Customers are looking to replicate the coffee house experience at home, spurring sales of premium roasts, flavored coffees and blends.
By Richard Turcsik
Here’s some news sure to perk up retailers. Despite the hubbub surrounding premium take-out coffees, home consumption of coffee and tea is on the rise. Apparently, after whetting their taste buds with those expensive Grande Mocha Cappuccinos, consumers are looking to make the same brews at home, resulting in a shift toward premium high-margin roasts, flavors and blends. The higher margins and dollar rings of these premium coffees are opening retailers’ eyes to the opportunities in the category.
“McDonald’s and Starbucks are helping in-home consumption by creating an awareness of good premium coffee,” says Chris Hillman, vice president of marketing, Melitta USA, based in Clearwater, Fla. “In today’s economy, a lot of people are questioning if they should be spending $5 for a cup of coffee when they can produce a good-quality coffee for a fraction of the price at home.”
“According to the National Coffee Association, coffee drinking overall has gone from 49% of adults in 2004 to 54% in 2009 and 78% of all coffee is consumed at home,” says Robert Mortati, senior director of marketing, mainstream coffee, for the coffee division of Kraft Foods, which has offices in Tarrytown, N.Y.
“We do recognize that there are consumers who want a different coffee experience, which is why we’ve expanded our roast and ground offerings,” Mortati says. Kraft is in the process of relaunching its iconic General Foods International Coffees line as Maxwell House International Café. “We’ve added exciting new selections, including Vanilla Caramel Latte, Mocha Latte, Toasted Hazelnut Cappuccino and Cinnamon Dulce Cappuccino,” he says. “They’re café-style beverages with a delicious layer of foam and they’re soluble, which also makes them convenient.”
Flavored coffees continue to gain favor with consumers. Staten Island, N.Y.-based Coffee Holding Co., Inc. is expanding its licensed Entenmann’s coffee line to include Southern Pecan and Raspberry Twist flavors, modeled after its namesake Danish, and promoting them in novel ways. “We’re the national sponsor for the Avon Breast Cancer Walk across the U.S.,” says Erik Hansen, executive vice president, sales. Coffee Holding also produces the S&W coffee brand on the West Coast, under license from Del Monte.
This summer Waterbury, Vt.-based Green Mountain Coffee is introducing two seasonal blends: Perfect Peach and Summer Safari Blend. Both are packaged in 10-oz. bags and are Fair Trade certified. “One of our goals is to have consumers look for the Fair Trade logo when they are shopping so they know that the coffee was produced in a socially and environmentally responsible way,” says Sandy Yusen, director of public relations.
According to Hansen, the price of Colombian coffee has risen dramatically over the past year because of supply issues and supply isn’t expected to catch up with demand until the 2013 crop cycle. “A lot of brands have decided to remove their Colombian coffees and replace them with different SKUs,” he says.
Single origin coffees continue to grow in popularity, says John Murray, general manager of White Cloud Coffee, a Boise, Idaho-based coffee roaster that producers more than 80 SKUs, with distribution concentrated in the Inter Mountain and Pacific Northwest regions. “People like single-origin products,” he says. “The growth has been fairly consistent.”
Murray sees organic coffee as the next big trend. “We are working on an organic line,” he says. “We’re working with a local marketing company on the branding of it.”
In the current tight economic environment consumers are seeking value, which is why Melitta has introduced its Café Collection, which retails for $5.99 for an 11-ounce bag. Similar products retail for around $10, says Hillman.
“Melitta Café Collection is a very, very high quality coffee, but at a good value to consumers,” he says. “And what we’re seeing in the marketplace right now is that value is becoming more important to consumers.”
Hillman says Melitta officials are “ecstatic” over the return of the manual drip coffee method, a process invented by company founder, German housewife Melitta Benz, in 1908. “Coffee aficionados are truly divided over if the best way to make a cup of coffee is with the French press or the Manual method,” he says. “The French press gives more oils and soluble solids, as we call them in the industry. The Manual method will give you a cleaner cup so you really taste more of the complexities of the coffee. We’re seeing a lot of the hip coffee shops on the West Coast using the ‘pour over’ process and brewing the coffee right in front of the customer.”
