Brew up single-cup sales

These are hot times for single-cup beverages, given the right blend of convenience and variety that they offer. U.S. single-cup coffee sales are seeing the greatest growth of all coffee segments, with an approximate 19.6 percent sales gain in 2015, states global market researcher Mintel in its September 2015 “Coffee — US” report. Roasted coffee still outperforms all single-serve coffee in overall market share, but Mintel forecasts that single-serve coffee will lead coffee sales by 2018.

“Consumers clearly like the single-serve option, and importantly, most of the incrementality of this segment came from coffee consumed away from home,” says Clay Dockery, division vice president of corporate brands for Suffolk, Va.-based Massimo Zanetti USA. “In other words, if you extract single-serve from the [coffee] category over the last five years, all other segments combined would be flat.”

According to the “2015 National Coffee Drinking Trends Study,” issued by the National Coffee Association (NCA), New York, the number of households with single-cup brewers grew to 27 percent — “an all-time high” — in 2015. And with Westbury, Vt.-based Keurig Green Mountain Inc. launching the Keurig Kold Drinkmaker in September, its first machine for single-cup soda, the interest in single-cup beverages in unlikely to abate. Therefore, if retailers want to grow single-serve beverage sales, they will have to be on top of the trends and issues affecting the category.

Go green

One serious concern for retailers selling single-cup beverage products should be sustainability. Until recently, the packaging for many single-serve products was not recyclable. The lack of sustainability caused a lot of bad press for the category, and according to data from Mintel, resulted in more than two out of five single-cup coffee drinkers choosing single-cup coffee less often. But retailers could win consumers back with store brand single-cup beverage products that are eco-friendly.

“One of the fastest growing benefits is sustainability,” Dockery says. “While consumers like the convenience that single-serve affords, they don’t like the waste generated from the billions of cups going to landfill.”

Keurig started selling recyclable K-Cup packs last year, and private label brands are starting to do the same with compostable, recyclable and biodegradable options. But retailers should understand any sustainability messaging before putting it on the package, Dockery cautions.

“It is critical to understand what the various eco-friendly options truly offer,” he states. “Consumers are very knowledgeable, and false claims can significantly damage a store brand’s equity.”

Think premium

Besides sustainability, consumers are looking for high-quality single-cup beverages under both national and store brands.

“Some [retailers] seem to focus on the lowest-cost solution and avoid the quality segment,” says Dan Ragan, national sales manager with Baton Rouge, La.-based Pod Pack. He believes focusing only on value is a mistake that retailers risk making with their store brand products.

Research indicates that “premiumization has clearly been a key driver, particularly in developed markets like North America,” states Ross Colbert, managing director and global strategist for beverages with Netherlands-based Rabobank Group, in a recent webinar titled “The Single-Cup Format: In Pod We Trust 2.0.” He goes on to say that some means of differentiating premium products are through Fair Trade certification, organic certification and source of origin.

Offering store brand products that directly benefit the areas where shoppers live is another way retailers could offer consumers premium products.

“Consumers are supporting local roasters as a way to support the community,” Ragan says. “The roasters are responding with micro-roasts targeting the desires of the patrons. Some products have a short life-cycle, but others are flagship products of the local roasters and could be exploited at a regional level by grocery chains.”

Plus, many local roasters have a “farm-to-cup story,” which often appeals to consumers, he adds.

A new twist on premium includes the emerging trend of infused coffee, which involves mixing ground coffee with tea or other products, Ragan states. Infused coffee products are said to provide health or energy benefits to the consumer.

While functional coffee has yet to take off, Mintel notes that 42 percent of Americans say they would be interested in retail coffee with added nutritional benefits.

And retailers should not forget about single-cup tea beverages. While the market for single-cup tea isn’t as large as the market for single-cup coffee, there is some growth.

“Tea is showing signs of life in North America, and I would suggest that is largely due to the influence of pods and capsules,” Colbert says, noting there is an increase in premium products that focus on quality and bold flavors. “The consumer is becoming much more willing to trade from a tea bag to a pod to have a wider selection of choice in the pantry.”

Brew up interest

According to Colbert, there is not much brand loyalty among consumers when it comes to single-cup beverage products.

“At least half [of consumers] are switching between three brands, and it is driven by price and occasion,” he says, pointing out that shoppers “trade down” for their own consumption but will also buy higher quality products for company. He suggests that retailers take a tiered approach to selling store brand coffee to capture consumers at both purchasing occasions.

Additionally, it is critical for retailers to make sure that they have store brand single-cup beverage products that consumers can count on to work with their brewers, especially Keurig 2.0 systems, Ragan says.

“The most important trend to follow for retailers is to match the Keurig product, including the new 2.0 ring on the lid,” he adds, noting that single-cup products are trending away from alternative cups. “Consumers need to trust the product they use for convenience, and if the device jams or clogs the machine or if the 2.0 reader says ‘Oops’ and does not brew, it is not convenient.”

Besides convenience, shelf space is important.

“The biggest mistake we have seen is not increasing allocated shelf space for coffee as [consumers] look for more single-serve variety,” Dockery says. “Coffee has been the fastest-growing category in center store, and maximizing sales requires appropriate allocation for all segments of the coffee category.”

He points out that other single-serve products have been introduced to the market, such as cocoa and soup, but advises that retailers resist the temptation to lump all single-serve products together on the same shelf.

“Consumers continue to shop by category rather than by appliance,” Dockery says, “and shelf management should take this into consideration.”

Seasonal flavors continue to grab consumer interest, and Ragan recommends a seasonal program for store brand single-cup offerings.

“Exploit the proven seasonal products to get the attention of the buyer,” he says, noting other effective strategies include the use of end caps, aisle placement of shippers and eye-level shelf placement, as well as front page exposure in circulars, web pages and weekly specials.

Do offer and tout sustainable single-cup packaging.

Don’t ignore the premium tier; consumers want premium single-serve options.

Do partner with local coffee roasters when possible to offer a point of differentiation.

Don’t group different categories of single-serve beverages together.