Slideshow: What's so special about specialty coffee?

by Monica Watrous
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KANSAS CITY — You can’t chuck a pumpkin without hitting a fancy festive latte at a fast-food chain these days. Premium coffee beverages have gained momentum in recent years, thanks in part to a swath of millennial consumers who are more likely to trade up from a plain cup of joe.

Earlier this year the National Coffee Association’s National Coffee Drinking Trends market research showed daily consumption of espresso-based beverages and regular coffee made with gourmet coffee beans is up to 34%, compared to 31% in the 2013 data, and daily non-gourmet coffee drinking is down 35% from the previous year’s 39%. Leading the consumption of specialty coffee drinks are 25- to 39-year-olds, 42% of which reported daily usage.

 

Thirsty for a share of sales, Krispy Kreme Doughnuts, Winston-Salem, N.C., has endeavored to redefine itself as a drink stop. The company expanded its beverage platform so coffee and other specialty drinks play a larger role in the total sales mix. Krispy Kreme also began testing frozen lattes and offering packaged ground coffee and ready-to-drink iced coffees in the grocery channel this year.

“We know (customers are) coming for donuts, but we want them to make that decision also to purchase a beverage, so that’s our near-term focus,” said Tony Thompson, president and chief executive officer, during a Sept. 9 call with financial analysts to discuss second-quarter earnings. “Longer term, as our footprint continues to grow, we will become more accessible as a destination and a more frequent beverage user.”

Competitor Dunkin’ Donuts also is seizing opportunities in the specialty coffee segment. With beverages generating 57% of sales, the company innovates with seasonally inspired limited-time offers and customizable flavor shots and swirls.

“Iced coffee is a high-growth category; we're the market leaders,” said John Costello, president of global marketing and innovation for Dunkin’ Brands Group, Canton, Mass., during an analyst presentation in September. “It's also a product that has real appeal to millennials.”

Recent innovation includes a summer launch of limited-time flavors inspired by ice cream at Baskin-Robbins, which Dunkin’ Brands owns. Varieties included cookie dough, butter pecan, and Jamoca Almond Fudge. The beverages were available as hot coffee, hot and iced lattes, and frozen coffee beverages during the summer.

“And it has a double benefit of providing variety for iced coffee drinkers, but also providing awareness for the Baskin-Robbins brand because these are national L.T.O.s,” Mr. Costello said. “And we'll do things like vanilla swirls to add flavor, as well as flavor shots, which are unflavored, unsweetened versions, to do that.”

Specialty coffee beverages not only build check and add menu news to the fast-growing breakfast day part. The drinks also provide plentiful opportunity for flavor innovation. For the winter months, Dunkin’ has launched a sugar cookie latte, featuring the flavor of frosted sugar cookies topped with red and green sugar crystals; and the snickerdoodle cookie latte, which combines flavors of sugar and cinnamon with a whipped cream and cinnamon topping. Peppermint mocha coffees and lattes also are returning for the season.

Dunkin’ Donuts isn’t the only restaurant chain aiming to perk up sales with seasonal beverages. Starbucks Corp., Seattle, has unveiled its first new holiday beverage in five years with the introduction of a chestnut praline latte, featuring a blend of espresso and flavors of caramelized chestnuts with steamed milk, topped with whipped cream and spiced praline crumbs. Inspired by European holiday flavors, the chestnut praline latte “resonated strongly with customers in test markets and will add incrementality as the next iconic holiday beverage,” said Howard Schultz, chairman, president and chief executive officer of Starbucks, during a fiscal earnings call on Oct. 30.

Also returning to Starbucks this season are the peppermint mocha, made with mocha sauce and peppermint-flavored syrup and topped with whipped cream and dark chocolate curls; the gingerbread latte, which contains gingerbread-flavored syrup and a spice-infused whipped cream topping with a molasses drizzle; and the caramel brulee latte, with caramel brulee-flavored syrup, whipped cream and a caramel brulee sauce and caramel pieces. Starbucks’ eggnog latte, which originally wasn’t featured among this year’s holiday lineup, is set to return nationwide after customers complained of its absence.

More competition brewing

Another restaurant chain launching seasonal coffee varieties is McDonalds Corp., Oak Brook, Ill. The company’s new McCafé white chocolate collection includes a white chocolate mocha and a white chocolate latte, joining the returning peppermint mocha. The drinks are made to order with espresso from Rainforest Alliance Certified farms and white chocolate flavor, plus a choice of milk and optional whipped cream.

“Our customers’ love for seasonal coffee has inspired us to expand our McCafé offerings with new limited-time flavors like the pumpkin spice latte earlier this fall and now the white chocolate mocha,” said Carolyn O’Mara, marketing director, McDonald’s USA.

The Einstein Noah Group, Lakewood, Colo., is offering a cinnamon caramel latte at its Einstein Bros. and Noah’s New York Bagels stores for the season. The beverage combines cinnamon and sweet caramel with a whipped topping and caramel drizzle and is available hot, iced or frozen.

At Caribou Coffee Co., Minneapolis, customers may order a gingersnap cookie mocha drink that is made with hints of ginger, allspice and clove. Returning this season to the coffee chain is a spicy mocha coffee, featuring ancho and chipotle chilies, and a mint mocha variety, topped with candy cane pieces.

The Coffee Bean & Tea Leaf, Los Angeles, has introduced a holiday beverage menu that includes a toffee nut latte, flavored with caramelized sugar and a hint of nut, a peppermint mocha latte, a winter dream tea latte blending black tea, rooibos and sweet spices mixed with French vanilla powder. The chain also is offering a red velvet hot cocoa topped with sweet cream.

Peet’s Coffee & Tea, Emeryville, Calif., introduced a cinnamon hazelnut latte, which pairs baked cinnamon notes with roasted hazelnut and bittersweet espresso.

More competition is brewing in the specialty coffee market, but Starbucks, which first launched a pumpkin spice latte more than a decade ago, said it doesn’t feel threatened by the increased activity. Even as more chains offered pumpkin lattes this year, the company said it saw no dilution within its customer base during the season.

“With regard to products, it's clear that over the last 10 years, we created a category that did not exist with pumpkin spice latte,” said Troy Alstead, chief operating officer of Starbucks, during the Oct. 30 earnings call. “Having said that, P.S.L. did very well for the season. One of the hallmarks of Starbucks is surprising and delighting our customers with proprietary beverages. The interesting thing about the beverage we are introducing, chestnut praline latte, is this is something we tested under the radar last year. It surprised us at the high end, and this is a product that's coming into the system with as much enthusiasm internally as anything we've done in the past during the holiday season. And I put it in the same spirit as when we introduced eggnog latte many, many years ago. This is a beverage that is going to do very well.”
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