Coffee prices boost market but drive away consumers, report

By Lorraine Heller

- Last updated on GMT

Related tags Coffee

Coffee sales in the US have seen strong growth over the past five
years, although the increases are a result of higher prices rather
than higher volumes, according to a report by Mintel, which reveals
that the category is threatened by competition from other sectors.

Without price hikes, which increased almost 30 percent since 2002, "sales trends would be in serious trouble,"​ said Mintel. Sales in all retail channels grew 36 percent to $6.5bn, but volume sales declined nine percent, or 60m pounds during 2002-2007. Challenges facing the category include competition from coffeehouses, as well as competition from other beverage segments, such as energy drinks. However, according to Mintel's Coffee - US - September 2007​ report, a benefit to be had from more frequent consumer visits to coffeehouses is that this has driven their exposure to more premium brands, which is emerging as a factor for growth within the market. However, supermarkets have not yet followed with this trend, and one fifth of consumers report purchasing premium coffee from coffeehouses for use at home. One leading brand that has picked up on the move is Folgers, which last year launched a gourmet selection in eight varieties, prices at $6.39 per pound. Beyond a growing taste for premium coffee, consumers are also attracted by fair trade and sustainable coffee. According to the report, the retail sales of fair-trade coffee grew nearly ten times from less than $50m in 2000 to around $500m in 2005. Taste came out as the most important factor for consumers, with 74 percent of respondents to Mintel's survey citing taste as the reason they drink coffee. Some 64 percent said they drink coffee as a way to wake up in the morning. Nearly half of respondents said they use it as a way to get an energy boost, while one fifth said they use it to improve concentration. High prices and health concerns remain the primary reasons for consumers trying to drink less coffee, which prompted Mintel to suggest that marketers are not adequately communicating the health benefits of the beverage to consumers. Some examples of innovation in the industry that have contributed to growth include the launch of stomach-friendly coffee by Proctor & Gamble (Folgers Simply Smooth), which generated $8m in sales in 2006. In addition, single serve coffee makers and pods brands Senseo and Home Café together grew 511 percent to $28m in dollar sales during 2004-2006. According to Mintel's research, 78 percent of American adults report drinking coffee, which the firm says leaves room for growth in the market, especially considering that carbonated drinks are consumed by 88 percent of adults. Most people report drinking two cups of coffee per day, and those most likely to drink more are consumers over 35, especially 'baby boomers'. The market is dominated by two major manufacturers, Kraft and Proctor & Gamble. Kraft accounted for 31 percent of the market in 2006, with its main brands being Starbuck's, Seattle's Best and Maxwell House. P&G's Folgers continued to be the top selling ground coffee brand, said Mintel. The report examines four major coffee segments: ground, instant, whole bean and ready-to-drink. It forecasts that overall US sales of coffee will increase 35 percent at current prices from 2007 to 2012.

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