Get Your ‘Share of Cup’
By Kathie Canning
The coffee and tea categories present an enormous growth opportunity for retailers — particularly on the store brand side.
Listen closely, and you just might be able to hear today’s coffee and tea lovers brew and steep their way to beverage bliss.
Indeed, U.S. coffee consumption continues to rise in nearly every adult age group. According to the National Coffee Association, New York, the 18-to-24-year-old, 40-to-59-year-old and 60-year-old-and-up segments gained coffee drinkers in 2007 (with percent drinking at 37, 61 and 74, respectively) compared to 2006. Only the 25-to-39-year-old demographic realized a decline (with percent drinking at 44 in 2007 compared to 47 in 2006).
On the tea side, 2007 marked the 16th consecutive year of increased sales in the United States, reports the New York-based Tea Association of the USA. On any given day, the association says, approximately one-half of the American population drinks tea, with 85 percent of that consumed in an iced format.
Although this growth translates into a rosy situation for coffee and tea manufacturers, the retail side doesn’t appear to be getting its fair share of these dynamic categories. Total retail coffee dollar sales (excluding Wal-Mart) rose a modest 4.3 percent for the 52 weeks ending Dec. 30, 2007, says Chicago-based Information Resources Inc. (IRI). And although both ready-to-drink coffee and tea posted impressive sales gains during that timeframe, instant tea mixes and tea bags/loose tea actually saw dollar sales decline in private label.
|COFFEE AND TEA Performance |
|Category ||Dollar Sales (in millions) ||% Change Vs. Yr. Ago ||Dollar Share ||Unit Sales (in millions) ||% Change vs. Yr. Ago ||Avg. Price |
|Total private label||$280.7||7.2%||8.6%|| 71.2||-0.8%||$3.94|
|Total category||$3,248.6||4.3%||100.0%||654.3||-2.2% ||$4.89|
|Coffee with Additive/Flavoring|
|Total private label||$0.7||-44.7%||7.1||0.2||-31.1||$4.25|
|Total private label||$177.0||13.4%||8.2%|| 44.5||3.6%||$3.98|
|Total subcategory||$2,148.8||6.4%||100.0%||450.3||-1.4% ||$4.77|
|Ground Decaffeinated Coffee|
|Total private label||$35.5||-1.8%||13.7%|| 8.9||-9.6%||$4.01|
|Total subcategory||$259.5||-1.0%||100.0%||50.5||-6.7% ||$5.1|
|Total private label||$30.8||-1.5%||7.6%|| 9.5||-5.8%||$3.24|
|Total subcategory||$408.1||0.3%||100.0%||93.8||-2.4% ||$4.35|
|Instant Decaffeinated Coffee|
|Total private label||$11.1||-6.2%||11.4%|| 2.8||-11.0%||$3.92|
|Total subcategory||$97.1||-3.9%||100.0%||20.8||-4.5% ||$4.67|
|Whole Coffee Beans|
|Total private label||$25.5||1.0%||8.0%|| 5.4||-3.3%||$4.77|
|Total subcategory||$320.5||3.3%||100.0%||45.7||-2.5% ||$7.02|
|Total private label||$47.6||-1.7%||6.7%|| 23.7||-4.2%||$2.01|
|Total subcategory||$708.8||-0.1%||100.0%||253.7||-2.8% ||$2.79|
|Instant Tea Mixes|
|Total private label||$46.6||-2.0%||15.5%||13.8||-5.2||$3.37|
|Total private label||$36.9||15.4%||2.5%|| 21.8||15.8%||$1.69|
|Total subcategory||$1,462.5||19.9%||100.0%||647.0||12.7% ||$2.26|
|Source: Information Resources Inc.|
Total U.S. supermarket, drug store and mass merchandise sales for the 52 weeks ending Dec. 30, 2007, excluding Wal-Mart.
