Get It While It’s Hot

From baby boomers to millennials, today’s consumers have an undeniable love of coffee and tea. And with the economy back on the upswing, many of them are resuming their spending ways and paying a premium to get their favorite brew.

Coffee sales in the United States are expected to continue their upward climb, albeit at a slower pace, according to “Coffee — US,” a September 2014 report from global market research firm Mintel. And sales of tea have benefitted from its perception as a healthful beverage. Driving growth are refrigerated ready-to-drink teas and bagged/loose leaf/single-cup teas, says “Tea and RTD Tea — US,” a July 2014 Mintel report.

Hot trends

Single-cup coffee is the “it” trend in coffee consumption these days. The delivery system offers it all — convenience, flavor variety and ease of use. It comes as no surprise, then, that this segment is making huge gains.

“Overall single-serve coffee growth continues to outpace that of the overall coffee category,” says Marty Reynolds, category marketing director, Bay Valley Foods, Oak Brook, Ill.

Millennial, in particular, are influencing the landscape of the specialty coffee category.

“This savvy group which makes up about 25 percent of the U.S. population, has high expectations of quality and taste but also expects great value and convenience,” says André Cabrera, director of marketing, Distant Lands Coffee, Renton, Wash.

According to Cabrera, nearly half of the millennial group prefers flavor-forward beverages and the option to get their drinks hot, cold, iced or blended.

Another important coffee trend involves the growth of the conscientious consumer segment.

“Consumers are far more knowledgeable about coffee and have a strong desire to try different types of coffee from various regions,” says Clay Dockery division vice president, Massimo Zanetti Beverage USA, Portsmouth, Va. “This [trend] represents a significant opportunity for retailers to grow the high-margin premium coffee segment.”

Cabrera agrees.

“Today’s shoppers increasingly want to know the story behind their products and how they were brought to market,” she explains. “With coffee, they want to know the country or region of origin, if it’s Rainforest Alliance-certified, organic, utilized sustainable methods for production, etc.”

Home delivery is another trend that is just beginning to catch on for coffee and, in fact, consumer product sales as a whole.

“We have seen a significant increase in home delivery of our products through online retailers such as Amazon.com over the last 12 months,” says Darron Burke, president, Burke Brands LLC, Miami, “and are aware of at least one large competitor who is experimenting with online and mobile delivery of coffee to homes and businesses.”

Make a plan

With all of the coffee and tea subsegments, it can be challenging to zero in on an effective store brand strategy. Should retailers jump on the bandwagon or take a step back and look at their overall brand plan?

“Over the past few years, there has been great focus on the growing single-serve segment,” Dockery says. “However, the best-in-class retailers have been the ones that have focused on all segments of the category: mainstream, premium, single-serve and soluble.”

He recommends that retailers pursue a comprehensive brand plan that features a balanced promotional plan and appropriate allocation of shelf space to help accelerate growth.

And store brands are well positioned to capitalize on current trends in coffee and tea.

“Shoppers expect great products at a great value, which is what today’s store brands should be bringing to the consumer,” Cabrera says. “In coffee, high-quality seasonal limited-time offerings and trendy flavors such as salted caramel are a great bet.”

Creativity counts

Given coffee’s high household penetration and overflow to other channels, merchandising and marketing that are creative and forward-thinking are crucial to securing solid share.

“Creative ideas include cross-merchandising single-serve coffee with items in the bakery area,” Reynolds explains. “Retailers are promoting ‘buy two store brand coffees, get bakery donuts for free’ and display via shipper or merchandising vehicle in the bakery section.”

And retailers should make the most of the shelf space within the coffee and tea aisle.

“Stores can control placement and center aisle; middle shelf is a winning formula,” Cabrera explains.

She encourages retailers to realize their potential through end-cap displays, particularly as a way to engage those shoppers who tend to stay at the perimeter of the store.

Variety counts, too; retailers still need to make sure they are offering enough variety to give their customers what they want.

“Consumers are loyal to a roast or a flavor,” Reynolds says, “and if their favorite flavor is not available in store brand, then they revert back to that flavor in the national brand.”

And on the marketing front, Dockery points to coffee-of-the-month programs — which can be communicated via print, social and all other media forms.

Future growth

Standing out among all of the national brand coffee and tea offerings starts with engaging and appealing packaging designs. But to really stand out, retailers might want to look toward the future with next-generation packaging.

“Coffee companies have been working hard for years to perfect the cold-brewed liquid extract process and are now ready to go to market,” says Paul Hertensen, CEO, B.O.V. Solutions, Hernando, Fla.

Packaging has been the last hurdle to overcome. His company’s bag-on-valve system solves the issue of liquid extracts going bad when they come in contact with air and light.

“Now that stable packaging is available,” he says, “it is only a matter of time before liquid coffee extracts will be available everywhere.”

With liquid coffee extracts, consumers can get many servings in one can — up to 40 or more — while taking up only about 25 percent of the space K-cup packs use, he adds.

Do consider the flavor preferences of millennials in new coffee and tea product development.

Don’t skimp on variety; focus on all segments of the category.

Do cross-merchandise coffee and tea with complementary items such as baked goods.

Don’t discount the draw of next-generation packaging for coffee extracts.