Coffee in the U.S.: Retail, Foodservice and Consumer Trends

Coffee in the U.S.: Retail, Foodservice and Consumer Trends

With Starbucks’ U.S. store business soft, McDonald’s rolling out its McCafé specialty beverages concept and Procter & Gamble selling its Folger Coffee division to J.M. Smucker, massive changes are brewing in the U.S. coffee market, where sales surged 11% in 2007 to reach $39.5 billion. Covering both foodservice and retail channels, Packaged Facts new report analyzes in depth the broad and complex trends affecting this market, including the effects of the economy, worldwide green coffee prices, changing coffee consumption trends, competition from other beverages like sodas and energy drinks, corporate social responsibility and health and wellness benefits. Looking ahead, much of the growth will be coming from the specialty coffee segment, which will continue to chart double-digit growth rates despite the troubled economy, the report predicts, as marketers continue to focus on specialty coffee products and as single-portion packs continue to gain ground in the market.

Homing in on the foodservice market for java, the report examines at length trends in coffeehouse chains like Starbucks and Caribou Coffee, quick-service restaurants like McDonald’s and Dunkin’ Donuts, convenience store chains including 7-Eleven, office coffee service and hotel in-room service. It also thoroughly examines the myriad retail channels for purchasing packaged ground, whole bean and ready-to-drink (RTD), including supermarkets, mass merchandisers, supercenters, warehouse clubs and convenience stores.

Coffee in the U.S. makes important predictions and recommendations regarding the future of the coffee industry, and pinpoints ways current and prospective market participants can capitalize on current trends and spearhead new ones. No other market research report provides both the comprehensive analysis and extensive data that this study offers across following segments:

• The Products (descriptions of myriad classifications, from Arabica and Robusta to Fair Trade and Shade Grown).
  
  
• The Market (including market size, composition, projected market growth, future trends, and international perspective).
  
  
• The Marketers (market structure plus detailed marketer and brand shares).
  
  
• Sales and Distribution Channels (extensive discussion of foodservice and retail venues).
  
  
• Marketing and New Product Trends (e.g., foodservice/retail cross-over and number of product launches by trend/type).
  
  
• Competitor Profiles (packaged product marketers and foodservice players).
  
  
• The Consumer (demographics, attitudes and lifestyle trends).

Report includes extensive information from hundreds of sources as well as dozens of practical, easy-to-read charts, tables and graphs, all of which are thoroughly examined in light of the many dynamic trends at play in this rapidly shifting market.  
 

Chapter 1: Executive Summary

Scope of Report: Foodservice and Retail Markets

Product Breakouts

Report Methodology

The Market

2007 Sales Approach $44 Billion

Foodservice Is Largest Channel in Dollar Sales

Figure 1-1: Share of Total U.S. Dollar Sales of Coffee: Foodservice vs. Retail, 2003 vs. 2007 (percent)

Ground Coffee Dominates Retail Sales

Market Outlook

Looking Ahead

Coffee Popular Worldwide

The Marketers

A Complex Marketing Structure

Hundreds of Marketers

Kraft, Procter & Gamble Dominate Mainstream Coffee

Marketing and New Product Trends

Cross-Branding Foodservice and Retail Brands

Licensed Brands Another Popular Option

New Products Proliferate at Retail

Figure 1-2: Number of New Coffee Introductions, 2003-2008

The Top Retail Trends: Upscale, Organic/Natural, Single-Serve, Fair Trade

Higher Quality Coffee in Foodservice

Coffee for a Cause

Hybrid Coffee/Energy Drinks

New Entries Brewing in Ready-to-Drink Coffee

Distribution and Sales Channels

Explosion of Foodservice Locations

Starbucks the No. 1 Coffeehouse

QSRs Perk Up Their Coffee Offerings

Types of Retail Outlets

The Consumer

Coffee Tops List of America’s Favorite Beverages

The Coffee Generation Gap

Foodservice Coffee Drinkers

Packaged Coffee Purchasers

One Out of Four Households Use Folgers Ground or Whole Bean Coffee

Figure 1-3: Leading Packaged Coffee Products and Brands by Usage Rates, 2007 (percent of U.S. households)

