As the ready-to-drink coffee market exceeded $1 billion in total sales for the first time in 2006 according to Euromonitor International, it is becoming increasingly common to see consumers come out of Starbucks — as well as grocery and convenience stores — with a cold coffee product to drink while on the go.
While the most traditional ready-to-drink coffee item might be the Frappuccino, an increasing number of innovative products are being introduced to the market as smaller companies work to compete for market share against the North American Coffee Partnership (N.A.C.P.), a joint venture of Starbucks Coffee Co., Seattle, and PepsiCo, Inc., Purchase, N.Y.
The expanded options for grab-and-go beverages in the grocery and convenience store also translate to increased competition for other beverages.
"Carbonated beverages are losing market share to coffee-based ready-to-drinks," said Paul Kalenian, co-founder and president of X Cafe L.L.C., Princeton, Mass., a company that produces coffee extracts.
Starbucks, PepsiCo lead the way
Starbucks and PepsiCo have taken a significant lead in the ready-to-drink (R.-T.-D.) coffee market through the N.A.C.P., which represents 93% of total volume sales and 93% of off-trade value sales, according to Euromonitor International.
"The category is dominated by the partnership of Pepsi and Starbucks," said Gary Hemphill, managing director of Beverage Marketing Corp., New York. "So as they go, so goes the category. Their portfolio of products accounts for about 90% of the category."
Driving the Starbucks-PepsiCo success is the Frappuccino, the leading brand with more than 80% market share, and the DoubleShot, a high caffeine espresso drink. The Frappuccino was introduced through the N.A.C.P. in 1996.
The N.A.C.P. introduced several new products in 2006, including Iced Coffee, which is made with Italian Roast coffee; Iced Coffee Light; and DoubleShot Light, which has half the calories, two-thirds less sugar and one-third less fat than the original. Another more-recently introduced product is the Strawberries & Creme Frappuccino beverage.
"Pepsi and Starbucks have succeeded in developing an R.-T.-D. coffee that has appeal in the mass market," Mr. Hemphill said. "That, in effect, is the secret to succeeding in the R.-T.-D. coffee category. You also have to have solid distribution, which they do."
At the end of February 2008, Starbucks and PepsiCo will introduce a Dark Chocolate Mocha Frappuccino — a product designed to be an indulgent treat. The N.A.C.P. also has introduced limited-time beverages. Currently, a Dark Chocolate Peppermint Mocha Frappuccino is being offered through February as a beverage marketed especially for the holiday season.
Another new effort of the partnership is the introduction of a vending system with options of up to six Starbucks beverages — Italian Roast Coffee, Caffe Latte, Caffe Mocha Light, Caffe Mocha, Caramel Latte and Hot Coca. The vending units are being tested this fall and the company said it anticipates introducing the new option in late 2007 or early 2008.
Most recently, Starbucks and PepsiCo have announced they have expanded their partnership beyond North America, and China will be the first country to benefit from the expanded relationship. Starbucks currently has more than 540 stores in China.
"With our coffee expertise and PepsiCo’s extensive sales and distribution network, this joint venture will allow us to provide an authentic Starbucks coffee experience to millions more consumers around the world anytime and anywhere they want it," said Gerry Lopez, president of Starbucks Global Consumer Products Group. "This could include countries that may not currently have Starbucks stores."
Quick coffee beverage options
Other companies are working to introduce products that appeal to a sense of indulgence beyond the normal day-to-day caffeine boost in an effort to take away R.-T.-D. market share from Starbucks, according to Euromonitor.
"Starbucks is no longer the only major brand around, and the limited success of its 2006 brand launches and line extensions may mean it has reached a point of saturation in the market," Euromonitor said.
Most notably in the efforts to compete in the R.-T.-D. market has been The Coca-Cola Co., Atlanta, which teamed with Godiva Chocolatier in 2006 to launch Godiva Belgian Blend, a beverage blend of coffee and chocolate.
"If Coke gets more aggressive in the category and other players come in, the category is likely to continue on a strong growth curve," Mr. Hemphill said about future prospects for the category.
And it seems this scenario might be the case.
Most recently, Coca-Cola North America and Caribou Coffee, Minneapolis, launched a new line of premium R.-T.-D. iced coffees in regular, espresso and vanilla flavors.