It seems much of the growth continues to take place in away-from-home outlets. Specialty coffee, in particular, has become a huge away-from-home segment, with the Long Beach, Calif.-based Specialty Coffee Association of America reporting total café sales (including coffee cafés, kiosks, carts and bean roaster/retailers) of $12.3 billion for 2006. Moreover, away-from-home tea consumption has been increasing by at least 10 percent annually over the last decade, the Tea Association of the USA says.
Still, the coffee and tea categories present an enormous growth opportunity for retailers — particularly on the store brand side. Critical to sales enhancements here will be an understanding of coffee and tea trends, and private label’s ability to meet them.
Speaking of trends, you’ll find plenty influencing buying decisions in both the coffee and tea segments.
On the coffee side, premium options have picked up steam thanks to the popularity of premium coffee outlets such as Starbucks, says Jonathan Gottfried, a spokesperson for the Houston-based Maximus Coffee Group.
“A lot of consumers are trading up and going for a premium coffee, and not just Starbucks, but SBC [Seattle’s Best Coffee] and several other brands,” he says. “There’s certainly room for more premium brands — private label and more traditional branding around local brands.”
Jerry Gilbert, vice president of retail sales for Mother Parker’s Tea & Coffee, agrees.
“The growth in the out-of-home [coffee] is, to a large degree, in the darker roast associated with premium,” he says. “It’s also in the flavors, which are attracting the younger demographic.”
Organic is part of that premium positioning, Gilbert adds, and statistics from the Organic Trade Association (OTA) jibe with his observation. According to OTA’s “2007 Organic Manufacturer Survey,” U.S. retail sales of organic coffee rose 24 percent to reach more than $110 million in 2006.
“The dramatic increase in organic coffee sales mirrors the continuing growth in the overall organic sector and reflects consumers’ increasing awareness of these products, their high quality and the availability of these beverages in venues ranging from small coffee shops to ‘big box’ stores,” said Caren Wilcox, OTA’s executive director.
Another growth demographic, Gottfried says, encompasses those consumers who are just trading up from instant coffee to 100 percent Arabica roast and ground options. Moreover, even instant coffee is a potential growth area for the millions of Hispanics in the United States who became accustomed to that format in Mexico.
“Nescafé is the number-one coffee brand in Mexico, of all things, and it’s instant,” Gottfried stresses. “Even though Mexico produces absolutely wonderful coffee, that’s been the dominant coffee because of its early entry into the market and marketing savvy. ... With a huge Hispanic population in the United States, that’s a whole demographic that frankly a lot of the coffee producers aren’t targeting.”
Issues such as social responsibility and environmental sustainability also play a role in the consumer purchase decision for both coffee and tea, Gilbert says.
“The ability to offer some type of trademark the consumer is aware of — be it Fair Trade, Rainforest Alliance or any of the other socially ethnical partnerships that are out there — is very important,” he says. “For the tea consumer especially, it seems to be extremely relevant.”
Speaking of tea, the category’s beginning to sport more youth appeal, contends David Eben, CEO of Paramus, N.J.-based Carrington Tea Co. Although the category’s key consumers still are women over 30, the introduction of new flavors and the discovery of — and publicity surrounding — tea’s antioxidant properties also are attracting a younger demographic.
Fruit and spice options or herbal “tea” also appeals to 18- to 24-year-olds, while consumers aged 55 and up prefer decaffeinated, stresses Mayank Bansal, senior executive vice president for Chamong Tea, Yardley, Pa. Green tea continues to be popular, as do specialty teas — primarily whole leaf.
“Healthy benefits, organic, an urge to do good — translating to several ethical certifications — are some of the driving forces behind this,” Bansal says.
For organic teas, quality is important to keep the sales growth going, notes Richard Haas, vice president of marketing for Harris Tea Co., Moorestown, N.J.
“There is a wide quality continuum for the organic tea being offered,” he maintains. “Without the use of pesticides on organic teas, it is paramount that procurement managers buy from reputable and trusted organic tea estates.”
