New and expanded offerings in coffee and tea are driving traffic back to center store.
Here is the jolt needed to wake up sales in center store. Find a category where new products featuring high retails and hefty margins are introduced almost weekly to fulfill an almost insatiable consumer appetite for convenience. That is exactly what is happening in the coffee and tea aisle where a flood of new products are transforming and revitalizing a once stale category.
Much of the excitement is centering around K-Cup “pods”—cups filled with coffee or tea that are designed to brew an individual cup of beverage in a Keurig home brewer machine.
“A huge general trend we are seeing is more space devoted to single-serve for Keurig and Keurig compatible products,” says Robin White, vice president, marketing, at Single Cup Coffee, based in Ottawa, Ont., Canada.
“Pods right now are approximately 25% of the market,” says Erik Hansen, executive vice president, sales, at Coffee Holding Co., based in Staten Island, N.Y., which counts Café Caribe, Café Supremo, S&W and several private label brands among its offerings.
“A year ago many retailers might have had a four-foot section of K-Cups, but they may have expanded that out to 12-feet,” Hansen says. “The retailer can make more money on K-Cups because there are more margins on them. The consumer doesn’t realize that they are now paying maybe $40.00 per pound for coffee, but that convenience factor has really taken over.”
According to observers, an ever-expanding variety of new products is driving sales and interest in the category. Two Rivers Coffee, for example, is rolling out hot chocolate K-Cups under license from Tootsie Roll Industries in Charleston Chews, Sugar Babies, Tootsie Roll and Junior Mints flavors.
“People say, ‘Oh, I loved those as a kid,’” says Steven Schreiber, co-founder of Two Rivers Coffee, based in South Plainfield, N.J. “They also open up the market for children because many parents don’t want their kids to have coffee. Now children can be part of the single-cup home-brewing experience.”
Licensing is also a growing entity at Single Cup Coffee, where new product lines from Cake Boss and Guy Fieri are being introduced. “Our goal is to create products that are better in one way or another,” White says. “Guy Fieri and Cake Boss are both hugely popular and growing in popularity. As celebrity chefs go they are at the top of their game.”
In grocery, the Cake Boss line is available in Buddy’s Blend, Vanilla Buttercream, Hazelnut Biscotti, Dulce de Leche and Chocolate Fudge Cake varieties, with other flavors available for the department- and specialty-store channels.
“That helps reduce cannibalism,” White says. “Part of the reason we enjoy shopping is that it is fun and variety is fun. If we have the same product everywhere then it becomes about price and becomes a commodity. When shopping is fun it is a great way to attract shoppers.”
Many retailers find stocking local brands adds excitement, which helps explain why growth of PJ’s Coffee of New Orleans is percolating in the Deep South. The chain of coffee shops has introduced 12-ounce bags for the supermarket channel in Carnival Blend (medium roast), Decaf Colombian, French Roast and Chicory on Chartres varieties. “This is our first chicory coffee in 15 years and we’re really excited about it,” says Paul Ballard, co-owner of Ballard Brands, the Covington, La.-based firm that owns PJ’s and Wow Café.
“To introduce these coffees we upgraded our bagging operation, and our new equipment gives us a high-quality bag that maintains the freshness and high quality that we are used to doing in our cafes,” Ballard says. “We’re vertical and roast and pack ourselves.”
Marley Coffee is using Fair Trade Certified Jamaican Blue Mountain coffee beans to hook shoppers. However the Jamaican Blue Mountain coffee retails for $48.00 a pound, so the Denver-based company has created a line of more affordable Blue Mountain blends, using coffees from Ethiopia, Guatemala, Indonesia and Papua New Guinea, says Chairman Rohan Marley, son of legendary Reggae singer Bob Marley.
Marley Coffee is also donating 12-cents from each of box of its coffee pods to Water Wise. “Water Wise is a sustainable movement we created in Ethiopia to help purify the water used in the coffee growing process so the people have clean water to drink,” Marley says.
Marley’s coffee pods are manufactured by Mother Parkers Tea & Coffee. The 102-year-old Toronto-based company is the fourth largest coffee roaster in North America and the largest producer of private label coffee in North America. Its brands include Tim Horton’s supermarket line and Martinson.
