Category Focus: Spilling the beans
“The best part of waking up is Folger’s in your cup” is a tagline recognized by many consumers, and that home-brewed concept seems to be especially popular this year. Instead of venturing to a local coffee shop for a morning cup of joe, nowadays the consumer is brewing more at home. The trend is occurring due to the recession, which has caused thrifty consumers to think twice about spending on higher-priced coffee-shop coffees.
“Consumers are brewing more at home to save money,” says Garima Goel-lal, senior beverage analyst at Mintel International, Chicago. “Ground coffee companies are definitely trying to attract consumers who are trying to get away from a more expensive format. The brewing at home trend will likely remain, at least in the short term.”
And the numbers don’t lie. According to Information Resources Inc., Chicago, ground coffee sales increased 6.5 percent, earning more than $2.4 billion for the 52 weeks ending Oct. 4 in supermarkets, drug stores and mass merchandise outlets. Folger’s ground coffee topped IRI’s ground coffee list by a landslide, earning $676.6 million, increasing sales nearly 53 percent.
To stay competitive, well-known coffee shops such as Starbucks Coffee Co., Dunkin Donuts, Peet’s Coffee and Seattle’s Best decided to sell their branded beans at retail outlets. Starbucks and Dunkin Donuts took the No. 4 and No. 5 spots, respectively, on IRI’s top ground coffee sales list. Dunkin Donuts ground coffee fared well at supermarkets, drug stores and mass merchandise outlets earning $133.2 million, an increase of 46.7 percent vs. the prior year.
As more and more branded coffee products show up at retail locations, consumers will easily recognize the labels and be more likely to buy the products, Goel-lal says.
Starbucks Coffee Co. expanded its packaged coffee portfolio in the grocery, drug and mass retailer channels. The company now offers 5-ounce and 20-ounce coffee packages in addition to the current 12-ounce sizes.
Instant coffee and single-serve coffee systems are popular options as well. Green Mountain Coffee offers the Keurig K-Cup system, and Nestle launched its Dolce Gusto pod coffee system late last year. Starbucks jumped in on the instant coffee market with the release of Starbucks Via. The instant coffee is made with coffee beans sourced from the top 3 percent of the world’s coffee supply, the company says. Via Ready Brew is pre-proportioned into single-serve packets and packaged in books of three or boxes of 12, retailing for $2.95 and $9.95, respectively. Colombia and Italian Roast are the initial flavors.
Starbucks stores around the country sampled Via Ready Brew this summer, and given the positive customer response, the company decided to launch a decaf version, the company says.
“Many of our customers have been surprised and impressed to learn they were drinking instant coffee,” said Cliff Burrows, president at Starbucks Coffee Co. U.S., in a statement. “We are encouraged by our early results and positive response from both our customers and our partners. Our reinvention of this category has given us the ability to create the authentic taste and quality of Starbucks coffee in an instant form.”
Starbucks Decaf Italian Roast is made with Arabica coffee and is naturally decaffeinated, the company says. The coffee can be made by adding hot or cold water.
Mintel’s Goel-lal says ground coffee will continue to fare well because, while consumers are cutting back on discretionary spending, such as retail coffee shops, they are purchasing more brew-at-home coffees. Ground coffee competes mostly with bagged tea, Goel-lal says, and the category may need to expand into more functional options to stay competitive.
“For ground coffee, one of the negatives can be that older consumers are looking to cut back on caffeine for health reasons, and are moving to tea,” she says. “[Coffee companies] need to retain these consumers who [respond] to coffee innovations.”
To complement the new innovations, some companies decided to create new concepts in the category.
Lansing, Mich.-based Paramount Coffee Co. created Joe, a new concept in ground coffee for consumers who want a simple cup of coffee. Joe is packaged in 12-ounce solid-colored bags with the word “Joe” in big, vertical letters. The product is available in Tall, Dark and Handsome (Dark Ground Roast), Wake Up Joe (Medium Roast Ground), Daily Dose (Medium Roast Ground) and Unleaded (Decaf Medium Roast Ground) flavors.
“It’s for the consumer who wants an excellent cup of coffee but at a reasonable price – The Average Joe,” said Paramount Coffee President and Chief Operating Officer Steve Morris in a statement.
A little off the traditional ground coffee track, Cincinnati-based HeaterMeals introduced Café2Go, a self-heating beverage kit. Originally designed in cooperation with the U.S. Army Soldier Systems Center as the self-heating beverage kit for the U.S. Army Unitized Group Ration-Express, the kits are now available for emergency response professionals, law enforcement and fire fighting professionals, as well as other consumers. The kits come with a patented beverage heater, brand name coffee, tea and cocoa products by Nescafé, cups, sugar and creamers. No refrigeration is required and the product’s shelf-life is up to 18 months.
Ready-to-drink coffees are still a convenient choice for consumers, and they offer a similar caffeine boost as many energy drinks. In the current economy, RTD coffee has experienced lower sales numbers. According to IRI, the cappuccino/iced coffee category declined in sales 12.4 percent, earning $212.4 million for the 52 weeks ending Oct. 4.
“2009 represented a shift in demand for ready-to-drink coffee,” says Alison Lipson, research analyst at Euromonitor International. “As consumers became faced with declining incomes, higher priced non-essential products suffered. Consumers have shifted shopping behavior away from indulgences in favor of basic necessities.”
Even though Starbucks Frappuccino, Doubleshot and Doubleshot Light led the RTD coffee category in the No.1, No. 2 and No. 3 spots, respectively, all three beverages declined in sales. Private label, on the other hand, earned more than $2.3 million, an increase of almost 6 percent in sales.
Earlier this year, Starbucks added to its Doubleshot Energy + Coffee line with a Cinnamon Dulce variety. Cinnamon Dulce contains coffee, B vitamins, guarana and ginseng.
NBI Juiceworks also added to its Sun Shower and Drenchers RTD coffee products. Newly added Sun Shower Mocha Cappuccino contains the company’s “Lifeguard Protection” nutritional package of protein, vitamins A and E, zinc, organic non-fat milk, calcium and magnesium. The company also added Drenchers Fit ‘N Lean Iced Coffee to its line of Fit ‘N Lean blends. The product contains 100 calories, 21 grams of carbohydrates and 5 grams of protein.
With an energy boost in mind, Shock Coffee introduced Triple Mocha Energy Blend and Triple Latte Energy Blend. Both products are available in 15-ounce 12-packs and 8-ounce 24-packs. The company says it hopes to create a Light version of its RTD coffee in 2010.
Value packs and multi-sized packages will help draw consumers and increase sales, Mintel’s Goel-lal says.
“Manufacturers could start selling in a multiple package,” she says. “… Price is definitely an important component to consumer purchases.”
Euromonitor’s Lipson says with consumers trending toward healthy alternatives, RTD coffee manufacturers may want to expand their products into that market.
“It is expected to see the addition of functional benefits – such as added calcium, vitamins, and/or antioxidants incorporated into products in this category,” she says. “Though convenience remains a priority, health is also top of mind.”
“As the economy rebounds, it is expected to see a greater interest among consumers for organic and/or Fair Trade coffee, and manufacturers will likely respond to this by launching organic versions of RTD coffee,” she adds. “It is also possible to see lower sugar content in RTD coffees as well as alternative sweeteners such as stevia used.” BI