Consumer Attitudes and Shopping Behavior

Chapter 2: The Products

Introduction

Scope of Report: Foodservice and Retail Markets

Dollar Sales Based on Retail Value

Excluded Products

Product Breakouts

Product Types

Coffee Brewed and Served by the Cup

Ground Coffee

Whole Bean Coffee

Single-Serve Pods and Capsules

Instant/Freeze-Dried Coffee

Instant Cappuccino and Specialty Coffee Mixes

Liquid Coffee Concentrates

Packaged Ready-to-Drink (RTD) Coffee Beverages

IRI Categories

Additional Descriptors

Coffee-Growing Countries

Figure 2-1: World Coffee Production, Marketing Years 2003/04-2007/08 (number of bags in millions)

Arabica vs. Robusta

Decaffeinated Coffee

Types of Roasts

Espresso: A Brewing Process as Well as a Roast

Blends vs. Varietals

Estate Coffee

Flavors

Organic Coffee and Sustainably Grown Coffee

Fair Trade Coffee

Shade-Grown Coffee

Chapter 3: The Market

Market Size and Growth

Higher Coffee Prices Drive Dollar Sales Growth

2007 Sales Approach $44 Billion

Table 3-1: Total U.S. Sales of Coffee, 2003-2007 (in millions of dollars)

Foodservice Sales Top $38 Billion

Table 3-2: U.S. Sales of Coffee Through Foodservice Channels, 2003-2007 (in millions of dollars)

Retail Sales of Coffee Near $5.7 Billion

Table 3-3: U.S. Sales of Coffee Through Retail Channels, 2003-2007 (in millions of dollars)

Market Composition

Foodservice Is Largest Channel in Dollar Sales

Figure 3-1: Share of Total U.S. Dollar Sales of Coffee: Foodservice vs. Retail, 2003 vs. 2007 (percent)

Ground Coffee Dominates Retail Sales

Figure 3-2: Share of U.S. Retail Dollar Sales of Coffee by Product Type, 2003 vs. 2008 (percent)

Decaffeinated Coffee Just 10% of Retail Coffee Sales

Figure 3-3: Share of U.S. Retail Dollar Sales of Ground Coffee: Regular vs. Decaffeinated, 2003 vs. 2008 (percent)

Figure 3-4: Share of U.S. Retail Dollar Sales of Instant Coffee: Regular vs. Decaffeinated, 2003 vs. 2008 (percent)

Private Label About 8% of Retail Sales

Figure 3-5: Share of U.S. Retail Dollar Sales of Coffee: Branded vs. Private Label, 2003 vs. 2008 (percent)

Specialty Coffees 30% of the Market

Foodservice Sales Strongest in Restaurants

Figure 3-6: Share of U.S. Foodservice Dollar Sales of Coffee by Venue, 2008 (percent)

Supermarkets Are Primary Retail Sales Channel

Figure 3-7: Share of U.S. Retail Dollar Sales of Coffee by Channel, 2008 (percent)

Retail Sales Highly Seasonal

Regional Sales

Market Outlook

Economic Downswing Not Good News

Consumer Behavior Changing

Impact on Coffee

A Shift to Gourmet/Specialty Coffee

“Friendly Service” a Top Foodservice Driver

Four Out of Five Americans Drink Coffee

Competition from Other Beverages

Table 3-4: Coffee in Context: Comparative Penetration of Beverages, 2003-2007 (% of U.S. adults)

PR Keeps Coffee’s Health Benefits in the News

Coffeemakers Lead in Small Electric Kitchen Appliances

Figure 3-8: Unit Shipments of Coffee-Related Small Electric Kitchen Appliances, 2006-2010 (in thousands)

Single-Serve Systems Begin to Take Off

Wholesale and Retail Coffee Prices Fluctuate Up and Down

Figure 3-9: Average U.S. Retail Coffee Prices for Roasted Coffee, 2003-2007 (in dollars)

Figure 3-10: Consumer Price Index and Producer Price Index for Coffee, 2000-2008

Coffee Pricing Volatile

Raw Coffee Prices Soar into 2008

Table 3-5: Composite Green Coffee Prices, 2005-2008 (in cents per pound)

