Get your share of the cup

On a per-cup basis, it is certainly pricier than coffee sold by the pound in whole bean or ground form – but single-cup coffee continues to grow in popularity despite that reality. In fact, data from Chicago-based market research firm SymphonyIRI Group show that the total single-cup coffee subcategory posted an 89.3 percent dollar sales increase to reach more than $1.7 billion during the 52 weeks ending Jan. 27 (total U.S. supermarkets, drugstores, mass market retailers – including Walmart, military commissaries and select club and dollar retail chains). Unit sales grew 84.3 percent during the same timeframe.

And since key patents expired on Green Mountain Coffee Roasters K-Cup Pack technology last fall, retailers have been in a mad rush to introduce their own single-cup alternatives to store shelves. The SymphonyIRI data reflect the influx – and consumer trial – of these new items; store brand single-serve coffee saw a whopping 1,810.0 percent increase in dollar sales and a 1,496.8 percent increase in unit sales during the same timeframe.

One type of consumer helping to grow this segment is the person looking to save money on a visit or two to Starbucks or another coffeehouse, suggests Jon Rogers, cofounder and president of Lincoln, Calif.-based Rogers Family Company Inc. After all, single-serve coffee designed for Keurig and other brewing systems might be expensive, but its still cheaper than coffee away from home. And private label can offer a value relative to the branded side.

Moreover, the segment is expected to continue on a strong growth curve.

"Household penetration for single-serve is currently estimated at 12 [to] 15 percent," notes Chris Hillman, vice president, marketing for Melitta USA Inc., Clearwater, Fla. "The industry is projecting that household penetration for single-serve could rise to as high as 40 percent."

Do
offer a variety in terms of blends, flavors and more as a differentiator.

Dont
skimp when it comes to investments in both performance and flavor quality.

Tom Martin, executive vice president and chief operating officer of Pod Pack International Ltd., Baton Rouge, La., also points to strong growth potential.

"We feel the single-serve coffee market will grow even faster because there are now more players advertising to get their piece of the action," he says. "This is making awareness even greater and greater. Store brands now have ways to enter the market, and over the next couple of years, they should be able to reach – and possibly surpass – the same percentage of the market that they have in other store brand coffee items."

To some degree, manufacturing capacity has been an issue for retailers wanting to enter the single-serve coffee space, notes William Kirkpatrick, CEO of Shakopee, Minn.-based Camerons Coffee, who recently toured companies in Europe that install single-serve manufacturing lines.

"There are many, many production lines being built for delivery this year," he adds. "The manufacturing constraints will be gone shortly."

Room for differentiation

Another plus for retailers within the single-serve coffee segment is that theyll find plenty of room to stray from basic blends and a K-Cup Pack-lookalike format. Most initial store brand offerings have "covered the basics," Kirkpatrick notes, such as light, medium and dark roasts – and decaffeinated and Colombian options.

"I believe we will see unique new flavored coffee and country-of-origin coffees coming to market," he says.

Martin also sees opportunities in myriad flavors, roasts and blends, as well as fair trade. In fact, variety potentially is more appealing to the single-serve consumer because he or she makes the consumption-related decision one cup at a time instead of by the pot.

"We believe that the single-serve segment will eventually mirror the current roast and ground category," Hillman says. "Flavors and certifications that retailers currently offer their consumers in tins and bags will also be relevant within the single-serve segment."

He adds that he also sees an opportunity to segment store brand offerings here by retailing both a premium range and a value-positioned range.

But perhaps an even bigger opportunity lies in cup or pod formats designed with sustainability in mind.

"It is unfortunate that the largest player is the K-Cup, which is not biodegradable, compostable or recyclable," Martin says. "This point will eventually make a difference for Keurig and Green Mountain when the environmentally caring consumers realize that they have a choice and can buy a compostable paper pod or other alternative brewing systems that will eventually reach this market segment."

Rogers notes that his companys single-serve coffee OneCups, available for private labeling, are almost to the point where they will be 98 percent compostable. Rogers Family Coffee Company continues to work toward that goal.

Do
opt for technology advances that reduce the environmental impact per single-serve unit.

Dont
limit yourself to one tier; consider offering both premium and value-minded single-serve coffee lines.

And Melittas single-serve cups not only boast real coffee filters that are visible to the user, but also are 100 percent recyclable, Hillman says.

"Our single-serve cups are uniquely designed so consumers can see and smell the coffee," he adds. "Consumers are telling us that the products offer the convenience of single-serve but also offer a more sensory experience."

For its part, Pod Pack International offers ecominded soft paper pods, Martin adds. However, the number of pod brewing systems available is limited right now, although consumers now may purchase a reusable pod holder for the K-Cup Pack brewer.

"The best home pod brewers right now are the Bunn My Caf̩ and the SunCana brewers, and they have nowhere near penetrated the retail outlets, Martin says. "So the first thing a retailer would need to do is to offer the brewing system Рpods and brewers Рand locate both items together on the shelf to cut down on the confusion to the consumer/purchaser."

And if the retailer already is working with a coffee roaster on the single-serve side, they could ask that roaster to assist in the expansion to include pods, Martin adds.

Mind the details

Retailers certainly can find numerous ways to differentiate their own-brand single-serve coffees from their competitors. But no matter how unique the flavor or how eco-minded the delivery system, success ultimately will be tied to quality.

"The failure rate of many of the single-serve items we have tested in our lab has been very high," Kirkpatrick says. "If a cup blows up in a brewer and leaves a mess, the consumer will be very reluctant to purchase again, no matter what the savings."

Quality applies to flavor, of course, too.

"Consumers that own and use Keurig machines are more affluent and demand products that perform in their machines and taste very good," Kirkpatrick stresses.

But retailers willing to invest in quality on both the performance and flavor sides likely will realize a high return on that investment.