Catman: changing tastes
Hot beverages – a classification covering coffee, tea, hot chocolate and hot malt drinks – is a business worth more than £100m to impulse retailers every year. However, the battle of the beverages is increasingly being won by coffee as habits change and emerging generations develop a taste for it, moving away from the nation’s long-established favourite, tea.
This change is largely down to the rise of coffee culture over the past decade as high-street chains have influenced drinking trends. Costa has become the UK’s biggest coffee chain with 2,200 sites, Starbucks has more than 900 stores and there are several other large operators tempting shoppers with ever more exotic styles.
The coffee category is worth £65m to impulse operators every year and sales were up 4.7% in the 12 months to April 2018. Tea is now a £33m annual business, but its value sales were up by just 0.6% in the same period.
Both products are being shaped by changing tastes and a shift to more sophisticated styles of drink, which convenience retailers need to replicate. In coffee, a growing number of consumers are moving towards more-premium styles, while in tea the vast majority of sales are black. However, there is growing interest and emerging demand for tea styles such as fruit, herbal and green. Of course, the issue for convenience operators is whether they react to these changes now to be ahead of the game or wait until these emerging sectors become more valuable and merit additional fixture space.
Coffee manufacturer Jacobs Douwe Egberts (JDE) stresses that consumers are now demanding higher-quality coffee and are trading up to more-premium styles. Paul Junor, revenue and category growth controller, says: “There has been an increased interest in coffee culture and specialty coffee, as well as the rise of convenience-focused lifestyles.
“The wave of out-of-home consumption is triggering demand for ‘premiumisation’ at home. The current growth areas in coffee – specialties, micro-ground and single-serve – are products of better quality that are aligned with coffee shop trends. Speciality coffee such as latte and cappuccino sachets are seeing a huge increase in sales, driven by coffee shop trends, as research shows 46% of consumers like to drink similar styles at home as they do on the high street.” JDE’s Kenco brand is being supported by a £9m marketing campaign focusing on “The Cofficionado” and the brand has recently added a smaller pack of latte and cappuccino sachets for convenience outlets.
Jeff Beedie, head of category and channel development at Lavazza UK, says: “The UK coffee market is dramatically evolving, with consumer demand for excellent-quality products being taken on board. For today’s consumer, it comes down to more than good taste and quality; they want a story behind their brands which they can relate to. Understanding how origin can affect strength, taste and quality is a huge factor within this. Single-origin coffee, for example, is from a specific growing area and is becoming increasingly popular and the same applies to environmental credentials such as fair trade and organic certifications.
“Premiumisation is also a key market trend in the hot beverages sector, with shoppers such as millennials looking for quality products and the desire to replicate the high-street experience. This may mean better quality within a segment such as instant coffee – exemplified by the launch of Carte Noire – or younger shoppers experimenting by entering the grounds and beans segment, replicating what they have seen in artisan coffee shops.
“In convenience, instant makes up the majority of total sales and this should reflect its space on shelves. However, convenience retailers should look to have an offer in all market segments to ensure they capture incremental sales from these growth areas.”
Simon Remmer, sales director at coffee specialist Rombouts, says: “As consumers look to c-stores to make all their food and beverage purchases, it’s becoming increasingly important for retailers to get the basics spot-on to ensure repeat visits. This means offering quality coffee for both the retail and out-of-home channels.
“We are in a great position to provide this, as we can set independent retailers up with the self-serve equipment to get consumers into the habit of stopping by every day for their caffeine fix and mirroring this with a retail purchase such as our filter range, ground coffees and espresso pods for use in the office or home. Essentially, it’s about taking care of the consumer’s full hot beverage needs.” The company is launching its Cold Brew coffee range in September “to provide retailers with a convenient and great-tasting solution to rival the latest innovations on the high street”.
Taylors of Harrogate highlights the claimed success of its coffee bags range as an example of how things are changing in the category. Greg Harvey, channel controller at the company, says: “We noticed coffee drinkers are no longer satisfied with poor-quality instant coffee, but still want a fuss-free option. The bags work just like a teabag and are filled with fresh roast and ground coffee in an easy-to-use brewing bag. Our coffee bags have been a huge success so far; they are convenient for shoppers and add value for retailers.”
The company also markets Yorkshire Tea, the third-ranked tea brand in impulse. “When it comes to choosing a core range of hot beverages, black tea with milk is still the nation’s favourite brew. We would always recommend a retailer’s hot beverage selection includes a quality decaf option and a strong, premium black tea. We have been hearing from convenience and independent retailers that there is a desire for premium-quality products that are affordable and easy to use. That is why stocking premium black teas and a good-quality coffee, including roast and ground options, is key for retailers.”
Although the tea category is less valuable than coffee, it does offer other benefits. “Of all the hot beverages, tea buyers are more likely to buy complementary products,” says Peter Dries, director of customer and shopper marketing for Tetley, the number two tea in impulse. “Common basket companions are milk and bread, as well as cakes and pastries for on-the-go purchases and biscuits and cakes to enjoy at home.
“Retailers need to balance their core offering of everyday black tea with a careful selection of products from the growth areas they feel would most suit their customers and deliver a higher value sale. Impulse stores have the highest concentration of black tea in the mix, where it accounts for 94% of sales. Everyday decaf is an essential stock item, because these buyers won’t choose another option if it is not available.
“Value is a key priority for shoppers when deciding where to shop. It’s in the dominant sectors like everyday black tea that being able to demonstrate the offer of value is important. In smaller grocery stores, price-marked packs (PMPs) have an important role, because they are a good way to demonstrate value and drive rate-of-sale. It’s important to get the mix right and leave room for higher value sales from products that can stand alone without being discounted.”
“Tea is consumed by 90% of households, so it’s a key distress and top-up item in convenience stores,” says Nick Widdowson, merchandising and creative controller at Partners for Growth, Unilever’s initiative providing unbiased category advice for retailers. “Tastes have evolved in recent years, with many people introducing fruit and herbal, specialty or green tea into their repertoire. A successful tea fixture should reflect these changes, with the best-selling lines faced proportional to store size and location. Black tea represents the vast majority of tea sales in convenience, so retailers should focus on this area primarily. But, with fruit and herbal teas now a mainstay of people’s repertoire, they should also consider including them in the range.”
Mars Chocolate Drinks & Treats claims the nation’s taste for hot chocolate remains as strong as ever, with households purchasing nearly 65 million jars, pouches and single-serve sticks last year. Michelle Frost, general manager, says: “Combining strong brands, exciting and innovative products and offering flexibility has seen our hot chocolate range continue to grow. The complete range now includes options for those seeking traditional, instant, malted, low-calorie or indulgent hot chocolate.”
Mars recently launched two ‘add milk’ products – Galaxy Mocha Latte and Thick Hot Chocolate. Says Frost: “Consumers are keen to recreate ‘coffee house moments’ at home. These new products offer both traditionalists and more adventurous consumers the opportunity to do that.”
By Martin Geary