE is recognized for its stable political system. However, the Emirati government

plays a critical role in business regulations and the coffee industry is one of the critical industry

regulated by the government. The UAE is more focused on ensuring that food and beverages

consumed in the country are safe and as such have strict regulations that coffee shops and other

food outlets must adhere to. There are numerous immediate and long-term initiatives by the

Emirati Government that focus on fostering the business environment. Initiatives such as

creating robust tax environments influences fundamentally in the business environment (KPMG,

2020). Local coffee shops must adhere to the provided business regulations, strictly follow the

employment laws, and abide by the safety procedures provided to ensure that the coffee sold to

consumers is safe for human consumptions. Foreign-owned coffee businesses must ensure that

their employees are authorized to work in the country and have employment visas, work permits,

and Emiratis ID. Just like locally-owned coffee shops, foreign-owned coffee shops must adhere

to employment laws and business regulations in ensuring safe products for the Emiratis. The

UAE is known for its cordial trade relationship with many countries across the world (Raza et

al., 2018). With the increasing growth of the country owing to its tourism hub status and the

positive relationship with many countries across the world, doing business in the country is

relatively easy. The country’s political environment is conducive for running a coffee shop and

meeting the rising demand for coffee in the country.

The Coffee Shop Industry 7

Economic Environment:
1) Rise in supplier prices:

Shortage in the coffee beans supply, increase in the packaging and production cost or even

increase in the labor wages are all considered factors that could affect the supplier’s overall costs

resulting in an increasing in the price of coffee beans. The increase in the supplier’s goods costs

poses a threat to the coffee shop industry. Studies have shown that this could affect the overall

production costs and therefore, the profit of the coffee shop. (Factors influencing choice of

supplier, n.d.) This change in the supplier’s prices will definitely cause economic pressure on the

coffee shops which leads to undesirable outcomes. The major countries from which the UAE

imports coffee beans include Brazil, Italy, Switzerland and Germany. (Dubai Chamber, n.d)

Moreover, according to Tark (2020), coffee beans imports in the UAE have increased by 249%

between the years 2008 and 2018. However, Arabica coffee from Brazil has been increasing their

prices due to the pandemic happening in the world, hence, this rise in price will affect all local

businesses depending on Arabica as a coffee supplier. (Mersie, 2019)

2) Deflation rate:

In the past 2 years, the UAE has faced a decline in the inflation rate by -1.93% and -1%

indicating a deflation or disinflation in the economy due to the drop in the oil prices lately and

the economic instability due to the COVID-19 pandemic outbreak. (Plecher, 2020) The deflation

of the economy has negative outcomes on most businesses and industries by causing decrease in

demand of goods and services and thus, decrease in prices of good and services. (Pologeorgis,

2020) Therefore, coffee shop industries in the UAE are definitely impacted by the disinflation
The Coffee Shop Industry 8

rates and changes in money supply and demand in the economy. Hence, if the economy still

undergoes more serious disinflation rates, coffee industries will face serious demand issues and

prices drop. This resembles a threat on the coffee industry in relation to economic status of the

UAE.

3) Higher labor costs:

Due to the global pandemic going on, employees in the UAE are expecting a rise in their

salaries. According to a survey done by El Sawy (Sawy, 2019), almost 45% of responders

expected salary rise in 2020. For labor, this increase is a gain however, to coffee shop

owners, increasing in the salaries and labor costs might affect the overall profit and revenue.

Therefore, the increase in the labor cost acts as a threat for the coffee shop industry.

4) High purchasing power:

Customers in the UAE tend to have high stable incomes which acts as a strength for coffee

shop industry. Higher customers’ incomes mean that customers have more discretionary income

to use. (Maverick, 2020). The higher the incomes customers earn, the more they are willing to

spend for better quality coffee. Statistics by Mehkri imply that almost $630 million are spent in

UAE on purchasing coffee per year. (Mehkri, n.d.). This high purchasing power in the UAE is

considered as an opportunity for coffee shops industries.

Demographic factors:
1) Highly Aware and Educated Customers:

Locating the coffee shop in a location where the population is highly educated, prefer high

quality coffee and are aware of the different types of coffee beans is a great opportunity.
The Coffee Shop Industry 9

(Mukularora, n.d.) In the UAE, customers are strongly gravitating towards specialty coffee the

past few years. This is mostly due to customer’s exposure to better quality and more

sophisticated coffee types over the years which created an atmosphere of rising interest in

learning more about the coffee types and varieties. (Coffee in the United Arab Emirates, n.d.) It

is important since customers will gravitate towards differentiated coffee brands with higher

quality and will be willing to pay for it. Nevertheless, this helps target the audience who are

willing to pay for better quality coffee depending on the taste and features.

2) High Coffee Consumption Rate:

According to Mehkri (n.d.), the coffee consumption rate in the UAE per day is almost 3.5kg

per person. Statistics prove that almost 6million cups of coffee are consumed on a daily basis in

the UAE. (Mehkri, n.d.). This indicates that coffee consumption in the UAE is extremely high

thus, introducing coffee shops industries in the UAE is advantageous for the industry. Hence,

this demographic trend would have a subsequent positive impact on the industry’s overall sales

and acts an opportunity.