Consumers who are more “socially and economically advantaged” tend to purchase better blends of teas, in smaller quantities, Haas says, at virtually the same price that standard black teas command in larger quantities. He notes a growing interest in better blends of tea and/or herbs, as well as in flavored black teas.
But perhaps no other coffee or tea trend has resonated as much with consumers as the ready-to-drink (RTD) movement. IRI data show the total RTD tea and coffee category up 19.9 percent in dollar sales (excluding Wal-Mart) during the 52 weeks ending Dec. 30, 2007, with total private label posting a 15.4 percent gain.
“RTD coffee companies have moved on from merely tweaking the coffee-sugar-milk ratio to appeal to consumer tastes,” noted Gary Roethenbaugh, market intelligence director for Zenith International, in a January 10 Nutraingredients.com article. “They are now focusing on a whole new generation of customers by balancing sometimes-conflicting demands for products that are weight- and health-conscious, energy-boosting [and] indulgent, and perhaps also offer added functionality.”
Private Label’s Brewing
With so much consumer excitement percolating through the coffee and tea segments, it’s seemingly “prime time” for retailers to fine-tune their store brand offerings and strategies. And that process begins with product development.
“Skeptical consumers usually have been ‘burned’ or extremely disappointed by the quality of purchases for a specific private label,” Haas says. “Chains concerned only with the lowest possible price for their proprietary brands create this problem.”
Knowing and understanding the store’s customers continues to be key.
“By appealing directly to the retailer’s consumers, the private label brand can hit a niche not already covered by national brands,” Eben suggests.
Better blends of teas, at higher retail prices in proprietary brands, can make up an effective strategy for many successful supermarket chains, Haas maintains. However, he says mass merchants and discounters are put at a disadvantage because often they cannot offer these products to their consumers.
Organic and specialty teas are under-explored categories, Bansal says.
“Single-estate teas, which are sold primarily through online specialty tea retailers or tea rooms, [account for] unchartered territory as far as private label is concerned,” he says. “I think organic chai, basically Assam CTC [crush, tear and curl] tea with herbs or spice, is a hidden gem for private label. Since chai mixes well with spices, the possibilities are unlimited when it comes to introducing new SKUs.”
Private label coffee, in general, is moving away from copycat-type and generic products, Gottfried notes, and toward premium or “value innovator” labels — essentially better quality than the national brand, but at a lower price.
“I think a mistake a lot of retailers are making in the coffee category is that they still have a fair number of copycat store brands,” he says. “I think that is where retailers really have an untapped opportunity to go for a premium private label.”
On the decaffeinated side, retailers might want to look into consumer-preferred natural decaffeination methods, Gottfried says, adding that Maximus uses a natural CO2 process to separate the caffeine from the coffee.
Yet another missed opportunity, Gilbert says, is in retail coffee kiosks — which usually sell branded prepared coffee from companies such as Starbucks.
“When they were first introduced, they were really quite novel,” Gilbert says. “But now there seems to be a Starbucks on every corner and one of their kiosks in every store. We think there’s an opportunity for retailers to really own that space for their own brand.”
For both coffee and tea, packaging is critical to a store brand’s success.
“Packaging should not be overlooked as an opportunity to capture the target consumer,” Eben stresses. “Manufacturers and retailers can best work together by identifying the consumer the retailer is trying to reach and crafting a tea and package to appeal to that consumer.”
Gottfried agrees, and adds that the package must match the product’s message. Moreover, retailers shouldn’t be afraid to venture away from the colors traditionally used in the coffee arena.
“No matter what you do on the inside, if you don’t do a better job on the packaging, you’re not going to get that perception that it’s a different product, a better product,” he says.
Speaking of packaging innovation, Gilbert points to the Newman’s Own brand coffee as a great example. The bag boasts a hard, sharp corner seal that provides the overall package front with what he calls a “billboard effect” — and really differentiates it on the shelf.