Shifting Preferences

Newer coffee and tea formats spell opportunity for store brands, but variety counts, too.

Many Americans have difficulty facing the day without first indulging in a steaming cup of coffee or tea. But a glance at recent sales data might give the impression that U.S. at-home consumers are not refilling their cups as often as they did a year ago.

Although data from Chicago-based market researcher SymphonylRI show dollar sales increases for almost all of the coffee and tea subcategories during the 52 weeks ending Aug. 7 (U.S. supermarkets, drugstores and mass merchandisers, excluding Walmart), those same data reveal unit sales declines for all but a handful of subcategories. (See the table, p. 38.)

Doconsider the mega trends of convenience and "better coffee experiences" in store brand coffee development.

The unit sales declines, at least on the coffee side, might reflect consumers' reaction to rising coffee prices. Wholesale coffee prices have skyrocketed over the past year, and many manufacturers and retailers have been forced to pass the increases onto shoppers.

But an ongoing shift in coffee and tea format preferences seems to be the more likely culprit here. Dollar and unit sales within the total single-cup coffee category rose a whopping 119.3 percent and 96.9 percent, respectively, during the same timeframe — taking a significant bite out of some other coffee subcategories. And sales of ready-to-drink (RTD) tea continue to cut into sales of instant tea mixes.

Two trends lead in coffee

Consumers' excitement over the single-cup coffee brewing concept — led by the K-Cup format for Keurig brewing systems from Waterbury, Vt.-based Green Mountain Coffee Roasters — shows no signs of abating. Joe Prewett, vice president of marketing for Portland, Ore.-based Coffee Bean International, says the format's popularity fits in with one of two overall trends within the coffee arena: convenience.

Don't downsize variety in an attempt to address new coffee trends.

Jon Rogers, who founded Lincoln, Calif.-based Rogers Family Coffee Co. with his wife Barbara, agrees that consumers are high on the K-Cup-type format. Fie notes that his company developed a single-cup brewing machine that does not violate existing patents. Although the launch initially will be a branded one, Rogers plans to make the machine's coffee available for private labeling at a later date.

As big as the single-cup trend is, Prewett says it has nothing to do with the other significant trend within the coffee category: better coffee experiences.

"Regional micro-roasters are thriving in metropolitan areas, relegating last decade's darling coffee brands to 'cup of joe' status," he says.

Retailers now can partner with certain roasters to provide higher-quality coffee under their own brands — true specialty coffee — Prewett notes. This area, therefore, is ripe for growth, particularly for retailers that want to cater to the specialty food shopper.

Another trend falling under the larger convenience umbrellas is continued interest in RTD coffee. Flere, Steven Fay, executive vice president and sales team leader for Roscoe, 111.-based Berner Food and Beverage, points to a number of store brand opportunities tied to innovations here.

"For example, we always think of coffee as a stimulant, but we do a decaf coffee with ingredients that claim to make you sleep," he says. "We are seeing some of our store brand programs maturing and a lot of flavor innovations for seasonal items such as pumpkin spice, mocha mint and others."

Doeducate consumers on the expanding array of tea options.

And retailers might want to trade in the glass bottles to make way for cans.

"I know that cans are certainly not a new concept, but in the RTD coffee category where glass bottles have dominated, cans are kind of the new thing," Fay says. "I believe that ultimately they will prevail because of recyclability and reduced shipping weight."

Yet another trend tied to convenience is renewed consumer interest in ground coffee over whole bean options, Rogers says. But retailers won't necessarily want to remove whole beans from the own-brand mix.

"Variety and value — it's what keeps the consumer coming back!" says Erin Woodard, sales and marketing manager for Boston's Best Coffee Roasters, South Easton, Mass.

That variety and value could come about through smaller package sizes that keep costs down, notes Jonathan White, executive vice president of New York-based White Coffee. Other possibilities are cobranded items and seasonal coffees.

Their cup of tea

Although none of them are as potentially game-changing as the single-cup coffee concept, trends on the tea side are numerous as well. Brad Miller, president of Oradell, N.J.-based Carrington Tea, says his company is seeing herbal teas outsell green and black specialty teas right now.

"We feel it is because the aging baby boomer population is seeking caffeine-free offerings," he says, noting that retailers could present store brand caffeine-free herbals in a wide variety of exotic flavors to take advantage of this trend.

Tea consumption in the United States is "exploding," maintains Douglass Barrow, owner of Luna Gourmet Coffee & Tea Co., Denver. Ele believes retailers would benefit by providing tea education to their customers. They also need to offer the right products for those customers already well-educated in relation to tea.

"Educated consumers are demanding higherquality, origin-specific and organic tea selections," Barrow says. "Tea health benefits, tea presentation, packaging and convenience in preparation are all hot topics in tea."

But retailers won't win on the premium side of tea just by popping a store brand label on premium products, he stresses.

"Private labeled premium tea and the exploding sea of tea choices are new to both the buyer and the seller," Barrow says. "Extra attention should be given to clearly define the underlying value proposition of this new tea line."

Packaging, too, is critical, Miller contends.

"Store brand packaging needs to be more innovative in looking like an actual brand rather than a store brand," he says.

Drive 'em to drink

Retailers also need to work a bit of marketing magic to entice consumers to trial. But they might have to bend a few rules. Prewett notes that "clean store" policies and rigid private brand guidelines don't quite mesh with specialty coffee retailing.

"Retailers should take a few more degrees of freedom in their approach to 'telling the story' of coffees'origins, sustainability programs, in-home brewing solutions and coffee pairing ideas," he says. "Use more shelf signage and market coffee off the shelf to differentiate your store's coffee shopping experience."

Don't invent stories or histories for your coffees and teas; tell stories that are real and connect with your shoppers.

Speaking of stories, keep them personal — and avoid made-up histories or brands, White stresses.

Merchandising outside the traditional brand-blocking approach is worth exploring, too, Prewett notes. Retailers could organize coffee according to region or roast, for example, to help facilitate the decision-making process.

And cross-merchandising with baked items and specialty confections also can help.

On the tea side, floor stand shipper displays are attention-getters, Miller says. And Barrow believes retailers could boost trial and educate shoppers by expanding their tea aisles to include tea educational items such as books, magazines and quick-reference guides.

"Implement a suite of complementary tea-steeping devices, spoons, vessels, travel mugs, etc.," he adds.

Sampling and presentation also are critical for both store brand coffees and teas, Barrow says.

"Gourmet and premium teas are very sexy-looking — show them off and take your fair market share as tea consumption continues to grow," he adds.