Looking Ahead

Importance of Environmental and Social Responsibility Will Grow

Opportunities for Coffee with Health and Wellness Benefits

Opportunities to Market Coffee to Hispanic Consumers

Figure 3-11: Projected Hispanic Population as Percent of Total U.S. Population

Table 3-6: High-Index Coffee Products and Brands Among Hispanic Consumers, 2007 (index)

Projected Market Growth

Coffee Sales Will Surpass $59 Billion by 2012

Table 3-7: Projected Total U.S. Sales of Coffee, 2007-2012 (in millions of dollars)

Foodservice Sales to Near $52 Billion

Table 3-8: Projected U.S. Sales of Coffee Through Foodservice Channels, 2007-2012 (in millions of dollars)

Retail Sales Will Grow to Almost $7.8 Billion

Table 3-9: Projected U.S. Sales of Coffee Through Retail Channels, 2007-2012 (in millions of dollars)

International Perspective

Coffee Popular Worldwide; U.S. Consumes One-Fifth

Table 3-10: Per Capita Consumption of Coffee in Top 10 Importing Countries vs. the United States, 2003-2007 (in kilograms of coffee beans)

U.S. Coffee Imports and Exports

Opportunities for U.S. Players

New Product Trends

New in Japan

Functional Coffee Drinks

U.S. Potential a Mixed Bag

Chapter 4: The Marketers

Competitive Overview

A Complex Marketing Structure

Hundreds of Marketers

Major Coffee Marketers

Foodservice Cross-Over

Specialty Coffee Marketers

Hispanic-Style Coffee Marketers

Joint Ventures Provide Synergies

The North American Coffee Partnership

Coca-Cola, Godiva, Caribou and More

Mergers, Acquisitions and Divestures Shape Industry

Competitive Positioning

Retail Marketer and Brand Shares

Methodology

Kraft, Procter & Gamble Dominate Mainstream Coffee

Folgers Captures One Out of Four Dollars

Figure 4-1: Top Packaged Coffee Brands by Share of Retail Dollar Sales, 2008 (percent)

P&G, Kraft Lead Ground Coffee Category

Figure 4-2: Top Brands of Regular Ground Coffee by Share of Retail Dollar Sales, 2008 (percent)

Ground Decaf Tips Scales at $258 Million

Figure 4-3: Top Brands of Ground Decaffeinated Coffee by Share of Retail Dollar Sales, 2008 (percent)

The Up-and-Comer: Pods

Figure 4-4: Top Three Coffee Pod Brands by Share of Retail Dollar Sales, 2008 (percent)

Starbucks and Eight O’Clock Top Whole Bean Brands

Figure 4-5: Top Whole Bean Coffee Brands by Share of Retail Dollar Sales, 2008 (percent)

Instant Coffee a Declining Category

Figure 4-6: Top Brands of Regular Instant Coffee by Share of Retail Dollar Sales, 2008 (percent)

Instant Decaf Plunging Even Faster

Figure 4-7: Top Brands of Instant Decaffeinated Coffee by Share of Retail Dollar Sales, 2008 (percent)

Starbucks Dominates RTD Coffee

Figure 4-8: Top Brands of Ready-to-Drink Coffee by Share of Retail Dollar Sales, 2008 (percent)

Liquid Coffee Concentrates a Tiny Business at Retail

Table 4-1: Top Marketers and Brands of Packaged Coffee by IRI-Tracked Sales and Share: 2007 vs. 2008 (in millions of dollars)

Table 4-2: Share of IRI-Tracked Sales of Packaged Coffee by Marketer and Brand, 2003-2007 (in millions of dollars)

Table 4-3: Top Marketers and Brands of Regular Ground Coffee by IRI-Tracked Sales and Share: 2007 vs. 2008 (in millions of dollars)

Table 4-4: Share of IRI-Tracked Sales of Regular Ground Coffee by Marketer and Brand: 2003-2007 (in millions of dollars)

Table 4-5: Top Marketers and Brands of Ground Decaffeinated Coffee by IRI-Tracked Sales and Share: 2007 vs. 2008 (in millions of dollars)

