As a category, the coffee market in the US presents a mixed picture. Overall demand has been and will continue to be sluggish, but there are pockets of growth in areas such as premium coffee, cold brew and ready-to-drink coffee
Leading market analysis firm Euromonitor International says stagnant coffee volumes in the US will persist in 2018 and could continue for the next 2-3 years, but there are still opportunities for coffee companies. Other research houses agree with analysis that suggests that the boom in demand for pods is over, or has peaked, and that the rate at which new coffee houses are entering the market is slowing, but that demand for premium coffee from coffee houses is far from stagnant.
Coffee pods, once the most dynamic segment in coffee, registered only single-digit growth in 2016 and 2017, slowing from the double-digit growth seen in previous years. However, this slowdown provides opportunities for the US coffee market in the coming years, says Euromonitor International, which believes that coffee house sales will reach a level of US $28.7 billion by 2021, despite increased competition from ready-to-drink coffee. Euromonitor also suggests that demand for coffee from coffee shops could grow as favourable economic conditions encourage Americans to purchase coffee outside the home.
“Consumers will also be encouraged to spend more on coffee as specialist coffee shops offer more added-value propositions, and premium coffee and preparation methods will give consumers more reason than ever to pay more for a cup of coffee in a foodservice outlet,” it said.
Pods growing less quickly than they were
According to Euromonitor International, fresh ground coffee pods remained the fastest-growing subcategory in the US in 2016 (the latest year for which data was available at the time of writing), with offtrade increases of 12 per cent in volume terms and 7 per cent in current value terms.
However, these growth rates were well below the respective compound annual growth rates (CAGRs). Although 12 per cent retail volume sales growth in any multi-billion US dollar category is impressive, volume sales gain of fresh ground coffee pods between 2015 and 2016 was 8,000 tonnes, which was around a third of the gain in 2013, when coffee pod growth peaked.
The slowdown in the growth of the coffee pod market in the US was expected because penetration potential for pod coffee machines, which is pivotal to sustained rapid growth of coffee pod sales, has always had a limit. This has been exemplified by declines in unit volume sales of pod coffee machines in 2015 and 2016. Consumer sentiment has also dampened the growth of pods, with many consumers turning away from them because of their well-publicized environmental issues.
Although growth in coffee pods slowed growth, fresh coffee posted a 6 per cent increase in retail volume sales in 2016. This was fresh coffee beans’ fastest growth rate since 2012. Despite being a traditional, well-saturated subcategory, fresh coffee beans experienced renewed consumer interest as the premium coffee culture thrived in the US. Where fresh ground coffee pods led growth due to the convenience factor, whole coffee beans have found fresh demand from consumers who appreciate the finer details of coffee flavour and production and rituals associated with its reparation.
At constant 2016 prices, the average unit price of coffee rose by 1 per cent in 2016. However, all coffee subcategories, except fresh ground coffee, experienced average unit price declines in 2016, despite rising commodity prices resulting from dry weather in Brazil and a supply shortage. Green coffee price hedging allowed retail coffee prices to fall on a subcategory by subcategory basis.■ C&CI Read more
This article first appeared in the March’18 issue of C&CI, click on subscribe now if you wish to read the full story and other informative articles in the March and future issues of C&CI or log in here if you are already a subscriber.