According to industry officials, the fastest growing segment of the coffee category is the pods designed to be used in single-cup brewing systems, such as Keurig and Senseo.
“There is an evolution in the way consumers are buying and brewing coffee,” says Yusen of Green Mountain Coffee, which owns the Keurig brand.
Keurig machines have become eponymous with single cup brewing; the machines can be found on display in department and big box stores from Macy’s and Sears to Bed Bath & Beyond. “Single cup brewing is seeing success in all of those channels, but grocery is really proving to be the category killer,” Yusen says. “It’s become so widespread because more consumers are brewing coffee at home rather than getting it on the road and they want a convenient solution that still delivers a quality cup of coffee. Supermarkets are perfectly positioned for this trend because most consumers want to buy their coffee in grocery stores.”
K-Cups are offered in 12-count packages in supermarkets, 24-count through the company’s website and 18-counts in other retail channels. “That 12-count size reflects the frequency with which consumers are purchasing their coffee in grocery,” Yusen says. “They want to buy in smaller packages because they want to try different varieties and they visit the store more often.”
Keurig has licensing agreements with 13 other brands, Yusen says. One of those is Boston-based Filterfresh Coffee Service, Inc. “For us it has been an incredibly, incredibly fast-growing portion of our business for the at-home consumer,” says Ed Holloran, vice president, business development.
Filterfresh recently teamed up with Wolfgang Puck to offer K-Cups under the Wolfgang Puck label. “This is a tremendous opportunity for supermarket chains,” Holloran says.
Senseo, a competing system from Downers Grove, Ill.-based Sara Lee Corp., has partnered with Hamilton Beach to introduce two personal cup brewers to the market this spring and fall. “By joining with Hamilton Beach, a brand well known for having strong expertise in high-quality, yet affordably priced small kitchen appliances, we feel we will offer consumers the best of both worlds—an attractively priced machine combined with the highest-quality coffee pods from Senseo,” says John Risley, director of sales and marketing for Senseo.
This fall, Senseo will introduce French Roast pods, giving consumers a bolder option, Risley says. “For supermarkets to increase the sale of single-serve coffee they need to dedicate a specific section, within the coffee category shelf set, to all single-serve formats, allowing the consumer to appreciate the variety offered within the segment,” he says. “Additionally, the appliances along with the coffee should be advertised and merchandised during key appliance selling occasions such as major holidays and gifting periods.”
Like single-serve coffee brewers, premium tea can be merchandised as an affordable luxury by astute retailers. “Premium tea is still relatively inexpensive [per cup] and as people spend less on going out they look for ways to indulge themselves at home,” says Tawny McCurdy, brand manager at San Ramon, Calif.-based Brands of Britain, which merchandises Taylors of Harrogate and its Yorkshire Tea sub-brand, based on a recipe dating back to the 19th century. “Yorkshire Tea is a classic black tea made from top-quality Assam and African teas,” McCurdy says.
Taylors works directly with tea farms and builds lasting relationships with the growers, she says. “By trading fairly with the people that grow the teas, Taylors ensures that the quality of the teas they buy are the pick of the crop.”
The company has a long green track record, having planted over three million trees around the world over the past two decades. Its current project involves trying to save a 3.7 million acre rainforest in Peru.
Windsor, Conn.-based Redco Foods, manufacturer of Salada Tea is expanding its Unbottle Your Tea campaign, introduced in 2008, to include a search for a consumer spokesperson. “We’re seeking out a person who lives an ‘unbottled’ lifestyle,” says Michele Peters, brand manager. “They do things that are environmentally friendly, care about their health, eat healthy, and care about saving money and want to share all of these tips with people.”
Sister brand Red Rose is introducing Irish Breakfast tea. “It is a new flavor for our Specialty Selections line, which already consists of English Breakfast, Earl Gray and English Breakfast Decaf,” Peters says. “Red Rose is a more sophisticated brand with a more robust flavor and we continue that on with our Specialty Selections teas.”