Coffee market perks up
Premium formats experience growth as disposable income rises
Whether seeking a caffeine fix or a social beverage, more Americans are sipping on coffee, according to the National Coffee Association of USA Inc. (NCA), New York. In its “2013 National Coffee Drinking Trends” market research report, the organization found that 83 percent of the U.S. adult population now drinks coffee, which is a five-point uptick compared with last year. Daily consumption remained steady at 63 percent, and once-a-week consumption has risen to 75 percent, it says.
From 2008 to 2013, revenue in the retail coffee market grew at an average annual rate of 5.6 percent to $27.9 billion, according to Santa Monica, Calif.-based IBISWorld’s May 2013 report “The Retail Market for Coffee in the US.” The market research firm also expects the retail coffee market to grow 5.7 percent this year, says Industry Analyst Andrew Krabeepetcharat.
“Generally speaking, cultural and social trends are the largest driving factors for the industry’s growth,” Krabeepetcharat says. He notes that coffee now is often used as a social device, similar to drinking alcohol in a bar with friends, with the difference being that coffee is acceptable for consumption during the day or night and can appeal to consumers not yet of legal drinking age. The improving economy and shifts in consumer preferences also have helped the category grow, according to IBISWorld’s report.
In addition, recent research about the health benefits of coffee might be a motivator to consumers to start or continue drinking coffee, according to Rockville, Md.-based Packaged Facts’ July 2013 report “Single-Cup Brew Beverage Products in the U.S.: Coffee Pods and Beyond.” Research shows that coffee can help reduce a consumer’s likelihood of developing Type 2 diabetes, Parkinson’s disease, dementia, and certain types of cancers, including prostate, endometrial and basal cell carcinoma, it says. In addition, researchers have determined that coffee drinkers have fewer heart rhythm problems and strokes, and that coffee has antidepressant effects and can extend a consumer’s life, it reports, citing data from WebMD.
This growing interest in coffee is visible across most formats within the category, says Dana LaMendola, beverages associate for Chicago-based Euromonitor International. From 2011 to 2012, fresh coffee beans grew 9 percent in terms of value, standard fresh ground coffee grew 11 percent, instant coffee grew 4 percent, ready-to-drink (RTD) coffee grew 17 percent, and coffee pods grew 109 percent, she says.
Coffee companies are catering to time-crunched consumers with RTD offerings. This format currently is experiencing a resurgence as it recorded double-digit growth in the last year for the first time since 2007, Euromonitor’s LaMendola says. At present, this format makes up 17 percent of the coffee market, she says.
Earlier this summer, Seattle-based Starbucks Coffee Co. released a line of single-serve, ready-to-drink iced coffees for on-the-go consumption. Inspired by the handcrafted iced coffees made at the company’s coffeehouses, Starbucks Iced Coffee drinks are made from 100 percent Arabica coffee beans; blended with 2 percent milk; and available in Vanilla Iced Coffee, Caramel Iced Coffee, Iced Coffee + Milk, and Low-Calorie Iced Coffee + Milk varieties.
Most recently, coffee companies have expanded these formats into multi-serve cartons. In March 2012, International Delight, a brand of WhiteWave Foods Co., Denver, released Original, Mocha and Vanilla iced coffees in ready-to-serve, half-gallon containers. The iced coffee line combines coffee, real milk and cream in a ready-to-serve, half-gallon container, bringing coffee-shop-quality iced coffee home, the company says. This year, the company expanded the line with Vanilla Light and Mocha Light iced coffees with one-third fewer calories than the regular iced coffees.
Also entering the multi-serve coffee segment, Starbucks released into broad distribution its Starbucks Discoveries Iced Café Favorites. Available in Caramel Macchiato, Caffé Mocha and Vanilla Latte varieties, the RTD coffees balance Starbucks espresso from 100 percent Arabica beans with 2 percent milk and natural flavors with 120 calories in each 8-ounce serving, the company says.
Overall, the growth in the RTD format, particularly iced coffees, shows that home coffee brewing is not overshadowing this segment, Euromonitor’s LaMendola says. In fact, IBISWorld expects that RTD coffee offerings will continue to grow during the next five years.
Consumers also are interested in more convenient methods of brewing and consuming their coffee at home, according to experts.
