STiR coffee and tea magazine

Volume 5, Number 3

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STiR tea & coffee industry international 49 Rebel Republics are Running Low on Joe Rebels have controlled the eastern portion of Ukraine including Donetsk and Luhansk Oblasts since 2014. As a result the coffee market there is quite dif- ferent. Most coffee houses closed at the beginning of the armed conflict. Only a few now operate — many with no choice as they are considered important sources of taxes needed to finance rebel operations. Rebels demand that cof- fee shops register under new legislation that requires owners to pay a percent- age of their gross. Doing so is considered a crime in Kiev. As a result most coffee houses simply left the region rather than choose sides. There have been some tense incidents. The Lviv Chocolate Workshop in Donetsk, operated for two years near the front line but was forced to leave the city when shop owners refused to sell coffee to some officials of the self- proclaimed republics. There is no statistical data, but it is believe that two out of every three coffee houses in Donetsk and Luhansk have closed in the past two years. Since the rebel republics are not recognized by any state in the world, international coffee chains cannot develop there, under the threat of sanc- tions, leaving the future of this sector in the eastern regions unclear. - Vladislav Voronikov "The number of 'handed for rent' places for cafe and restaurants, often with all equipment, clearly shows that not all caterings were ready to cope with the challenges of the crisis," said Andrei Papko, c.e.o. of the MAFIA caterings chain. Young market The first coffee shops in Kiev opened in the 1990s shortly after the collapse of the Soviet Union. This segment of the foodservice market remained largely unexplored for a long time, especially in the east. Market participants noted important cultural and taste differences between Ukrainians in differ- ent regions. This influenced the expansion strategy for most coffee chains with ambitions to serve the entire country. "While in the west of Ukraine there are a lot of coffee shops, far more than in the eastern and central part of the country where their numbers are still rather small. In eastern Ukraine, due to its prox- imity to Russia, there is a strong tea tradition. De- mand for coffee in general is weak. Consumers in the east, most often drink instant coffee. People are not going to a catering (foodservice outlet) simply to buy coffee, they are going out to get some food," explains Yaroslav Volynets, director for economy and foreign economic relations of Galka Ltd., the largest coffee manufacturer in the country. In the west, in cities like Lviv and Lutsk, the coffee house segment is still rather new. Since 2014, when the average check was stable the lo- cal currency has been reduced nearly two times (UAH130 is now worth only US$5.00), leading to significant losses to shop owners who must still purchase coffee beans with hard currency. Nasonova estimates there were close to 20,500 foodservice locations in 2014, a number that by the beginning of 2016 has dropped to 15,000. She said 15-20% of this total is coffee shops with chains like Double Coffee closing as early as 2014. Currently, with a population of 42 million she es- timates there are 24 coffee houses per 1,000 citi- zens, a number believed to be much lower than in neighboring Poland and Romania, but still a little bit higher than in neighboring Russian regions. Experts estimated that coffee houses account for 20-30% of overall coffee consumption. Prior to the crisis the number of shops was growing steadily at 7-8% per year. Margins rose to 15% for shops with wise management, while the average check in 2013 was about UAH120 (US$9.50). Despite these challenges business owners are trying to stay optimistic about the current pros- pects of the market, since Ukraine is still one of the most promising in Europe. As the harsh times end, they predict a wave of revival that may bring good money to the companies that survive. "We believe that now it is really a good oppor- tunity to start business. The market will inevita- Ukranian Coffee market in the country is going throught hard times Mobile coffee bars have become real competitors to coffee houses

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