Table 4-6: Share of IRI-Tracked Sales of Ground Decaffeinated Coffee by Marketer and Brand: 2003-2007 (in millions of dollars)

Table 4-7: Top Marketers and Brands of Whole Bean Coffee by IRI-Tracked Sales and Share: 2007 vs. 2008 (in millions of dollars)

Table 4-8: Share of IRI-Tracked Sales of Whole Bean Coffee: 2003-2007 (in millions of dollars)

Table 4-9: Top Marketers and Brands of Regular Instant Coffee by IRI-Tracked Sales and Share: 2007 vs. 2008 (in millions of dollars)

Table 4-10: Share of IRI-Tracked Sales of Regular Instant Coffee: 2003-2007 (in millions of dollars)

Table 4-11: Top Marketers and Brands of Instant Decaffeinated Coffee by RI-Tracked Sales and Share: 2007 vs. 2008 (in millions of dollars)

Table 4-12: Share of IRI-Tracked Sales of Instant Decaffeinated Coffee: 2003-2007 (in millions of dollars)

Table 4-13: Top Marketers and Brands of Ready-to-Drink Coffee by IRI-Tracked Sales and Share: 2007 vs. 2008 (in millions of dollars)

Table 4-14: Share of IRI-Tracked Sales of Ready-to-Drink Coffee: 2003-2007 (in millions of dollars)

Chapter 5: Marketing and New Product Trends

Marketing Trends

Cross-Branding Foodservice and Retail Brands

Licensed Brands Another Popular Option

Sampling and Giveaways

Celebrity Spokespeople

Product Customization Is Customary

Packaging Innovations Emphasize Fresh, Convenience, Branding

New Product Trends

New Products Proliferate at Retail

Figure 5-1: Number of New Coffee Introductions, 2003-2008

The Top Retail Trends: Upscale, Organic/Natural, Single-Serve, Fair Trade

Figure 5-2: Number of New Coffee Introductions by Top Package Tags/Claims: 2006 vs. 2007

Chapter 5: Marketing and New Product Trends [Cont.]

Table 5-1: Number of New Coffee Introductions by Package Tags/Claims, 2003-2007

Higher Quality Coffee in Both Foodservice and Retail

Coffee for a Cause

Light vs. Dark Roasts

Flavored Coffees Becoming More Sophisticated

Single-Origin Coffees

Limited Editions

Hybrid Coffee/Energy Drinks and Other Spins

Java Monster

Coca-Cola’s Full Throttle

C-Store Push Includes 7-Eleven’s Fusion Energy

Other Coffee Hybrids

Coffee the Latest Functional Beverage

Iced Coffee Hot in Foodservice

New Entries Brewing in Ready-to-Drink Coffee

In Retail, Private Label Has Room to Grow

Marketers Extending Single-Serve Coffee Options

Some Coffees Trade on the Novelty of their Names

Instant Coffee and Instant Specialty Coffee Bank of Convenience

Liquid Coffee Concentrates

Chapter 6: Distribution and Sales Channels

Foodservice Overview

Foodservice Venues

Foodservice Distribution Methods

Explosion of Foodservice Locations

Foodservice Sales Strongest in All Types of Restaurants

Table 6-1a: Share of Dollar Sales of Meals and Snacks Away from Home: By Type of Outlet, 2003-2006 (percent)

Table 6-1b: Share of Dollar Sales of Meals and Snacks Away from Home: By Type of Outlet, 2003-2006 (percent)

Restaurant Industry Sales Reach New Record

What’s Hot & What’s Not

Foodservice Competition Grows

Table 6-2: Major U.S. Quick-Service Restaurants with a Strong Coffee Niche, 2007 (dollars, percent and number)

Coffeehouses on Every Corner

Starbucks the No. 1 Coffeehouse

QSRs Perk Up Their Coffee Offerings

McDonald’s Switches to Premium Coffee, Launches McCafés

Burger King Pioneers Premium Coffee with BK Joe

Dunkin’ Donuts Leads QSRs in Coffee Servings

Wendy’s Also Aiming to Be a Coffee Destination

Jack In The Box Another QSR Competitor

More Drive-Thrus and Customized Options, But Fuel Costs May Hamper Sales

Convenience Stores a Lively Competitor

7-Eleven Plays Up Freshness

Sheetz Offers Barista-Staffed Coffee Bars

At ExxonMobil, ‘Serious Gourmet Coffee Without the Fuss’

