UK EXECUTIVE SUMMARY Coffee The ongoing path to premiumisation for instant coffee, the increasing accessibility of coffee pods, and the emerging RTD chilled sector offer opportunities for real growth in this market, as coffee brands use NPD to encourage consumers to develop wider and more added value product repertoires. AMY PRICE Senior Food & Drink Analyst
THE MARKET With an estimated size of 61 million kg in 2013, the UK coffee market is forecast by Mintel to outperform the 8.9% volume growth experienced during 2008-13, to reach 70 million kg by 2018 (15% growth). This is a robust performance considering the maturity of the market. Coffee remains a staple product, with high penetration levels (82%) and three in five adults drinking coffee at least once a day. (See Figure 1) The coffee pods segment has experienced the fastest growth over 2010-12. As consumers look to balance their need for quality and convenience, it continues to hold a niche share in the overall market although the emergence of pods/capsules that are compatible for Nespresso machines should ensure the cost of replacement coffee pods should become more affordable in the longer term. THE FUTURE Moves to curb promotional activity over the last few years have affected volume sales, although sustained NPD and marketing activity by the leading brands have contributed to growing visibility. Mintel forecasts that value growth between 2013 and 2018 will be lower than the 33% growth seen over 2008-13, which saw the market reach an estimated 1.1 billion in 2013. Instant coffee dominates, accounting for more than 70% of the market in value and volume terms, demonstrating the popularity of instant coffee in the UK, with around half of consumers drinking it at least once a day. Above-average consumption among affluent consumers bodes well for driving value in the market, as well as efforts to premiumise the market through NPD centred on value added formats eg coffee pods, ground coffee and premium instant, sectors which are experiencing growth (see Segment Performance). Prices of coffee have stabilised following the 2011 peak when the average cost per million kg reached its highest level after poor weather affected supply. While still high, prices do appear to be stabilising in 2013 and remain in line with 2012 levels. FIGURE 1: RETAIL SALES AND FORECAST OF COFFEE*, UK, BY VALUE, 2008-18 * excludes RTD coffee SOURCE: MINTEL/BASED ON IRI 1
MARKET FACTORS Growth in over-55s and C2s will support the market FIGURE 2: LEADING MANUFACTURERS SALES AND SHARES IN THE UK RETAIL COFFEE (EXCL RTD) MARKET, BY VALUE, 2012/13* While the core consumer groups such as over- 55s and C2s are set to grow in number by 2018, supporting demand, the 16-34s and lowest socioeconomic groups are also expected to experience a rise in numbers, potentially dampening growth prospects. Under-25s are, however, more likely to use convenient formats such as coffee pods, instant cappuccinos etc and RTD chilled coffees. With this group being more likely to rate added flavours and to say I tend to add flavourings (eg syrup) to my coffee to disguise the bitter taste, NPD on flavoured formats would be a way to engage this group. * 52 w/e 27 April 2013 SOURCE: BASED ON IRI/MINTEL FIGURE 3: CONSUMPTION OF COFFEE AT HOME, JUNE 2013 Base: 2,000 internet users aged 16+ Encouraging consumers to trade up to premium varieties will add value to the market The coffee market is continuing to look to premiumisation as a means to add value to the market. Emphasising the quality credentials of premium versions of instant coffee (eg wholebean microground), ground coffee and coffee pods, should help to justify the price differential, with scope to convince a greater number of consumers to trade up to these types and beyond standard instant. Coffee shop brands High street coffee shop chains such as Costa and Starbucks continue to offer stiff competition to in-home consumption, despite the economic downturn, with just one in ten consumers in 2013 saying that they have switched to drinking coffee more at home to save money. * any instant coffee (net of instant coffee, instant cappuccinos/lattes and whole bean or micro-ground instant) ** fresh coffee drinkers (net of ground coffee or coffee made using whole beans that I grind at home or coffee pods) FIGURE 3: CONSUMPTION OF COFFEE AT HOME, JUNE 2013 Base: 2,000 internet users aged 16+ However with one in four consumers saying it is hard to recreate coffee shop-style drinks at home, there is considerable scope for foodservice brands such as Starbucks and Costa to replicate this success in the retail arena. COMPANIES, BRANDS AND INNOVATION Nestlé leads the market Nestlé represents more than two fifths of value sales in the coffee market and also leads the market in volume terms, reflecting the dominant position and ongoing success of its leading * any instant coffee (net of instant coffee, instant cappuccinos/lattes and whole bean or micro-ground instant) ** fresh coffee drinkers (net of ground coffee or coffee made using whole beans that I grind at home or coffee pods) 2
Nescafé brand. Nescafé Original maintained its position as the leading brand in the UK coffee market, managing to increase value and volume sales despite increasing competition from more premium formats, including Nescafé s own Nescafé Azera wholebean micro-ground instant variant, launched in March 2012. (See Figure 2) FIGURE 4: FACTORS INFLUENCING CHOICE OF COFFEE, JUNE 2013 Mondelēz is Nestlé s closest rival in coffee, and although it grew value sales during 2012/13, it lost value and volume share largely due to its struggling Kenco brand. NPD continues to focus on instant coffee Coffee manufacturers have increasingly been investing in NPD, with instant coffee continuing to see more innovation than any other coffee segment, driving premiumisation through expanding wholebean micro-ground formats. FIGURE 5: DRIVERS TO DRINKING COFFEE, JUNE 2013 Mondelēz launched Carte Noire Instinct and a Caffeine Free variant to its Kenco Millicano range in 2012, while Nestlé s Nescafé Azera was extended to include Latte and Cappuccino flavoured variants in early 2013. Own-label is now looking to tap into this trend, with Morrisons launching M Instaground Coffee in spring 2013. Nestlé and Mondelēz dominate adspend Adspend in the market tops 20 million and is dominated by Nestlé and Mondelēz, accounting for 80% of expenditure over 2010-12 and reflecting their lead in the overall coffee market. Nestlé increased its adspend by almost 60% between 2011 and 2012. Campaigns included significant investment on its Azera micro-ground instant brand and TV ads to accompany the release of a limited edition Nescafé Original pack, which launched in December 2012. FIGURE 6: AGREEMENT WITH STATEMENTS ON COFFEE, JUNE 2013 Mondelēz focused on its Kenco Millicano brand in 2012, spending 3.2 million on launching a series of TV ads including Passion and Harvest which use the tag line each millicule is special. THE CONSUMER More than eight in ten adults drink coffee Coffee is a mature market, with more than eight in ten adults drinking coffee, and three in five doing so at least once a day. (See Figure 3) 3
