More Than ‘Me Too’

Increasing demand for convenience-minded products, combined with consumers’ love of coffee, tea and other hot beverages, has been driving growth in the single-cup beverages category for several years now. In fact, the single-cup coffee category alone saw a jump of 27.5 percent and 36.8 percent in dollar and unit sales, respectively, during the 52 weeks ending Nov. 2, 2014, according to data from Chicago-based Information Resources Inc. During the same period, dollar and unit sales of store brand single-cup coffee spiked 92.6 percent and 89.9 percent, respectively.

And even though Keurig Green Mountain launched the Keurig 2.0 — a single-cup brewing system designed to lock out any single-cup offerings not manufactured by the Waterbury, Vt.-based company — retailers are still able to partner with suppliers other than Keurig Green Mountain when looking to enter or expand in the single-cup-beverage market with their store brands.

“They scared retailers by saying, ‘Nothing else is going to work [with] the new machine … and that we’re the only ones you can partner with for the new machine,’” says John W. Rogers, vice president, Rogers Family Co., Lincoln, Calif. “Meanwhile, they neglected to tell retailers that there are 28 million machines out there already that their products would work fine in.”

Moreover, Rogers explains that a number of manufacturers have introduced single-cup brewing systems that accept a ny kind of Keurig-compatible capsule. And many manufacturers already have figured out how to get around the lock-out mechanism so their products work in the new machine.

Be unique

A number of categories encourage retailers to play with only a “me too” private label strategy. However, single-cup beverages is not one of those categories.

“There’s so much that is just repetitive in the set today,” says Bill Meissner, president and CEO of Tazza Pronto, a wholly owned subsidiary of Renton, Wash.-based Distant Lands Coffee. “So where a retailer can really benefit is by, yes, having those standard items, but also offering things that consumers are looking for.”

Meissner points to organic and Rainforest Alliance certified products as the types of single-cup coffees consumers seek.

Fair-trade-certified coffee also is in demand, as one in three coffee drinkers recognizes the certification with better quality, says Susan Lambert, business development manager with Suffolk, Va.-based Massimo Zanetti Beverage USA.

Additionally, supermarkets, in particular, are having much success with 80-count bulk packs, which are proving to be “incremental and non-cannibalistic,” Meissner says. He recommends that retailers take their top two to four 12-count items and offer them in 80-count options, too.

Origin coffees also are in vogue at the moment — and do a good job differentiating a retailer’s selection of coffees. Billie Rice, vice president of sales at Trilliant Food & Nutrition, Little Chute, Wis., points to Kona and Peruvian coffees as excellent origin roasts.

Rogers notes that rotating estate coffees, in particular, keep shoppers coming back to see what’s new. These limited-supply coffees comprise a specific crop purchased at a specific farm.

“I think that lends to the ‘exclusive’ part of [the coffee],” he says. “This is a crop from a certain farm, and there’s only so much of it.”

Seasonal “coffeehouse flavors” such as pumpkin spice, gingerbread and chocolate also are popular, Lambert says.

And don’t discount the popularity of other soluble beverages in single-cup formats. Examples Lambert points to are seasonal hot cocoas and cappuccino mixes such as sweet and salty caramel cappuccino and pumpkin spice cappuccino.

Turning to tea, although they make up a relatively niche market, single-cup products here experienced the strongest growth of any tea sub-type in 2013, with overall dollar sales rising 27 percent to reach $127 million, according to “Tea in the US,” a May 2014 report from London-based Euromonitor International. Meanwhile, overall unit sales rose 44 percent.

“In addition to offering standard hot tea flavors such as Earl Grey and English Breakfast, many of the newest tea pods are positioned to be brewed over ice in order to appeal to the large numbers of iced tea drinkers in the U.S.,” the report says.

Allison Murn, vice president of marketing with Cameron’s Coffee, Shakopee, Minn., notes that since tea is newer to the single-cup market, it has been difficult for suppliers to replicate the traditional tea-steeping process — which takes several minutes — with single-cup products. However, her company has developed products that, instead of a plastic cup, use a filter that acts more like a tea bag. It also uses a proprietary grind and flavors that make brewed single-cup tea taste more like steeped tea.

But although many options exist for coffees, teas and drink mixes in the single-cup market, not many of them come in environmentally friendly formats. According to Rogers, environmentally friendly options will be “the next wave” for single-cup beverages. Currently, his company offers a format that’s made out of roughly 98 percent renewable resources — containing no plastic, it’s both biodegradable and compostable.

Jerry Gilbert, vice president, retail sales with Mother Parkers Tea and Coffee, Northbrook, Ill., points to the EcoCup as his company’s own environmentally friendly cup, saying it redefines’ consumers’ experience with brewing and enjoying single-cup hot beverages. The product, which is fully recyclable, allows the consumer to easily separate its various components for recycling.

Think inside the box

Rogers also states that when it comes to packaging, retailers, for the most part, have two options for single-cup capsules: a bag or a box. And he explains that while he likes the bag, consumers seem to prefer the box — they are used to it, and retailers can fit more information on the box.

Meissner adds that many products on the market are manufactured by the same dominant player, which means two different brands of French Roast coffee can taste the same, as they are manufactured under license agreements by the same company. Therefore, if a retailer has a truly different-tasting coffee variety under its own brand that might look the same as an equivalent variety under another brand, the retailer must do everything possible to make sure the box looks truly unique.

“Really focus the packaging on something that looks rich and different — and again, focus on those origin coffees and organics that just aren’t the norm,” Meissner says. “From my perspective, the worst thing you can do in single-cup is to look exactly like Green Mountain and Starbucks. Really, really emphasize that origin nature and natural sustainability element that people are really looking for in coffee.”

And with specialty- and single-origin-coffee packaging, retailers need to make sure they include the roast level and origin on packaging. Consumers find this information as important as — if not more important than — the brand on the package.

Get them in shoppers’ hands

As for merchandising, Rice believes placing packages of single-cup offerings in block fashion on shelves is key. Off-shelf merchandising displays, including secondary displays in key areas to drive trial (e.g., two- or three-pack trial sizes in the checkout lane), are important as well. Also helpful are shipper displays and PDQ displays.

And some retailers have had much success with “single-cup bins” — bins that allow shoppers to mix and match individual capsules to try various products without buying a box of each, Meissner explains.

Lambert notes that a new packaging innovation available — individually wrapped single-serve coffee capsules — allows retailers to provide several varieties, offering a mix-and-match opportunity for shoppers.

Sampling also is a great way to get store brand single-cup products into shoppers’ carts, Rogers states. Before the single-cup format was launched, sampling coffee often was a messy and inaccurate ordeal — the person sampling the coffee could get the grounds-to-water ratio wrong.

“This format’s great because all you do is pop in the capsule; hit the button; and you’re good to go,” he says.

But however products are merchandised, retailers might want to avoid an everyday-low-price (EDLP) strategy when trying to sell their own-brand single-cup beverages. Meissner notes that 44 percent of single-cup products are sold on promotion to drive trial.

“And if you walk the aisle, all you see are price tags — this sale and that sale. Everything is on deal,” he points out. “Private label currently is about 29 percent of units on promotion, so sequence your promotion and maintain your price gaps. What some do is they pursue an EDLP … and [they] get blown away because the branded item is going to be at that price relatively often.”

Do consider offering rotating estate coffee in a single-cup format under your own brand.

Don’t forget to include single-cup cocoa and cappuccino mixes for shoppers seeking a cafélike experience.

Do remember to communicate a single-origin coffee’s roast level and origin information on packaging.

Don’t rely on an everyday-low-price strategy to sell your own-brand single-cup beverages.