“One of the biggest consumer concerns about coffee pods is sustainability,” says Jerry Gilbert, vice president, retail sales, at Mother Parkers. “Our new Eco Cup addresses this because there is a perforated spot on the pod that you push after you brew it that allows you to separate and pull out the filter, grinds and top lid. You can then throw the capsule in the recycling bin and compost the grinds.”
Currently available on Mother Parkers’ tea line, the system will be available in early 2015 on coffee, including the Marley’s brand.
Melitta USA is billing its single-serve cups as the first 100% recyclable single-serve option in the market. “Once consumers try our single-serve gourmet coffee and realize they no longer have to choose between great flavor and convenience, they’re hooked,” says Chris Hillman, vice president, marketing, at Melitta USA, based in Clearwater, Fla. He adds that later this year Melitta will be adding decaf single-serve capsules to its product line.
Massimo Zanetti Beverage USA, the Portsmouth, Va.-based manufacturer of Chock full O’Nuts, Hills Bros. and Kauai Coffee is also marketing a “better-for-the-environment” pod that contains 30% less plastic than a traditional K-Cup because it does not have the traditional plastic outer cup.
“We say that less plastic is the smarter choice for our environment,” says Dennis Crawford, senior marketing manager.
Aside from the pods, canned and upscale bagged coffees continue to grow in popularity, say observers.
“Category managers get caught up in hearing about the huge growth of single-serve,” says Crawford. “There is no doubt that it is growing and we haven’t seen the top yet, but we get myopic in how we view the coffee section. They start taking away from cans, but the household penetration on cans is still twice that of single-serve,” he says.
Crawford says retailers need to expand the square footage devoted to coffee, much like they did for bottled water, which was practically non-existent 20 years ago.
“A grocery store merchandiser has to take a deep breath periodically and almost start with a clean slate. Since category growth in specialty single-serve has just been phenomenal and hasn’t stopped yet, it is time to expand the coffee section,” Crawford says.
“Many consumers are using both single-serve and traditional drip coffeemakers,” says Ed Mitchell, vice president, sales at Melitta USA. “So retailers should focus on all segments of the category and not just single-serve. Products should be merchandised by segment—cans, bags and single-serve. We recommend within each segment, mainstream items should be grouped together and separately, premium items should be merchandised together.”
That is exactly what Starbucks is doing in the grocery channel with its Starbucks Signature Aisle. “It is a concept that redefines how customers shop for coffee by bringing the Starbucks café experience to life down the aisles,” says Erin Shane, a spokesperson for Seattle-based Starbucks. Introduced in the fall of 2011, the program is currently in 212 supermarkets and is on track to be installed in 400 stores by the end of the current fiscal year.
“Delivering an improved coffee shopping experience through sensory engagement and education, the Signature Aisle fixture helps shoppers navigate the aisle to choose the format, roast and flavor that is perfect for them,” Shane says.
Shane adds that Starbucks has been having success with its limited edition seasonal ground coffee; Starbuck Fall Blend will launch at the end of August. “These special, limited-time offerings are crafted to reflect and complement the cherished flavors of the seasons and enrich our customers’ at-home coffee experience,” she says.
Sipping a cup of tea at home is also being enriched, thanks to new products like the four-SKU line of turmeric teas just introduced by Numi Organic Tea. “Turmeric is an Indian spice known for its anti-inflammatory properties, but it also tastes phenomenal,” says Greg Nielsen, director of marketing for the Oakland, Calif.-based company. “Our turmeric is Fair Trade from Madagascar and we are the first purchasers of Fair Trade Certified turmeric.”
Numi has also introduced a line of Indulgent Tea. “Indulgent Tea uses cocoa powder and we add that to some of our best-sellers—Earl Grey, Mint, Rooibos and Spice, which is like a chai. The cocoa powder gives them a nice, full body,” Nielsen says.
The Republic of Tea is creating a buzz with its new HiCaf line. “We heard from our ‘citizens’ that they were looking for more ways to have natural caffeine to get that better buzz, so we took four of our black teas and one green tea and added green tea extract,” says Kristina Richens, minister of commerce, at Novato, Calif.-based The Republic of Tea. “Our Toasted Coconut has the most caffeine, 140 milligrams, and is a great way to get a powerful dose of caffeine, but it also contains L-Theanine, which provides a calm but alert state of mind.”