Emerging Capital Partners (ECP), which sold its majority stake in Kenyan coffee shop chain Java House in 2017, has invested in Nairobi restaurant group and coffee shop chain Artcaffé.
ECP has invested in Artcaffé, a direct competitor of the Java House coffee shop chain it sold to Abraaj Group in 2017. Artcaffé has more than twenty outlets in Nairobi, under five separate banners.
All of the company’s flagship Artcaffé outlets are sited in premium malls in Nairobi such as the Westgate, Galleria, Garden City and Junction Malls. Artcaffé launched its first outlet in 2009. Like Java House, it is a casual dining chain serving coffee and European-style sandwiches, pastries and wraps.
In 2014 Artcaffé bought out the Dormans chain of coffee shops in Kenya from agricultural commodities trader ED&F Man. The deal added seven further branches to what was then just a chain of four Artcaffe cafes. The company also owns the Urban Gourmet burger brand, which currently has five branches, and Ohcha Noodle bar (two branches), Tapas ceviche bar (one branches) and Dormans (3 branches). The company claims to employ 1,300 staff – around 50 at each of its locations (it also has a bakery, kitchen, and logistics centre that supplies its restaurants).
The Artcaffé deal comes at a time when the fast food and casual dining scene in Kenya is undergoing substantial growth, driven by domestic chains such as Artcaffe, Java and Pizza Mojo, major African players such as Innscor, Galito Holdings, Famous Brands and Spur Corporation, and international franchises including Yum! Brands’ KFC and Pizza Hut, as well as Burger King, Cold Stone Creamery and Hardee’s. McDonalds has long been rumoured to be opening in Kenya, but has always denied these rumours.
ECP has lots of options to grow Artcaffé: it has five brands to choose from, options to expand outside Nairobi but within Kenya, or the opportunity to follow Java House and expand elsewhere in East Africa (Uganda, Tanzania, Rwanda and Burundi are far less developed fast food markets). Arguably, ECP has too many options to execute cleanly within what it is likely to be a five year window before exit. We believe that it is likely to close, sell or rebrand the single Tapas restaurant. It may also sell what is left of the Dormans chain, whose cheaper profile and heritage definitely has a place in Kenya but doesn’t fit with the premium positioning of Artcaffé, Urban Gourmet Burgers or Ohcha.
We expect Artcaffé to follow Java House into secondary cities in Kenya and present itself as a direct choice against Java House (i.e. growing the wider cafe sector). It will also likely target major cities elsewhere in East Africa with premium malls, such as Kampala, Entebbe and Kigali. It is less likely at present to move into Tanzania. Artcaffé also has growth options in service station forecourts. Java House has outlets on several Shell (Vivo Energy) forecourts, while franchises such as KFC are also targeting this channel.