Instant coffee boasts the highest penetration (73%), with almost half of consumers drinking it on a daily basis an unassailable lead on all other types of coffee. Fresh coffee is also drunk by the majority (56%), signalling its now mainstream usage and the impact of premiumisation on consumers. FIGURE 7: ATTITUDES TOWARDS COFFEE, JUNE 2013 Rich taste is the leading factor, generating majority appeal Rich taste is the main reason affecting coffee drinkers choice of one product over another, resonating among 53% of coffee drinkers, while almost three in ten consumers (29%) rank fair trade as an important choice factor. 16-24s are more likely than average to see added flavours and issues such as fair trade and organic as factors influencing their purchase. (See Figure 4) Half see coffee as a way to start the day That half of consumers say coffee is a good way to start the day and a quarter always drink coffee when having a break implies that the ritual of coffee drinking is part of its appeal. (See Figure 5) The treat aspect of coffee drinking offers a tangible marketing message for the sector. Encouraging consumers to trade up when treating themselves would help to add value to the market, while potentially limiting further migration to out of home coffee shops. While the bitter taste of coffee acts as a deterrent to consumption among younger age groups, flavourings such as syrup offer a means to overcome this. micro-ground coffee is worth paying more for than regular instant, there are clear opportunities for expanding the added value options available. 16-24s are more likely to say that it s hard to recreate the coffee shop experience at home, signalling that coffee shop brands sold in the retail environment should promote the authenticity of their products as a means of recreating the taste and quality at home. (See Figure 6) Coffee drinkers are price-conscious but show willingness to trade up Pricing remains integral to the coffee sector. More than three in four consumers would notice if the price of their favourite coffee went up and a similar number stock up on their favourite brand when it is on promotion. Quality is more important than convenience Quality is rated more highly than convenience by a sizeable minority, with almost one in three adults who have drunk coffee at home (31%) saying that the quality of coffee is more important than how easy it is to make. The benefits of instant coffee are still apparent, with just under a third saying that instant coffee delivers the same caffeine hit as non-instant and just 19% saying that standard instant coffee tastes bland. In order to justify premium price points, premium coffee brands need to prove their taste credentials to consumers, with more than seven in ten agreeing that It s only worth paying more for coffee if there is an obvious difference in taste from cheaper ones. Just one in four consumers are convinced that the quality of coffee pods is worth the extra cost, suggesting that a focus on building value for money perceptions would widen their appeal. (See Figure 7) With one in five (21%) saying they notice a difference in quality between standard and microground, and one in four (27%) agreeing that 4
What We Think Coffee is a household staple, drunk by more than eight in ten consumers, with three in five drinking it at least once a day. The ritualistic nature of coffee drinking remains a key driver behind the market s robust outlook over the next five years, with 50% saying it is a good way to start the day and a quarter always drinking it when having a break, posing opportunities for brands to tap into the habitual/ritualistic nature of coffee drinking through marketing activity or product development. Instant coffee maintains an unassailable lead over all other formats, drunk by more than seven in ten consumers, with half drinking it at least once a day. The convenience offered by standard instant is its main selling point and driver to everyday consumption but it would seem that exposure to fresh coffee when out of home is having an effect on at home usage. The overall market has benefited from continuing investment in above-the-line advertising from major players such as Nestlé and Mondelēz, with such support set to play a key role in keeping the category front of mind with the consumer going forward. The ongoing path to premiumisation for instant coffee, the increasing accessibility of coffee pods, and the emerging RTD chilled sector offer opportunities for real growth in this market, as coffee brands use NPD to encourage consumers to develop wider and more added value product repertoires. With a quarter of consumers seeing a premium brand as a factor influencing their choice and more than three in ten (31%) rating quality over convenience, there is marked potential to justify the price of premium versions. PUBLISHED BY Mintel Group Ltd www.mintel.com email: info@mintel.com HELP DESK UK +44 (0)20 7778 7155 US +1 (312) 932 0600 Australia +61 (0)2 8284 8100 Japan +81 (3) 5456 5605 China +86 (21) 6386 6609 Singapore +65 (0)6 818 9850 TERMS AND CONDITIONS OF USE Any use and/or copying of this document is subject to Mintel s standard terms and conditions, which are available at http://www.mintel.com/terms. If you have any questions regarding usage of this document please contact your Account Manager or call your local helpdesk. 2013 Mintel Group Ltd. All rights reserved. Confidential to Mintel.