26 Jun 2018 How coffee will look different in ten years
RaboResearch’s new report “How Coffee Will Look Different in Ten Years: Consumer-Driven Changes Will Reshape the Coffee World”, looks a decade ahead at key changes that could stir up the coffee market.
Report summary by Rabobank Research:
We don’t always notice big changes in the beverages world on a year-by-year basis, but the significant shifts become readily apparent over a ten-year time horizon.
Whether it’s the rise of local breweries, value-added bottled water, rosé wine or specialty coffee – these trends create entirely new markets and are fundamentally driven by consumer desires.
“The coffee market will be in a completely different place in ten years,” says Jim Watson, Senior Beverage Analyst.
“Those companies that build brands, create sticky consumer connections, and best leverage the healthy attributes of the coffee bean, will be positioned to capture more than their share of the growth.”
Three fundamental consumer trends shaping all beverage segments are key:
- The desire for natural, traceable, and sustainable products
- The blurring of lines across product categories
- Our inability to look up from our phones
These consumer trends will impact coffee in the US and Western Europe, and beyond, in the following notable ways:
Sustainability practices are key
Bean-to-cup machines will replace single-serve coffee pods and big brand consolidation is on the horizon, according to Rabobank.
Bean-to-cup machines are expected to decrease in cost and hit the mainstream, taking 25% of the single-serve at home market in the next ten years, according to Watson, author of the report.
Consumers interested in sustainable packaging are already rejecting the waste that comes with individual coffee pods.
Bean-to-cup machines grind fresh beans with every use, promoting the resulting product as having a high-quality fresh flavor unmatched by pods or instant grounds.
This form of coffee-making gives consumers the chance to explore beans from any roaster in an innovative way, with almost no waste or messy cleanup.
“The fact that you can use beans that you can touch and see makes a big difference. It feels like a much more healthy, natural beverage. It’s a much more premium beverage rather than something that comes in a little plastic capsule,” Watson told BeverageDaily.
Though the coffee pod market is valued at $5.5bn in North America by Euromonitor, Rabobank believes that the appeal of a ‘premium’ coffee experience, like what is delivered at Starbucks’ roastery in Seattle, will be powerful enough to eclipse the pods.
“A lot of times we feel like what you see in the coffee shop is what you want to take home to your at-home coffee machine. So as people get more used to this premium experience in coffee shops, they’re going to want to be able to replicate that at home,” Watson says.
This means that smaller convenience stores, independent cafes and those serving unbranded coffee are all likely to suffer while trying to satisfy the new bean-to-cup coffee consumer.
No more unbranded coffee in food service
In today’s beverage world that is fully branded, the idea of unbranded coffee is rather out of place.
The relative lack of private labels in beverages compared to other consumer food categories shows us the power that beverage brands have in driving market share and growth in general, indicating the potential market for greater branding in coffee.
Consider the soda or alcohol segments, where most developed market consumers will have a branded option during virtually every occasion.
Big food & beverage enters the coffee segment
Coffee is no longer a standalone category within beverages, sold separately in dedicated coffee shops or in a different section of the grocery store.
“It’s sold in the same places that you would buy other beverages. It’s increasingly consumed outside of the home and later in the day,” Watson says.
Coffee is now another beverage that must be included in the broader portfolio. For many larger non-alcoholic drinks companies, it is a white space to fill.
Rabobank predicts that giants like Coca-Cola and PepsiCo are likely to make major moves into the industry soon with both hot coffee and popular ready-to-drink (RTD) beverages.
Even beer giant AB InBev could be attracted to the category, says Rabobank, given its steps into non-alcoholic options with Highball energy and Teavana JV.
Rabobank believes that “RTD coffee could triple its sales in the US, becoming a $12bn category at retail in ten years.”
Most importantly, younger consumers view coffee as another category competing for the same occasions as every other beverage brand.
Loyalty apps and subscriptions will drive sales
Beverage consumers, especially the younger ones, live online. An Experian study found that 40 percent of millennials spend more time interacting with their phones than with the people around them.
Smartphones have reshaped the coffee industry for the last several years and will continue doing so through mobile app ordering, rewards and subscription services.
Starbucks already sees 30% of its in-store revenue from mobile order-and-pay with 15 million active rewards members.
Keurig revealed that it “makes twice the amount of revenue from subscribers than it does from other customers”.’
“Currently, having a strong digital presence is a strategic advantage for a coffee brand owner–but far from a necessity. This will change,” Watson says in the report.
Source: RaboResearch; BeverageDaily.com