Differentiation counts

Coffee and tea are daily must-drinks for many North American consumers. But as the economy improves, consumers are beginning to spend more money at coffee shops, according “Coffee — US,” a September 2014 report from global market research firm Mintel, potentially threatening retail coffee sales.

Marketers “should emphasize the affordability and even the convenience and, in many cases, the customization potential from preparing coffee at home compared to buying it at a foodservice location,” the report says.

But there is good news on the tea front. Mintel’s July “Tea and RTD Tea — US” report suggests that consumers are interested in tea as a healthful drink that can both energize and relax while giving them near endless flavor options. “Consumers perceive tea as being multifaceted, making it a very versatile beverage — relaxing, energizing, healthy and/or hydrating — and giving it significant opportunity for continued growth,” Mintel says.

Premium, unique resonate

Many consumers are looking for premium coffee, especially coffee that can tout its origin — for example, a particular region or farm. Retailers that | can differentiate here via store brand items will have a leg up.

“Look for opportunity to develop items with local appeal that other retailers don’t offer,” says Jerry Gilbert, vice president of retail sales for Mother Parkers Tea & Coffee, which is headquartered in Mississauga, Ontario. “Examples would be local flavors such as Texas pecan or Michigan cherry, or blend names that are locally relevant.”

Beau Bernstein, director of marketing & sales for Haelssen & Lyon North America Corp., New York, agrees. He says many savvy tea consumers also are looking for unique blends.

“It’s no longer just ‘I want a cup of chamomile so I can go to sleep,’” Bernstein says. “People want turmeric tea with ginger and a little bit of anise.”

And store brands could serve as a right-priced introduction for new tea and coffee drinkers, too.

“A lot of customers don’t know a lot about teas, and a store brand can be a great gateway to different types of teas,” Bernstein says. “Tea sends a message that the store is with the times and the store gets it.”

Millennials, who grew up in a time when there was always a fair trade, organic or single-origin coffee option, aren’t terribly loyal to any brand, according to Mintel. And that can be good news for unique and/or premium high-quality store brand coffee and tea products.

“Most millennials have proven to be less brand loyal and often more loyal to quality store brands,” says Susan Lambert, business development manager at Massimo Zanetti Beverage USA, Suffolk, Va. “The biggest opportunity for this group is in private label premium coffee, particularly in single origins and certified coffees.”

The driver of sales for many tea drinkers is quality, Mintel notes.

“The biggest opportunity for a store brand is in the higher-quality teas and blends, says Beth Johnston, founder and CEO of Teas Etc. in West Palm Beach, Fla. “The shelves are already stocked with tea bag products from name brands, so why compete there? Bring the higher-quality loose-leaf teas in under your store brand in on-trend packaging.”

Single cups and stories

On the coffee side, today’s consumers also are gravitating toward single-cup brews. Mintel’s coffee report predicts a nearly 38 percent increase in coffee sales between 2014 and 2019, much of that fueled by the single-cup market, which the company suggests will overtake roasted coffee as a sales leader by 2017. One-third of consumers in all generations have a single-cup coffee maker, Mintel reports.

“By far, single cup has changed the landscape. It’s here to stay for a long time,” says Henry Stein, senior vice president of sales for Distant Lands Coffee in Renton, Wash.

Still, Allison Murn, vice president of marketing for Cameron’s Coffees in Shakopee, Minn., suggests retailers shouldn’t go overboard with single-cup options.

“Single-serve is definitely over-shelved,” Murn says. “Growth is going to come from [single-cup options], but only to a point.”

Clay Dockery, division vice president for Massimo Zanetti Beverage, says instead of reallocating shelf space from bags and cans to accommodate growing single-cup sales, retailers should consider adding space in the coffee aisle.

“Consumers are looking for variety in all segments, and it is critically important to have appropriate allocation of shelf space,” he says.

Show off your brand

The right packaging and marketing efforts can go a long way toward tempting shoppers to a store brand coffee or tea purchase. Stein suggests using packaging to tell a story about the products. Instead of communicating just a dark or light roast for a coffee, for example, retailers should be more descriptive about the product’s origin or flavor.

Retailers also shouldn’t shy away from large packages that offer better value, he suggests.

“A retailer that might have sold a 12-ounce bag weekly might lose out to a customer who goes to Costco and gets a 3-pound bag [that] lasts a month,” Stein says.

Murn says retailers that develop single-serve options also should consider a product that employs reusable filters.

“We’ve seen many store brands do extremely well with that,” she says. “There are a lot of customers out there who care about the environment.”

Retailers could also attract customers with tasting demonstrations for store brand coffees and teas. Better yet, they could open a coffee bar that sells their own brands.

“Invest in that space and watch your coffee sales grow,” Bernstein says. “I’ve heard of a store increasing sales 200 percent.”

Finally, Gilbert reminds retailers to give store brands attention during seasonal opportunities and while promoting national brands.

“Off-shelf promotions and loyalty card programs should be executed during key seasonal buying periods to drive trial and awareness and to price shield versus national brand equivalents,” he says. “Too many times, national brands are on end caps or off-shelf during the key buying periods.”

Do invest in unique and premium coffees and teas that differentiate your banner.

Don’t over-allocate shelf space to single-cup coffee; make room for other growing options.

Do consider adding a coffee and tea bar that serves up own-brand offerings.

Don’t forget store brands during seasonal coffee and tea promotions.