R.-T.-D. coffee segment struggles
May 24, 2011
by David Phillips
to gain traction
Consumer demand for ready-to-drink coffee beverages such as lattes, espressos and frappes sold at retail has not followed the products’ popularity at food service, and market researchers forecast limited growth for the category going forward.
“Obviously coffee is a huge category in the U.S. market overall,” said Gary Hemphill, senior vice-president at the Beverage Marketing Corp., a New York-based market consulting firm. “But the ready-to-drink format has not taken off and developed to the point that a lot of people had hoped.”
Mr. Hemphill’s sentiments are echoed in a report published by Mintel International Ltd., Chicago, this past September. The study said sales of R.-T.-D. coffee drinks were down 8.9% in 2008 and another 8.8% in 2009. The research firm noted the recession was the primary reason for the decline in 2008 and 2009. Not including drinks sold in airports, res-taurants and newsstands, Mintel projected sales
of R.-T.-D. coffee to decrease about 1.2% in 2010 to an estimated $423 million, but the research firm forecast sales may increase 7% during 2011 as the U.S. emerges from the economic downturn.
Data provided by the SymphonyIRI Group show that for the 52 weeks ended April 17, the R.-T.-D. Cappuccino/Iced Coffee category experienced a 7% increase in dollar sales and a 5.7% growth in unit sales compared with the prior 52 weeks. The leading three brands in the category all come from the Starbucks/PepsiCo, Inc. partnership known as the North American Coffee Partnership.
The leading brand, Starbucks’ Frappuccino Iced Coffee, held an 86% dollar share in SymphonyIRI’s FDMx measurement tool, which captures sales from food, drugstores, gas station/convenience stores and some mass merchandisers. The Starbucks Double Shot espresso accounted for another 9% market share. Among the rest are brands such as Seattle’s Best, which also is owned by Starbucks; Illy Issimo, a partnership between the Coca-Cola Co. and illycaffe North America, Inc.; and Emmi, which is the maker of the Caffe Latte brand beverages.
Several factors that have hindered the growth of
the R.-T.-D. coffee segment, including ambivalence in the United States toward chilled coffee; competition from
R.-T.-D. tea, energy drinks and other beverage sub-segments; and further competition from customized beverages sold by outlets such as the Starbucks Coffee Co. and McDonald’s Corp. The products made to order at quick-service outlets are perceived by consumers to be fresher than the R.-T.-D. varieties sold at retail.
“Another issue is that of simply developing a mass market R.-T.-D. coffee that can be all things to all people,” Mr. Hemphill said. “Different people like their coffee served in different ways. The quick-service restaurants can do that; they can customize the products.”
Mintel also pointed to instant coffee as a competitor.
“…It seems clear that the R.-T.-D. coffee category is growing at a very slow pace in part because
of competition from R.-T.-D. tea as well as instant coffee products, including Starbucks’ own Via, that can be used to create inexpensive iced coffee drinks,” Mintel said. “Indeed, premium instant coffee may prove to be an especially formidable competitive threat in the future as it provides consumers with a way to easily customize both hot and cold/iced coffee drinks.”
In its report, Mintel did highlight health and wellness as an area of opportunity for manufacturers. Products such as illycaffe’s recently released Illy Issimo Caffe No Sugar highlights efforts to introduce products that fit into specific market niches. The Caffe No Sugar is a 15-calorie unsweetened version of the company’s Illy Issimo Caffe, which is an espresso-style coffee drink.
Mintel also highlighted the Bolthouse Farms Perfectly Protein product line, which is made by Bolthouse Farms, Bakersfield, Calif., and has some varieties that contain coffee as well as protein and other nutritional supplements.
“It seems clear that R.-T.-D. coffee beverages with protein and/or supplements could be marketed as a healthy and convenient way to get an energy boost before a morning or afternoon workout,” Mintel said.
Looking ahead, the Beverage Marketing Corp.’s Mr. Hemphill said the slow pace of growth in the R.-T.-D. coffee category would continue. He was blunt when he said, “We don’t expect it to become a large mainstream category anytime soon.”