Value-added Coffee

by Allison Sebolt
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As sales in the U.S. coffee market are growing — reaching $30.7 billion in 2007 according to New York-based Datamonitor — consumers are taking their consumption of coffee out of home and looking for convenient and ethical products that sometimes appeal to health or are indulgent.

"The proliferation of food service outlets that offer gourmet coffee has driven consumption out of home as convenience demands increasingly dictate consumers’ coffee purchasing decision making," said Matthew Jones, consumer markets analyst for Datamonitor and author of the study, "U.S. Retail and Foodservice Coffee 2008 Report." "Whilst coffee-shops offer a unique ‘third place’ environment, they are no longer the sole purveyors of quality coffee and will come under increasing pressure from quick-service restaurants, which will capitalize on demands for quick quality coffee."

In its research, Datamonitor found U.S. coffee drinkers prefer smaller size coffees at quick-service restaurants as the result of a limited range of coffees and a poor perception of Q.S.R. coffee. It was noted that as McDonald’s and other Q.S.R. operators upgrade coffee offerings and branch into specialty and gourmet options, there will be an opportunity to charge higher price points. In addition, offering various specialty beverages such as iced and frozen coffees will give Q.S.R.’s the opportunity to drive volume sales by offering a variety of products.

In a September 2007 study, Mintel, Chicago, found among the 78% of survey respondents who reported drinking coffee, 40% said they had coffee at a coffee house in the last month and 29% said they had coffee at a donut shop. Additionally, while the 78% penetration rate for coffee consumption might seem high, Mintel noted there is further room for growth considering carbonated drinks have an 88% penetration among adults over 18.

Mintel also found the factors contributing to coffee sales growth during 2002-07 included the trend toward premium and specialty coffee, the increasing clout of coffeehouse coffee in retail channels and the popularity of ready-to-drink coffee.

According to The Nielsen Co., New York, sales for coffee in the food, drug and mass merchandise market excluding Wal-Mart for the year ended April 19 were $3,615,531,739, up 6% from $3,415,249,556 during the previous year. Liquid coffee sales were $290,481,029, up 12% from $260,578,295 during the same period of the previous year.

"Although the growth of food service coffee has been to the detriment of retail coffee, it has spurred packaged coffee marketers to reformulate their products in an effort to recapture share — this has meant that new product development in packaged coffee has been reinvigorated, and niche products will continue to enliven the category," Mr. Jones said.

Datamonitor found a growing number of functional coffees in 2007 targeting specific groups. For example, there are slimming coffees targeted at health-conscious consumers, energy coffees marketed to tired professionals, and even beauty coffees for those concerned with their physical appearance. Examples of products with various qualities include Kosmo Slim coffee, made with organic Fair-Trade Arabica coffee beans, organic soybeans and green tea extract; Atkins Nutritionals Café Carmel Latte, which serves as a snack or meal replacement; and the Mocha Coffee Cover Shot from Physicians Laboratory, which is high in calcium.

Datamonitor found persuading consumers coffee is healthy will be key to the success of new products.

A 2008 Datamonitor survey found 29% of U.S. coffee drinkers agreed with the statement "coffee has been proven to be good for my heart." This number is up from 25% in 2007. As consumers perceive coffee to be healthy, Datamonitor said this not only will give more energy to current coffee sales but also spur growth in antioxidant-rich and other healthy coffees, including calming, low acidic, vitamin and mineral blends.

The overall trend to convenience has led to the growth of R.-T.-D. coffee, and Datamonitor found 12% of U.S. coffee drinkers drink R.-T.-D. coffee more than six times a week, which is up from 10% in 2007.

According to Mintel’s Global New Products Database, some of the newest coffee products introduced include Folgers’ Basic Blend Gourmet Coffee, Sam’s Choice Fair Trade Coffee Beans, Folgers Gourmet Selections Vanilla Biscotti Ground Coffee, Starbucks Italian Roast Ice Coffee, Havana Mocha Cappuccino, and Hillside Coffee French Vanilla Latte.

Mintel also noted the top claims for new coffee products are kosher, premium, organic, ethical, seasonal and all-natural. Fair Trade coffee continues to grow with sales reaching $856 million in 2007 according to Datamonitor. There also has been increased interest in exclusive coffees, including small-batch coffee beans, rare bean variants and region-specific coffee.

This article can also be found in the digital edition of Food Business News, May 13, 2008, starting on Page 48. Click here to search that archive.

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