3) Age and Gender:

Age and gender are crucial to consider when opening a coffee shop industry since some

genders and different ages are more addicted to coffee beverages than other, therefore, choosing

the right audience and location based is important. In the past few years, it is seen that both

genders, from the age 18 and above have been increasing their coffee consumption in the UAE.

(Mukularora, n.d.) This acts as an opportunity since there are many coffee consumers to target in

the market.
The Coffee Shop Industry 10

4) High incomes:

In the UAE, individuals tend to have high incomes which acts as a strength for coffee shop

industry. Additional income is usually spent on food and drinks which includes coffee shops

industries. Growing incomes usually indicated that customers are more likely to spend more on

better quality goods. Having coffee shops in a location where customers have stable income

helps ensure their willingness to pay for that good. This acts as an opportunity for the industry.

Technological environment:
● Using technology like apps to enhance customer experience can give businesses

opportunities to grow in the coffee industry. For example, coffee shops can use apps to

make it quicker to get their coffee product and collect data to personalize and make the

experience convenient for the customers.

● Another development that can increase opportunities for businesses is to make ordering

and payment easier. Options like pre-ordering and paying by credit/debit card or Apple

Pay. Also, this can help businesses to collect data and make individualized advertising

and promotions which will increase customer loyalty.

● Coffee extraction and barista tech database: precise measurements of water temperature,

brew time, pre-infusion gives better extraction results leading to satisfied customers.

Having a database will help have results reproduced. 9customers expect their usual coffee

order to taste the same every time)

● Using multipurpose coffee machines that are more efficient can be of great help giving

better taste and fine coffee. However, recently it has become more common for people to

buy their own coffee machines and many have learnt how to prepare their own drinks

from the comfort of their homes. This can be a threat to many businesses as we can see a
The Coffee Shop Industry 11

lot of people learning coffee art with precision making it more favorable to choose this

option. This can be used as an opportunity for businesses in the industry to continue

innovating and coming up with new recipes and added flavors to maintain customer

loyalty and attract more.

Natural Environment
Like all the other five factors of the macro-environment, the environmental forces play a

crucial role in decision-making. In the United Arab Emirates, there are different ecological

factors to be put into consideration. The main factors related to the environment to be put into

consideration are pollution, availability or scarcity of raw materials, cooperate social

responsibility and sustainability and the condition of the

A. Pollution and laws that regulate the environment

Half of the people of the UAE want to ban plastic products and plastic containers. Negative

environmental consequences arise from single-use plastics. Plastic contaminates the earth and

demands treatment. As far as coffee cups are concerned, almost 98 % of all the coffee cups are

not recycled (YouGov 2019). And as an avenue to decrease disposable cups, a latte tax is a great

opportunity to show citizens that the company is aware of the environmental issues, thus

improving its image and reputation. There is a small barrier to the coffee shop venture as most of

the single-use and the cups are collected, and the tax is relatively inexpensive. Thus, the

consumer will not be hit with a tremendous increase in the price of a coffee cup as the production

cost will not have increased either.

B. Climatic conditions and availability of raw materials

The Coffee Shop Industry 12

The United Arab Emirates climate will not always support coffee plantation because coffee

requires Cool - warm regions, fertile soils and very few predators or pathogens are ideal coffee-

prospering parameters. However, raw materials are readily available. Countries in the equatorial

belt produce coffee and export. In 2019 the United Arab Emirates had an incremental import of

22% of coffee from Brazil (Brazil-Arab News Agency, 2020). It is hard to gauge if the exporting

countries' climatic conditions or the globe will be favorable to produce coffee for importation.

Consequently, the climate and availability of raw materials can neither act as a strength nor a

weakness

C. Corporate social responsibility and sustainability

The human race is pressing for more agriculture practices that are sustainable, at least. As

humans are increasingly becoming ecologically aware, it will mean that sustainable farming

practices have to be adopted. The United Arab Emirates, however, largely imports some of its

coffee. However, environmentally sustainable practices can mean that there will be an increase

in production and transport costs as we try to cut carbon footprint (Tradekey Learning Center,

2020). Consequentially, this is highly probable to increase with the increasing cost again for the

end-user, which could also negatively affect the beverage industry.

D. Vast seaport that encourages trading

The coast of the United Arab Emirates has over 12 functional ports. These can support the entry

of raw materials that can be used in the coffee shop industry. The availability of raw materials is

an opportunity for the start-up to flourish. These vast ports offer an opportunity to tourists who

may want to try out coffee in the United Arab Emirates. The customs duty is relatively small at

5%, and it is collected by the UAE customs authority as insinuated by Noack (2014). This is a

sign that the venture can bring fruition quickly.

The Coffee Shop Industry 13

Conclusion.
The study's cumulative findings point us to a mixed-signal analysis whereby we have

both the benefits and drawbacks of the project. The macro-factors that make the venture seem

promising are mainly the cultural, demographic, technology and political. There are many

international agreements in the global economy at present; average incomes are continuing to

grow; there are also mixed implications for the free market and sustainable practices, ensuring

gains for the world and farmers, but price increases for the customer. In the existing business

environment, the downside is an increasing awareness of caffeine.

The Coffee Shop Industry 14

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