Through colorful illustrations and silly descriptions, Leo Timmers children’s book “Who Is Driving?” helps kids guess which animal is driving which vehicle. The engaging text offers subtle cues to toddlers as they make their guesses, but not all guessing games are in need of such direction. When analyzing the U.S. coffee market, data shows that the growth of the caffeine-inducing beverage category is being driven by single-serve, convenient segments: ready-to-drink (RTD) and single-cup coffee.

“The $15.1 billion coffee category is projected to grow respectably through 2024 at 22.7 percent to reach an $18.5 billion market, which amounts to a 4.2 percent compound annual growth rate,” says Jill Failla, foodservice analyst with Chicago-based Mintel. “Right now, it’s primarily RTD coffee, with the help of single-cup coffee, driving the segment’s growth, while roasted coffee and instant coffee are losing share. Overall, the coffee market is performing well thanks to the beverage's functional benefits and healthful positioning.”

Failla further details the positive impact that RTD coffees have had on the overall market.

“Ready-to-drink coffee is having the most positive impact on the coffee category thanks to its high level of innovation and convenience; the innovation I'm currently seeing in RTD even rivals that of some of the top coffee cafes,” she says. “For example, there's been a quick rise in the number of RTDs offering functional ingredients and benefit claims, from adaptogens to nootropics. Young consumers and Hispanic consumers are core consumers of RTD coffee, which bodes well for the continued future growth of this format.”

Gary Hemphill, managing director of research for New York-based Beverage Marketing Corporation (BMC), also recognizes the performance of RTD coffee and the sub-segments that have emerged most recently.

“Ready-to-drink coffee is growing the fastest from a relatively small base,” he says. “The segment has gotten a boost from recent process-driven innovation like cold brew and nitro coffee.”

 

Ice, ice baby … too cold

As Hemphill noted, one of the vanguard innovations within RTD has been cold-brew coffees. “Cold-brew coffee has given a boost to the RTD segment,” he says. “It’s smoother taste profile appeals to consumers.”

Chicago-based Euromonitor International also credits cold-brew coffee for helping advance the RTD coffee market.

“Cold brew represents a small but growing proportion of RTD coffee sales in the U.S., and brands that are primarily or entirely cold brews, such as STōK, are the standout performers,” the market research firm writes in its March 2019 report titled “RTD Coffee in the US.” “Cold brews appeal to consumers who are looking for an indulgent, coffee shop-style experience as well as to those who seek a low-sugar functional energy boost.

“Innovation in areas such as nitro and sparkling products is keeping RTD coffee fresh and exciting, although simple maturity will cause growth rates to slow down significantly,” it continues. “Growth prospects will depend on how well cold-brew coffee is able to peel off occasions from other soft drinks, notably energy drinks.”

STōK Cold Brew, a brand of Broomfield, Colo.-based Danone North America, expanded its cold-brew coffee portfolio earlier this year with the releases of STōK Oatmilk Latte and STōK Almondmilk Mocha, two new dairy-free creamed coffees.

Noting the rising popularity of oatmilk, STōK Cold Brew developed Oatmilk Latte to provide consumers a creamed, ready-to-drink brew, which features 135 mg of caffeine in each 12-ounce serving. Additionally, STōK Almondmilk Mocha blends a cold-brew coffee with almond milk complemented by chocolate and features 135 mg of caffeine in each 12-ounce serving.

“At STōK, we take the craft of cold brew coffee seriously – but we also like to tinker with our recipes and have some fun,” said Lindsey Morgan, marketing director for STōK Cold Brew, in a statement. “Our new Oatmilk Latte and Almondmilk Mocha Cold Brews offer coffee fans a delicious, creamy and ready-to-drink brew that they can enjoy whenever the need for a pick-me-up strikes.”

As consumers redefine health and wellness, non-dairy innovations continue to proliferate the RTD coffee market.

“Non-dairy milk alternatives are a large part of the RTD market's innovation. Consumers are seeking them out for health and taste reasons alike, and unsurprisingly, interest is driven by Gen Zers and millennials,” Mintel’s Failla says. “More major brands are launching non-dairy milk RTD line extensions, and new up-and-coming brands are offering them right out of the gate. In particular, I'm seeing more oat milk add-ins from brands like Pop & Bottle, Stok, and Rise Brewing Co.”

As noted by analysts, among the appeals for cold-brewed and nitro-brewed RTD coffees is its ability to support sugar-reduction trends.

“I'm seeing more brands reformulate RTDs with lower sugar content and natural alternative sweeteners, such as date syrup,” Failla says. “I'm also interested by the emergence of flash brewed coffee, which has the potential to surpass cold brew as the cold coffee darling. The brewing method for flash brewed coffee preserves some of the more delicate coffee notes for easy drinking and is said to require little to no sugar or creamer. One brand that's specializing in this option right now is Verve Coffee, which entered the RTD space in late 2018 with its canned Nitro Flash Brew Coffee.”

