Innovation reinvigorating and reinventing our daily cup of joe

Our hat is off to coffee innovation, which continues to help a very mature market grow new usage occasions and higher price points. Threading this needle translates to continuing to push the variety envelope while leveraging hot coffee’s dominant position. In the end, it’s largely about raising the price of coffee-or at least getting more money per ounce.

Across restaurant menus, flavors that have universal appeal, such as mocha, chocolate, vanilla, and caramel, have the strongest penetration. But restaurant operators know that, for savvy coffee drinkers, such pedestrian flavorings aren’t going to cut it.  This explains the uptick in use of seasonal flavors like mint and pumpkin among QSRs with premium-positioned coffee platforms, and it underscores the growing stream of limited-time coffee and coffee drink selections.

Building off coffeehouse expectations, retail coffee manufacturers are embracing variety. To keep its coffee line fresh and interesting, the recently refreshed Eight O’ Clock coffee brand features seasonal varieties, such as Dark Chocolate Cherry and Cinnamon Bun, as part of its Expressions collection.  Some are also tapping non-coffee brands to blend unique yet naturally aligned properties into the mix, such as Godiva Chocolatier, which leverages premium positioning to help set an expectation for high-quality, rich coffee flavor.

But despite the proliferation of lattes, mochas and macchiatos, good old hot coffee remains the go-to beverage: with 75% of coffee/coffee drink users choosing “hot coffee” over 10 other choices as the coffee/coffee drink they drink most often. And a significant 26% share of coffee drinkers consume in excess of four cups per day; above all, to feed their habit, this gold mine of high-frequency users is looking for taste and quality consistency.

To meet this need, restaurant operators are increasingly tapping organic, house blend, premium, fair trade, and Ethiopia coffees, each of which maintained a higher menu presence in 2013 in comparison to 2009. Single-source coffee is increasingly a hit in the grocery aisle, too, with marketers ranging from Kauai Coffee Company to Trader Joe’s providing these premium offerings. In each case, restaurant operators and retailer deliver a more unique beverage to the customer that can help justify a higher price point.

Of course, on the retail side of the business, single-serve has been not only a hit with consumers, but also with its marketers, who can charge far more on a volume basis for the product than for the coffee types single-serve sales are likely eating into. According to our analysis, for the same price, consumers get 2.6 times more volume from a whole bean coffee purchase than they do from a single-serve purchase (marketers might want to keep this to themselves). Why would a coffee marketer want to give consumers 2.6 times more of its product, when it can provide far less for the same price? For those transitioning to single-cup, the answer is likely, “we wouldn’t.” Food for thought: If Green Mountain has its way, the away-from-home market will someday soon have as many Keurig machines as there are now in households. What does this foretell for marketers supplying the foodservice industry?

This blog is based on research featured in Packaged Facts’ Coffee and Ready-to-Drink Coffee in the U.S.: Retail and Foodservice, 8th Edition, published in April 2014.  Add this report to your own intelligence library and receive a 5% discount during our promotional period effective through August 1, 2014. Use code PF05RTD