Hess and Pantry Gourmet Offers Co-Branded Takes

Walgreen Tests Café W

Licensed Cafés and Kiosks

Books Go Better with Cafés

Mountain Mudd Franchises its Concept to C-Stores

Office Coffee Service an Important Perk

Vending Machines Lagging Behind

Starbucks to Field Vending Machines

Hotel Coffee Programs

Airline Coffee Programs

Retail Overview

Retail Distribution Methods

Smaller Marketers Work Through Brokers

Types of Retail Outlets

Supermarkets Lead Retail Market for Packaged Coffee

Mass Merchandisers and Supercenters

Warehouse Clubs

Gourmet/Specialty Food Stores

The Balducci’s Example

Health and Natural Food Stores

Internet, Mail Order, and Subscriptions

Chapter 7: Competitor Profiles

Competitor Profile: Caribou Coffee Co., Inc.

Company Overview

Expansion Strategy

2008 Initiatives

Competitor Profile: Dunkin’ Brands, Inc.

Company Overview

A Competitive Upstart

Advertising Push

The Dunkin’ Donuts Consumer

Dunkin’ Donuts Coffee and Donuts at More Locations

Retail Expansion Also on the Menu

Strategic Alliances Build a Branded Presence

Competitor Profile: Green Mountain Coffee Roasters, Inc.

Company Overview

Balanced, Multichannel Distribution

The Keurig Connection

Social Responsibility a Strong Driver

Competitor Profile: Kraft Foods, Inc.

Company Overview

Maxwell House

The Arabica Advertising Push

Yuban

Sanka

General Foods International Coffee Mixes

Starbucks Agreement

Gevalia Kaffe

Kraft Expands Tassimo Home Brewing System

Kraft Launches Advertising “Webisodes”

Competitor Profile: McDonald’s Corp.

Company Overview

McDonald’s Upgrades Its Coffee…

…and Takes on Starbucks

Advertising Approaches

McCafés Abroad

Competitor Profile: Massimo Zanetti Beverage USA, Inc.

Company Overview

Chock full o’Nuts: A New York Favorite

Hills Bros. Popular with Heavy Coffee Drinkers

MJB Premium Coffee in the Pacific Northwest

Chase & Sanborn Offers Affordable Price

Cafés and Foodservice

Competitor Profile: Nestlé USA, Inc.

Company Overview

Nestlé Leads Instant Coffee Market

Nestlé Plans to Expand its Nespresso Espresso System

Competitor Profile: Peet’s Coffee & Tea, Inc.

Company Overview

It’s All About the Coffee

Peet’s Retail Stores

Peet’s Expands to Grocery Channels, and Eastward

Peet’s in Foodservice

Competitor Profile: The Procter & Gamble Co.

Company Overview

Mainstream Folgers the Nation’s Leading Coffee Brand

Millstone, P&G’s Mass-Gourmet Brand

P&G Partners with Dunkin’ Donuts

P&G Sells Folgers Unit to Smucker

Competitor Profile: Sara Lee Corp.

Company Overview

Sara Lee Exits U.S. Retail Coffee Business…

…But Keeps Senseo

Company Is Largest Foodservice Player

Sara Lee Thrives in Coffee Internationally

Competitor Profile: The J.M. Smucker Co.

Company Overview

Smucker Buys Folgers Coffee Business

Competitor Profile: Starbucks Corp.