For this reason, among others, single-cup at-home coffee brewing has exploded in the last few years, according to Packaged Facts. In 2012, dollar sales of single-cup coffee grew 82 percent to $922 million, it reports. Experts estimate that single-cup sales now account for more than 25 percent of total dollar coffee sales in grocery stores, it adds. Green Mountain Coffee Roasters (GMCR), Waterbury, Vt., controls approximately 60 percent of single-serve sales across various brands, followed by Starbucks with 18 percent, and The J.M. Smucker Co., Orrville, Ohio, with 16 percent from its Folgers Gourmet Selections and Millstone brands, it reports.
In addition, research by the NCA showed that 10 percent of households owned a single-cup coffee brewer in 2012, up from 3 percent in 2007, and
36 percent of respondents had purchased their brewers in the last 6 months. Forty-nine percent of purchasers used the single-cup brewers to replace their old brewers, while 34 percent continue to use their old brewer in addition to their single-cup brewer, it adds.
Packaged Facts reports that 69 percent of consumers surveyed in 2012 indicated that they use their single-cup brewers to prepare 70 to 100 percent of the coffee they consume, while 31 percent report using them to make 29 percent of their coffee or less.
A February poll by Harris Interactive Inc., Rochester, N.Y., also found that, among adults with single-cup coffee makers, 70 percent say they have consciously chosen to use it instead of buying a drink at a coffee shop. Euromonitor’s LaMendola says this might be because consumers perceive the investment in coffee pods and single-cup brewing equipment to be less expensive than purchasing coffee on-premise.
Utilizing single-cup brewing machines as well as other coffee formats, consumers can make branded coffee-shop-style drinks at home. For example, Canton, Mass.-based Dunkin’ Brands Inc.’s Original Blend, Dunkin’ Dark Roast, French Vanilla, Hazelnut, Dunkin’ Decaf and seasonal Mocha coffee varieties are available in K-Cups for single-serve coffee brewing through a partnership with GMCR.
This summer, the duo also welcomed iced coffee to the single-cup format with the release of Dunkin’ Donuts Original Blend Iced Coffee K-Cup packs. The packs are brewed hot directly over ice to allow consumers to enjoy Dunkin’ Donuts iced coffee at home, the companies say.
“Our iced coffee has long been a favorite way for our guests to keep refreshed and keep running throughout their busy days. In fact, iced coffee is fast becoming as popular as hot coffee in our restaurants,” said John Costello, Dunkin' Brands president of global marketing and innovation, in a statement. “We’re excited that we are now able to offer Iced Coffee K-Cup packs so people can experience and enjoy our legendary iced coffee at home or at work, any time of day.”
“Our iced coffee has long been a favorite way for our guests to keep refreshed and keep running throughout their busy days. In fact, iced coffee is fast becoming as popular as hot coffee in our restaurants."
Also working in the single-cup segment, Starbucks Coffee Co. recently signed a five-year agreement with GMCR to expand their partnership, which started in 2011, for the manufacturing, marketing, distribution and sale of Starbucks- and Tazo-branded single-serve packs for use in GMCR’s Keurig single-serve brewing systems globally. Under the new agreement, Starbucks will add brands and varietals, including Seattle’s Best Coffee and Torrefazione Italia coffee, to the Starbucks K-Cup portfolio of offerings, ultimately tripling the number of Starbucks products on the Keurig platform.
With the expiration of GMCR’s patents on K-Cups in September 2012, smaller brands also have moved into the single-cup space. In July, Internet-based coffee company Coffee.org released Miss Ellie’s Coffee Breakfast Blend light roast, Donut Shop medium roast, and Dark Roast varieties in 24-count RealCup boxes. The newly patented RealCup design allows consumers to instantly brew Miss Ellie’s Coffee and is compatible with Keurig coffee makers, the company says.
Packaged Facts estimates that private label single-cup coffee sales could grow from about $125 million this year to $750 million in 2016. As of April, private label sales represented less than 3 percent of the U.S. single-serve market, it states.
Euromonitor’s LaMendola agrees that private label shows significant growth potential in the single-serve market as consumers have grown to trust private label coffee in other formats.
Ground roasted coffee remains the most popular type of coffee, making up 73.6 percent of the revenue in the coffee market, according to IBISWorld’s June 2013 report “Coffee Production in the US.” In fact, 55 percent of respondents to a 2011 NCA survey reported drinking traditionally brewed coffee the day prior to the survey, including 17 percent that drank traditionally prepared gourmet coffee, IBISWorld reports.
