Perk up their (single) cups

Within the coffee and tea segment, dollar sales dipped over the past year in nearly every subcategory. But single-cup coffee almost singlehandedly hoisted the entire coffee category, which achieved solid dollar and unit sales gains over the past year.

And this growth isnt a new phenomenon. Single-cup coffee dollar sales soared from $381 million in 2010 to nearly $1.8 billion in 2012, according to global market researcher Mintel. Its October 2012 "Coffee – US" report says this growth pushed single-cup coffee past instant coffee to make it the second highest-selling subcategory after ground coffee.

Looking specifically at the 52 weeks ending Aug. 11, total single-cup coffee dollar sales rose an impressive 58.3 percent to reach $2,226.6, while total unit sales jumped 65.5 percent to reach 223.9 million, according to data from Information Resources Inc. (IRI), Chicago. Meanwhile, dollar sales for private label single-cup coffee zoomed upward by 2,040.2 percent to reach $110.5 million; unit sales here leapt 1,241.5 percent to reach 14.5 million.

Much of this growth was helped by the September 2012 expiration of key design patents for Green Mountain Coffee Roasters K-Cup packs – the cups used in the companys Keurig single-cup brewing system – which allowed retailers to respond to consumer demand for single-cup coffee.

Do
make sure to ride the single-cup wave – the subcategory continues to see exceptional growth.

Don't
hesitate to tell your coffees "story"; use packaging and merchandising materials to communicate its origins and how it is sourced.

Lure of the cup

Coffee trends truly are getting back to the simplicity of great-tasting coffee, declares Allison Yang, who leads marketing efforts for Shakopee, Minn.-based Camerons Coffee. Although single-serve specialty coffee is driving much of the growth, exclusive coffees such as Jamaica Blue Mountain and Kona also are becoming more prominent in mainstream blends, she observes.

Organic coffee is another major trend, says Jonathan White, executive vice president of New York-based specialty coffee manufacturer White Coffee Corp. Standout flavor trends, White adds, include combination flavors such as chocolate pomegranate and sea salt caramel. Seasonal flavors such as pumpkin spice and peppermint also continue to be a hit with consumers, he says.

"The most important thing for any retailer brand is to ensure your supplier is providing good-quality coffee," Yang says she reminds store brand managers.

Tea drinkers, meanwhile, increasingly are attracted to the tea leafs health benefits. In its July 2013 "Tea and RTD Teas – US" report, Mintel advises tea companies to focus marketing efforts on lightly sweetened and homemade iced or hot teas that have a more healthful profile. The report reveals that three-quarters of consumers aged 18 to 24 agree that tea is more healthful than coffee.

Organic tea also has grown in demand, White says.

"In all categories, people are looking for things [that] are good and healthy for them," he adds. "That is boosting the green tea category in particular. Our green tea is among our best sellers."

Innovation marches on

Consumers willingness to pay for single-cup coffee pods and the machines required to brew them seems to contradict recessionary trends of careful spending, but Mintels coffee report concludes that Americans are "dedicated to the coffee category, especially to fueling their personal preferences for brands, roasts, flavors and serving types."

Mintels report predicts that the single-cup segment will continue to grow, although at a less-explosive pace, to account for between 16.8 percent and 20 percent of market share within the overall coffee market by 2017. The company expects this growth to come at the expense of the roasted, instant and ready-to-drink subcategories.

"Single-serve has been a huge driver of growth – truly transforming the coffee category – but its important to continue to grow the category in the long-term," Yang cautions. "Only 12 percent of consumers own a single-serve brewer," so product offerings should be properly balanced, she adds.

As the single-cup category grows, manufacturers are developing innovations to set their products apart from the competition. Available for private labeling, Camerons single-serve coffee pods have a filtered bottom – instead of the traditional plastic bottom – that produces "a real drip brewing experience without the plastic taste," Yang says. And they are positioned as sustainable alternatives to traditional coffee pods.

"With over 9 billion [K-Cup packs] manufactured annually, the impact to the environment becomes more concerning. [Camerons] single-serve pod is a great alternative," Yang adds.

Lincoln, Calif.-based Rogers Family Company Inc. is another company that uses environmentally friendly materials in its pods. Its One Cup single-serve coffee pods, which are 97 percent biodegradable by weight, can be used in Keurig and other single-cup brew machines that accept the K-Cup cartridge, Jon Rogers, president and CEO, states.

"Instead of a plastic cup, we have a ring made from natural materials," he explains. "The filtering mesh material is attached to the ring. We think our mesh provides a better infusion and a better-tasting cup. We dont have nearly as much to put in the landfill, and we can offer a much lower price because we do not have that expensive plastic cup."

Rogers adds that the biggest mistake store brand managers could make is to not expand the single-serve subcategory quickly enough.

White Coffees single-serve coffee pods also are recyclable and "very green," White says.

"The coffee flows through the side," he points out. "This guarantees a better, more even distribution of the water" than that attained with pods that puncture at the bottom.

Do
consider product development centered on functional teas that ease the effects of age-related conditions.

Don't
limit your coffee offerings to the traditional flavors – seasonal flavors such as pumpkin spice and peppermint continue to be popular with consumers.

Attract java shoppers

On the merchandising front, retailers need to keep in mind that coffee is the second-most consumed beverage in the world after water – and coffee drinkers consume an average of 22.4 cups per week, Yang states.

Therefore, "coffee should definitely be merchandised every week – both from an ad and display standpoint," she notes. "If you watch the weekly ads, the drugstore channel continues to use coffee as a key trip driver to try to protect their shopper base from declining."

Temporary price reductions and coupons are great ways to promote coffee and tea, Rogers says.

"Pick your winners and promote them sensibly," he says. "You want to bring in new users."

Add to that instant redeemable coupons and BOGO deals, White says. He also points to shippers and signage, saying they must draw attention to private label single-cup offerings.

"Store managers must draw attention to their private label offerings," he states. "In the coffee aisle, stuff can drown. You must promote it. If it [isnt promoted], I think it dies."

And as consumers become more educated, they want more information about their coffees origins – and how it is being sourced, Yang says. Mintels coffee report also points to this trend, explaining that these sophisticated coffee consumers are developing their palates and becoming educated through gourmet coffeehouses and boutique roasters.

Tea, please

As for tea, the product has a reputation as a healthful drink, a quality that is expected to boost sales through 2018, according to Mintels tea report. Consumers increasingly are turning to tea as a better-for-you beverage alternative to sugary soft drinks.

Product innovations are key to this growth, and are attracting new users to the category, the report states. Manufacturers have the opportunity to introduce new flavor profiles and varieties to the marketplace. Additionally, freshness is another important attribute to tea consumers.

To take advantage of opportunity in this category, the report advises marketers to expand teas health perception among older consumers and to consider offering functional teas associated with easing the effects of age-related conditions such as joint stiffness or digestive issues.