Company Overview

Expansion Through Acquisitions

The Starbucks Coffeehouse Phenomenon

Starbucks Expands Drive-Thrus

Foodservice Operations

Profitable Partnerships in Consumer Packaged Goods

Kraft Markets Starbucks’ Ground and Whole Bean Coffee

The North American Coffee Partnership

Other Partnerships, Other Products

Starbucks Tests Vending and Self-Serve Kiosks

Starbucks Reevaluates and Regroups

Company Brings Back Howard Schultz, Shutters 600 Stores

Starbucks Takes Time Out to Retrain Baristas

Strategic Initiatives

Starbucks Begins Perks for Loyal Customers

“My Starbucks Idea” Yields Viable Suggestions

Starbucks Criticized on a Number of Fronts

Starbucks Lowers Financial Expectations

Starbucks Launches Pike Place Roast and Other New Products

Starbucks Limited Reserve

New Products, Including Health/Weight Targeted Ones

Three New Beverage Platforms for a Transformation Agenda

Starbucks Boosts Advertising

Social Responsibility

Employees Win Lawsuit

Chapter 8: The Consumer

The Consumer

Coffee Tops List of America’s Favorite Beverages

80% of Adults Drink Coffee

Table 8-1: Annual Consumption of Coffee by Type, 2004-2008 (percent of U.S. adults)

Daily Consumption of Gourmet Coffee at an Unprecedented High

The Coffee Generation Gap

Figure 8-1: Daily Coffee Consumption by Age, 2004-2008 (percent of U.S. adults)

QSR Magazine Survey of Fast-Food Consumers

Where Coffee Is Consumed

How Consumers Get Their Morning Java Jolt

Figure 8-2: How Consumers Get Their Morning Java Jolt, 2008 (percent)

Consumers Buy Coffee on Auto-Pilot

Consumer Use and Demographics

Simmons Consumer Survey

Foodservice Coffee Drinkers

Figure 8-3: Leading Fast-Food and Drive-In Chains, 2007 (percent of U.S. adults)

Packaged Coffee Purchasers

Figure 8-4: Coffee Usage Rates by Product Type, 2007 (percent of U.S. households)

Demographic Indicators by Product Type

Regular vs. Decaf Users

27% of All Households Drink Three to Six Cups of Coffee Daily

Figure 8-5: Trended Use of Ground or Whole Bean Coffee: By Heavy, Average and Light User Households, 2003-2007 (percent of total U.S. households)

Demographic Indicators for Heavy, Average and Light User Households

One out of Four Households Use Folgers Ground or Whole Bean Coffee

Figure 8-6: Leading Packaged Coffee Products and Brands by Usage Rates, 2007 (percent of U.S. households)

A Detailed Look at Coffee Usage

Demographic Indicators by Product and Brand

Consumer Attitudes and Shopping Behavior

Organic Coffee and Tea Purchasers

Figure 8-7: Top Organic Grocery Categories, 2008 (percent of U.S. adults)

Figure 8-8: Top Retail Chains for Organic Grocery Categories: Percent of Organic Grocery Shoppers Purchasing Most Often at That Chain, 2008 (U.S. adults)

Table 8-2: Top Demographic Indicators for Selected Fast-Food and Drive-In Chains, 2007 (index)

Table 8-3: Trended Number of Coffee Users by Product Type, 2003-2007 (U.S. households)

Table 8-4: Top Demographic Indicators for Coffee by Product Type, 2007 (index)

Table 8-5: Trended Number of Coffee Users, Regular vs. Decaffeinated, 2003-2007 (U.S. households)

Table 8-6: Top Demographic Indicators for Ground or Whole Bean Coffee Use: By Heavy, Average and Light User Households, 2007 (index)

Table 8-7: Usage Rates for Packaged Coffee by Product Type and Brand, 2007 (percent of U.S. households)

Table 8-8: Top Demographic Indicators for Selected Ground Coffee Brands, 2007 (index)

Table 8-9: Top Demographic Indicators for Selected Ready-to-Drink (RTD) Coffee Brands, 2007 (index)

Table 8-10: Top Demographic Indicators for Selected Instant/Freeze-Dried Coffee Brands, 2007 (index)

Table 8-11: Top Demographic Indicators for Selected Espresso/Cappuccino Brands, 2007 (index)

Table 8-12: Top Demographic Indicators for Selected Instant Specialty Coffee Mix Brands, 2007 (index)

Table 8-13a: Shopper Indexes by Type of Coffee: Eating and Shopping Attitudes and Behavior, 2007 (U.S. households)

Table 8-13b: Shopper Indexes by Type of Coffee by Attitudes and Shopping Behavior, 2007 (U.S. households)