Within this segment, Folgers, Maxwell House, private label, Starbucks and Dunkin’ Donuts brands earned the Top 5 spots on Chicago-based Information Resources Inc.’s (IRI) list of the top ground coffee brands for the 52 weeks ending July 14.
IBISWorld’s Krabeepetcharat notes that brand recognition and reputation is a highly important factor for coffee consumers. “Coffee drinkers are less inclined to purchase coffee they have never tried or [that] has not received any recommendations,” he says. “However, premium coffee drinkers are more likely to buy less well-known brands in order to discover new tastes.”
Newer brands of ground coffee are giving consumers even more flavor and taste options within the format. Magnum Coffee Roastery, Nunica, Mich., recently launched its Magnum Taste of the Exotics line of four coffees in California, with plans to expand distribution into other states this year and nationwide next year, the company says.
Magnum Coffee Roastery’s gourmet portfolio includes Jamaican Blue Mountain and Kona Hawaiian blends in 12-ounce packages of ground coffee as well as two other whole-bean coffees in 10-ounce bags, the company says. All blends are made from Fair Trade-certified Arabica beans, in line with the rising trend of ethical consumerism, it adds.
For a seasonal flair, The Coffee Bean & Tea Leaf, Los Angeles, released its Pumpkin Spice and Cinnamon Hazelnut coffees this month. Pumpkin Spice is a medium roast Colombian blend ground coffee that features pumpkin flavors with notes of cinnamon spice and a hint of cream, while Cinnamon Hazelnut is a full-bodied medium roast with the flavor of freshly ground cinnamon and lightly toasted hazelnuts, the company says. Both blends will be available through November, according to the company.
The increased availability of a wider range of coffee flavors in supermarkets and grocery stores has stimulated demand and raised awareness of the gourmet and specialty coffee segment, IBISWorld notes.
In addition, the increased prevalence of lighter roasts, like Starbuck Coffee Co.’s Blonde Roast, and medium roasts, like those mentioned above, has helped to attract consumers who are seeking lighter coffee flavors, do not enjoy the taste of coffee, or want to drink coffee only for its caffeine content, as well as regain consumers who have switched to energy drinks, according to Euromonitor.
Despite ground coffee’s market dominance, IBISWorld expects that its popularity will decline as the premiumization trend influences consumers to choose whole coffee beans for fresh grinding at home. Although not as convenient as purchasing ground coffee, whole beans often are preferred by coffee connoisseurs because freshly grinding the beans at home brings out the flavor of the beans, it says.
From 2008 to 2013, the whole-bean coffee format gradually increased in popularity and now accounts for 13.4 percent of market revenue, IBISWorld reports.
Americans, on average, consume three cups of coffee a day, according to Rockville, Md.-based Packaged Facts’ report “Single-cup Brew Beverage Products in the U.S.: Coffee Pods and Beyond.” However, coffee consumption habits tend to vary by age and ethnicity, according to experts.
Approximately 42 percent of coffee consumers are in the age 35-54 group, according to IBISWorld, Santa Monica, Calif. These individuals often are working full-time jobs and turn to coffee to fuel their work ethic. Plus, this group has the disposable income to indulge in gourmet coffee beverages and patronize coffee retailers. In addition, this group has been particularly attracted to the single-cup format because of the convenience factor that it offers.
In comparison, consumers who are older than 54 tend to have high levels of discretionary income and can afford to indulge in gourmet coffees, IBISWorld reports. However, some of these consumers have the post-World War II view of coffee as a simple, basic necessity and have not been as quick to adopt gourmet coffee additives or brewing gadgets. Older consumers in this group tend to be on a fixed budget and, as such, are the largest consumers of instant coffee.
Younger consumers make up the smallest group of coffee consumers with approximately 41 percent of consumers between the ages of 18 and 39 consuming coffee daily, IBISWorld reports. Many consumers younger than 35 were hit hard during the recession and do not have the disposable incomes to indulge in coffee. In spite of this trend, purchases by consumers between the ages of 18 and 24 have grown as a percentage of industry revenue during the last five years as a result of coffee’s growing popularity among college students.
In terms of consumption trends among ethnic groups, Hispanic-Americans are trending more strongly in past-day coffee consumption than other Americans, according to a 2013 survey by the National Coffee Association of USA Inc., New York. Seventy-six percent of adult Hispanic-Americans said they drank coffee yesterday, 13 percentage points ahead of the total population, according to its report. By comparison, 47 percent of African-Americans and 64 percent of Caucasian-Americans said they drank coffee yesterday, it adds.