Coffee, RTD coffee category recalibrate to meet consumer trends

(Image courtesy of Tim Hortons)

Former professional tennis player John McEnroe, known for his competitiveness and confrontational on-court behavior, is quoted for saying: “You hit a wall at some stage when you don’t want it so bad, but you don’t know when that’s going to be — as far as competition or as far as health is concerned. Sometimes it’s just natural. You just taste it, and you want it so bad that you find other gears.”

Within the beverage space, as consumer trends are impacting the coffee market, experts note that the overall category is “finding other gears” to meet consumers’ changing preferences. 

“The U.S. coffee market is experiencing the push and pull of conflicting consumer desires,” says Caleb Bryant, associate director of food and drink at Mintel, Chicago. “Total U.S. retail coffee sales are projected to reach $20.8 billion in 2023, up 9.5% from 2022. This growth is primarily attributed to price increases.”

Sally Lyons Wyatt, executive vice president and practice leader of client insights at Chicago-based Circana, echoes similar sentiments, noting a softening in unit sales as pricing has increased during the past two years.

“Coffee experienced historical growth of 6.9% from 2018-2022, reaching $15.7 billion in annual sales,” she says. “Growth has experienced a slowdown in 2023 to 5.3% versus a year ago through July.

“Like most categories, coffee has experienced a shift to price driven growth particularly in 2022, when pricing increased to double-digit levels after modest increases during the COVID pandemic,” Lyons Wyatt continues.

Consumer trends for today, moving into the future
As the category continues to adjust to the current market climate, experts highlight how consumer trends are impacting the industry.

In Mintel’s “The Future of Coffee Market Report 2023,” the market research firm points to uncertain economic times as driving value-seeking behaviors across the global coffee industry. 

“Squeezed budgets will see consumers save by buying more private-label coffee,” the report states. “However, by making this change consumers do not feel they are making a huge quality compromise.” 

“However, demand for premium at-home coffee experiences remains high among many consumers; 16% of consumers report creating more specialty coffee drinks at home and 16% report treating themselves to more expensive coffee more often,” Bryant says.

Circana’s Lyons Wyatt points to premium coffees as driving growth in the category.

“Premium offerings are driving growth for coffee, gaining 3.1 percentage points of share from 2018-2022,” Lyons Wyatt says. “We continue to see positive growth [year-to-date] YTD in 2023 as well.

“These products offer consumers coffee shop tastes but at a fraction of the price,” she continues. “Mainstream and value both experienced declines as consumers shift spending to more premium priced offerings.”

On the subject of sustainability, Mintel’s report notes that these trends will become increasingly important in the coffee market, suggesting that the future of the industry will be determined by how brands respond to this issue.

“Sustainability initiatives that benefit both producers and end consumers will be beneficial,” it states.

Additionally, the report points to Gen Z’s spending power increasing, suggesting that “brands should tap into the generation’s love of indulgent iced coffees.” 

“Repositioning classic hot coffee products as suitable for iced coffee can help appeal to younger consumers,” the report states. “There is also room to grow a younger audience for hot coffee through messaging focusing on comfort. In the United States, 34% of Gen Z consumers perceive hot coffee to be comforting (versus 29% for iced coffee).”

*Includes brands not listed.

Source: Circana, Chicago. Total U.S. Multi-outlet w/C-Store, grocery, drug, mass market, convenience, military, select club and dollar retailers for the 52 weeks ending July 16, 2023

Top Coffee Segments

Circana’s Lyons Wyatt refers to Gen Z (younger consumers) as the “biggest” trend impacting the coffee market.

“These consumers do not tend to consume as much traditional hot coffee as older cohorts and tend to gravitate more toward new experiences (cold brew) and also prefer flavor experiences to traditional unflavored coffee varieties,” she says. “This segment is causing manufacturers to rethink how to drive engagement and innovate around flavor/attributes that appeal to younger consumers.”

“Another trend is the impact of social media,” Lyons Wyatt continues. “Either influencers and/or social causes have spurred growth in segments with the coffee category.”

Driving full-steam ahead
As many consumers continue to cope with rising prices, cutting back on foodservice coffee expenditures and instead enjoying coffee at home, experts note that brands are innovating around desirable attributes such as sustainability, convenience and unique brewing processes.

Meanwhile, single cup, ready-to-drink (RTD) coffee and cold brew segments are driving growth for the category, Circana’s Lyons Wyatt says. 

“These segments are delivering growth disproportionate to their size and are gaining share,” she explains. “This trend is driven by younger households entering the category through non-traditional segments. They offer convenience, various types and tastes that consumers want today. We have seen some new products delivering within these segments do well.”

“[Gen Z] consumers do not tend to consume as much traditional hot coffee as older cohorts and tend to gravitate more toward new experiences (cold brew) and also prefer flavor experiences to traditional unflavored coffee varieties.”

— Sally Lyons Wyatt, executive vice president and practice leader of client insights at Circana

In keeping with U.S. coffee market trends, Toronto-based Tim Hortons, recently introduced Tim Hortons Cold Brew Concentrate, available in four flavors: Medium Blend Black, Birthday Cake, Cinnamon Swirl and Mocha Cereal.

Rolling out to grocery stores at participating Walmart stores and regional grocery locations across the country, this is the first time that a Tim Hortons product has been made available nationally in the United States, the company notes. Packaged in 32-ounce multi-serve bottles, each concentrate will offer eight individual servings when prepared as directed, it says.

“Consumers will love every delicious sip of our Tim Hortons Cold Brew Concentrate,” said Markus Sturm, head of consumer packaged goods at Tim Hortons, in a statement. “The smooth taste is crafted with 100% Arabica Beans for a flavor experience inspired by the Cold Brew we have in Tim Hortons restaurants.”

Catering to single cup coffee drinkers, The Original Donut Shop, a brand of Keurig Dr Pepper, Burlington, Mass., and Frisco, Texas, recently unveiled its new flavor innovation: The Original Donut Shop Cinnamon Toast Crunch One Step Latte K-Cup.

The new K-Cup pod flavor, available to purchase exclusively at Walmart stores, is inspired by the fan favorite cereal, Cinnamon Toast Crunch by General Mills. The Original Donut Shop Coffee is made with coffee, sweetener and real dairy all in one K-cup pod, the company says.

“At the heart of our brand lies the passion for inspiring consumers to discover uniquely delicious coffees, and The Original Donut Shop Coffee Cinnamon Toast Crunch One Step Latte perfectly exemplifies our commitment to innovation with mood-boosting treats,” said Becky Opdyke, senior vice president, coffee marketing at Keurig Dr Pepper, in a statement. “We are thrilled to collaborate with a brand as iconic as Cinnamon Toast Crunch and further offer coffee enthusiasts a new way to experience the cereal’s beloved flavors like never before.”

Going forward, as brands and manufacturers work to refresh/reframe their offerings to drive incremental growth, Circana’s Lyons Wyatt predicts the coffee market will continue to see growth coming from “emerging categories” such as cold brew, flavored and RTD coffee.

“Social media will continue to be a factor in the future of the category,” Lyons Wyatt says. “Lastly, licensing and category extensions will continue to make an impact on the category and innovation.” BI