BMC’s Hemphill also notes that the RTD coffee market is catering to the evolving tastes of consumers, including reduced-sugar solutions.

“Ready-to-drink coffee marketers are offering a range of choices — some sweetened, some unsweetened, and some with reduced sugar,” he says. “Today’s RTD products are tailored to the tastes of today’s consumers, which often means reduced sugar.”

Loco Coffee, Holliston, Mass., launched a cold-brew blend with added coconut water for natural sweetness and electrolytes without any added sugar or preservatives, the company says. The RTD coffee drinks provide the same amount of potassium as a banana, it adds.

The market has seen more brands develop nitro coffees, which feature nitrogen infusions. This summer, Hanover, N.H.-based King's Row Coffee launched King's Brew, a line of nitro cold-brew coffee in five varieties: Original Black, Maple Water, Bourbon & Butter, Decaf Cappuccino and Mushroom Mocha.

“We wanted to create a line of cold brew that was innovative and trend-forward, but also timeless, said Chief Executive Officer of King's Row Coffee Sam Sabky in a statement. “Most ready-to-drink coffees are unoriginal in flavor and full of sugar and calorie-dense additives. We wanted to make sure that our nitro cold brew offered something new to consumers, while also delivering on flavor, quality, health, and convenience. All of our flavors are geared toward a different type of coffee drinker, and each taste boasts its own benefits, making the drink as unique as the consumer.”

 

Diverse needs

As BMC’s Hemphill noted, reduced or no sugar is one of the need states that RTD coffees can fulfill. Although consumers are seeking low or no sugar beverages, indulgence still has its place in the coffee market.

“Indulgent RTD coffee is one of the very few high-sugar categories that continue to do well in U.S. soft drinks, primarily thanks to continued product launches from Coca-Cola targeting this space,” Euromonitor’s report states.

However, the report notes that as new product launches decelerates, this sub-segment of the market will be challenged by the popularity of cold-brew and functional coffees.

Regarding functional RTD coffees, Euromonitor highlights the mixed performance the segment has seen in the past few years, but also foresees further potential in terms of fortification.

“The functional segment saw a dip in 2017 as supply issues dogged leading brand, Java Monster, but returned to growth in 2018,” Euromonitor’s report states. “In part, this was due to Java Monster working through its supply problems, but its leading rival, Starbucks DoubleShot grew as well in 2018, showing that there remains a great deal of long-term consumer interest in functional coffees.

“Beneath the two giants, Starbucks and Monster, smaller brands are moving aggressively into this space,” it continues. “Exploration is taking place in functionality beyond energy, including MCT oil, probiotics, and CBD oil in products, offering a much wider range of functional benefits than were previously available.”

As an example of the functional attributes impacting the RTD coffee market, Los Angeles-based Good Day launched its line of premium CBD-infused beverages. The CBD-infused Cold brew coffee is made with a carefully selected, custom blend of Fair-Trade organic coffee sourced from farms in Guatemala, Nicaragua and Colombia. Each can contains reverse-osmosis and ultraviolet-filtered water, organic cold-brewed coffee, and 15 milligrams of CBD from hemp extract sourced from Farm Bill Registered farms in Colorado, the company says.

Although RTD coffee is driving much of the growth within the overall coffee market, other segments have struggled to further their reach.

“Performance of instant and coffee mixes have been soft in recent years,” BMC’s Hemphill says. “There’s a perception that these products are of lesser quality than other coffee formats plus they are not as convenient.”

Although coffee pods helped fuel the growth in recent years, Euromonitor is cautioning that the coffee sub-segment could move in the other direction.

“For the past several years the growth of fresh ground coffee pods has been enough to compensate for declining retail sales in other coffee formats,” the market research firm’s report states. “However, pod growth rates are now a fraction of what they were in the recent past as the category has matured. This has made it increasingly hard for fresh ground coffee pods to continue picking up the slack from declining sales in the standard fresh ground coffee and instant coffee categories.

“As a result, overall category value growth has dropped to near zero. While maturity is the major reason behind slowing growth in fresh ground coffee pods, concerns about cost, packaging waste and quality are also weighing the category down,” it continues. “The key growth area is in private label pods, which are taking major share from Keurig’s more expensive branded offerings. Premium pods, in particular Nespresso, are also doing well although they are a much smaller segment.”

Despite this prognostication, analysts still expect continued growth for the coffee market thanks to buzz around RTD innovations.

“We anticipate continued growth in the coffee category, and the ready-to-drink segment is likely to outperform the overall category,” BMC’s Hemphill says. BI