"The new beverage will expand the reach of the Caribou Coffee tradition and bring simple, everyday values of the Caribou coffeehouse experience to a broader national audience," said Michael Coles, chairman and chief executive officer of Caribou Coffee. "Our partnership with Coca-Cola North America will extend our great premium coffee taste experience into the ready-to-drink category and allow us to take advantage of the world-class Coca-Cola distribution system."
While the product introduction initially is being made in the Midwest and Southeast, Coca-Cola said it anticipates going national next year.
Coca-Cola’s Georgia Coffee, a coffee flavored beverage, has experienced high levels of success in Japan, India and Singapore. According to Coca-Cola, the canned coffee market accounts for one-quarter of the entire soft drink market in Japan, and the Georgia brand is sold in greater volume than any other product brand in Japan’s soft drink market.
One R.-T.-D. product that did not prove successful was self-heating lattes, which Wolfgang Puck, Beverly Hills, Calif., introduced in 2005. The product came in a container that heated the coffee through a calcium oxide reaction after pushing a button. However, some cans began to leak — and even explode — leading the company to recall the brand, according to Euromonitor.
Enjoying the coffee flavor
Mr. Kalenian said R.-T.-D. coffees are increasingly appealing to the health-conscious consumer as some of the newest products have less of a focus on sugar and milk and focus more on the coffee content.
Such healthier products could include the Perfectly Protein Mocha Cappuccino from Bolthouse Farms, Bakersfield, Calif., a large carrot
producer that also produces a line of juices. This product is a blend of low-fat milk and Arabica coffee that has 10 grams of protein per serving and only 2 grams of fat per 8-oz serving. According to Euromonitor, Bolthouse achieved a share of just over 1% in 2006 with this product.
There is also an increased focus on Fair Trade and organic products.
"The same trends that we have seen in the world of frozen ground coffee are being transferred into ready-to-drink beverages," Mr. Kalenian said.
JavaPop, Inc. is a company producing organic, Fair Trade certified coffee soda that was introduced to the market earlier this year.
"Developing JavaPop has been a true labor of love," said Paul C. Hendler, founder and president. "With the organic movement taking hold in the U.S., we wanted to provide a healthy alternative for the ready-to-drink coffee market. I’m proud of the outstanding network of coffee growers and suppliers whose products have enabled us to create an environmentally friendly, healthy and delicious beverage."
JavaPop has five varieties, including espresso, vanilla, mocha, hazelnut and caramel. The new line of coffee sodas was released in February in the U.S. market and is being distributed by Cadbury Schweppes.
Coca-Cola launched Coke Blak, a coffee-flavored carbonated beverage, in 2006, but it has since been discontinued in the United States — showing that not every coffee-flavored product will automatically be a success.
Another off-shoot of the R.-T.-D. coffee market includes just-add-water coffee packets. Java Juice, Inc., Los Angeles, makes packets with Arabica coffee beans. In addition, these products are organic, kosher and shade-grown and may be made with hot or cold water.
According to Euromonitor, Fair Trade and other specialty coffees have been on the rise in an effort by manufacturers to differentiate products in a crowded marketplace. Starbucks said it bought 21% of the Fair Trade coffee imported to the U.S. in 2005, and Kraft bought more than 20 million lbs of Rainforest Alliance certified coffees in 2006, according to Euromonitor.
"We are seeing a very large demand for organic extracts ... to a lesser extent the fair trade demand is increasing," Mr. Kalenian said.
Another trend carrying over into the R.-T.-D. category is awareness of and demand for coffee from specific origins. Mr. Kalenian said Starbucks has educated the public to the origin of coffee and that consumers are increasingly recognizing and demanding coffee by origin.
The rest of the coffee market
Mr. Hemphill said at this point, the R.-T.-D. market is still a small niche category in comparison to the overall coffee market and has had little impact on the coffee market as a whole.
As for the rest of the coffee market, Euromonitor said fresh ground coffee continues to be the preferred form of coffee for U.S. consumers with more than five times the sale of fresh coffee beans. In fact, Euromonitor predicts fresh ground coffee will continue to make up the largest portion of coffee retail sales and is expected to grow 10% in constant value terms from 2006 to 2011.
Instant coffee has declined from its peak in 2000, partially due to competition from the convenience of on-trade coffee, Euromonitor said.
This article can also be found in the digital edition of Food Business News, September 18, 2007, starting on Page 33. Click