In need of a jolt

by Ray Rowlands
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Coffee is generally regarded as the most popular commercial beverage consumed around the world. The residents of the United States consume more than 12 billion liters each year and it is for this reason the United States tends to be considered as a key supporter of the drink’s ongoing success, according to Canadean, the Basingstoke, England-based global beverage research firm. Yet data shows the overall market in the United States is contracting with innovation in the iced/ready-to-drink (R.-T.-D.) category a rare bright spot.

Despite the fact little coffee is actually grown in the United States, the beverage has a long history in North America. The first license to sell coffee in the United States was issued in 1670 and in 1696 the first coffeehouse was opened. By early the next century, coffeehouses had become popular meeting places for social and political debate and business transactions. But it was the Boston Tea Party that appears to have established coffee as a national drink at a time when “taking tea” was seen to be un-American. Moving forward into the first half of the 20th century, U.S. coffee companies helped expand demand through inventive marketing techniques and product innovation. It was in the late 1930s that instant coffee first appeared.

All products have their lifecycle, though, and in the United States the hot coffee market is well past its peak. Per capita consumption is only half today of what it was in the mid-1940s. The United States, in fact, does not feature in the top 10 country coffee consumers on a R.-T.-D. liters per capita basis. It does not even appear in the top 20 and consumption is declining. Even its position as the No. 1 volume market is being challenged. By the end of 2009 Germany actually may have taken the lead on a liquid volume basis.

Hot coffee today is only the fifth most popular commercial beverage in the United States and is still suffering a gradual decline in demand. In the current decade alone per capita consumption has fallen by around a third and, according to Canadean, in 2008 R.-T.-D. volumes contracted by almost 8%. Indeed, beverage categories have experienced negative sales since the onset of the recession. Iced/R.-T.-D. coffee was one of the lucky ones as its sales continued to grow in 2008.

Compared to hot drinks, iced/R.-T.-D. coffee is still in its infancy in the United States with annual per capita consumption only just reaching 1 liter. This is double the rate achieved just six years ago. Besides the wide flavor choices available, the ongoing success of iced/R.-T.-D. coffee drinks may be seen to be coming from a combination of factors. Most recently they have included innovation from market leader Starbucks, growth of M.O.S. (made on the spot) volumes sold in quick-service restaurants, the popularity of larger size pack formats and the emergence of hybrid energy coffees (positioned as energy drinks) such as Java Monster from the Hansen Beverage Co., Corona, Calif.

In spite of the poor condition of the economy and the fact iced/R.-T.-D. coffee drinks are considered premium items, Starbucks, with a strong portfolio of offerings, continued to grow volume in 2008 driven by product innovations and new packaging designs. Unpackaged, M.O.S. iced/R.-T.-D. coffee volumes are also significant.

The beverages continue to be purchased by consumers for “on-the-go” convenience and by consumers who prefer a sweet creamy coffee beverage. Meanwhile, private label volumes received a boost with the emergence of M.O.S. coffee in quick-service restaurants such as McDonald’s and Dunkin’ Donuts.

The 15-oz non-returnable can, which only appeared in 2007, doubled its volume contribution to more than 6% in 2008 and was one of the few package sizes to actually gain market share. Three out of every five liters of packaged iced/R.-T.-D. coffee drinks come in glass bottles, but the can has grown in popularity with the appearance of energy coffees like Java Monster.

Hot coffee consumption in the United States continues to contract in 2009 with increased home use and a shift across to cheaper brands being insufficient to counter falling sales in both store and on-premise locations. In contrast, the beginning of the year started well for iced/R.-T.-D. coffee with buoyant demand for M.O.S. iced/R.-T.-D. coffee drinks, value-priced offerings, energy coffees and large size packs, all contributing to continued growth. Initial full-year forecasts of continued growth have been short lived. The high price of iced/R.-T.-D. coffee beverages generally and poor on-premise performance is hurting the category. The growth in energy coffees also has slowed due to a lack of new product launches. As a result, the latest prediction is for a market contraction for the full year.

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