Global Coffee Trends: Finding the

Premiumisation Opportunity

July 2011
 Hot Drinks: Coffee Trends © Euromonitor International

Introduction

Global Overview

Coffee Retailing and Brand Strategy

Rise of Coffee Pods

Conclusion

2
Introduction Hot Drinks: Coffee Trends © Euromonitor International

Scope
• This report covers coffee sales in the following categories. Value figures are in US$, 2010 fixed exchange terms, and
forecast figures are in 2010 constant terms.

Coffee
US$58 billion

Fresh Coffee Beans Fresh Ground Coffee Instant Coffee

US$4 billion US$31 billion US$22 billion

Disclaimer Coffee sales showed a slowing but still steady growth trend
Much of the information in this briefing is of a statistical during the recent recession years before bouncing back in
nature and, while every attempt has been made to ensure 2010. But with commodity pricing pressures and established
accuracy and reliability, Euromonitor International cannot be preferences for tea in many regions, a move towards higher
held responsible for omissions or errors margin coffees will become an increasingly central part of
future growth strategies. This report discusses the differences
Figures in tables and analyses are calculated from in regional coffee trends and seeks to help identify where
unrounded data and may not sum. Analyses found in the
opportunities for premiumisation in coffee lie over 2010-2015.
briefings may not totally reflect the companies’ opinions,
reader discretion is advised
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Introduction Hot Drinks: Coffee Trends © Euromonitor International

Key findings
Coffee sales grow even Sales witnessed a slowdown especially in 2009 but enjoyed strong recovery by 2010.
through recession Instant coffee in particular saw improved performance as consumers traded down
from more expensive coffees.
Price pressures remain Global commodity prices for coffee are seeing 30-year highs in 2011 and have more
for manufacturers than doubled since 2009. An effort to portray the premium quality possible in coffee
is needed to help ease the burden of retail price increases.
Divergent regional tastes Centuries of tradition and varying degrees of market penetration have given rise to
vastly different consumer preferences for tea and coffee between regions.
Overcoming established tea-drinking habits remains a challenge in many areas.
Coffee specialist chains Chains such as Starbucks still have the bulk of their business in Western markets,
on the rise in tea-drinking but tea-drinking nations are among the top growth markets for coffee specialists, and
countries represent the largest opportunity moving forward.
Premium potential exists Coffee has seen some global success from premium brands while tea has been
for coffee more limited, with Lipton as the only true global leader. Tea is viewed as a commodity
in many major markets whereas coffee can be introduced as an affordable luxury.
New price tiers for instant Long viewed as a generally cheap option, instant coffee is evolving with larger and
coffee single-serve sizes, premium launches such as Starbucks VIA, and the development
of 3-in-1 speciality options with local flavours, creating more differences in price.
Pods will generate the Though they are still popularised mainly in Western European and North American
largest share of fresh markets, single-brew coffee pods systems have crossed into mainstream acceptance
coffee growth and are expected to continue to offer the best premium opportunity.
Competition from other Major tea and soft drinks manufacturers have already begun to move into coffee
producers is intensifying partnerships. The space is expected to become more crowded as core categories of
tea, carbonates and bottled water offer limited chances for premiumisation.
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 Hot Drinks: Coffee Trends © Euromonitor International

Introduction

Global Overview

Coffee Retailing and Brand Strategy

Rise of Coffee Pods

Conclusion

5
Global Overview Hot Drinks: Coffee Trends © Euromonitor International

Coffee sales showing steady global growth

• Coffee value sales showed consistent growth from 2005-2010, even Global Retail Value Sales %
through the recession period. A slowdown was experienced especially Growth
in 2009 but strong recovery was evident by 2010.
• During 2009 and 2010, instant coffee has consistently outperformed
Category 2008/2009 2009/2010
fresh coffee in value sales, even though the latter is the more prevalent
category. This indicates a sustained shift towards more premium
versions of instant coffee in several regions, especially in 2010 with the Coffee 5.4 6.3
launch of Starbucks VIA, priced several times higher than standard
instant coffee brands.
• Instant coffee as a percentage of overall coffee sales amounted to 38% Fresh coffee 5.2 5.9
in 2005 but fell to 37% in 2007, before growing again, and exceeding
38% in 2010. This was driven by trading down during the recession and
will be sustained by premiumisation and a sustained change in drinking Instant coffee 5.9 6.9
habits in Eastern Europe and Middle East and Africa.

Global Retail Coffee Value Sales 2005-2010

70
60
50
US$ billion

Coffee
40
Fresh coffee
30
Instant coffee
20
10
0
2005 2006 2007 2008 2009 2010
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Global Overview Hot Drinks: Coffee Trends © Euromonitor International

Forecast shows divergent potential for premium brands

• Value is set to outpace volume growth, continuing a trend of premiumisation, for all categories except instant.
Recent new launches such as Starbucks VIA offer a more premium opportunity for instant coffee, but these have
thus far been limited in geographical scope.
• Total coffee value sales are predicted to add another US$11.3 billion over 2010-2015, in constant terms. Just over
half of that will come from fresh coffee, though instant coffee is predicted to grow at a slightly faster rate of 23% over
the period to 17% for fresh coffee.
• Value growth is still far outpacing volume growth for fresh coffee, especially fresh coffee beans, which are seen as
among the highest quality types. Fresh coffee beans are also the smallest overall coffee category, adding US$1.4
billion in sales or just over 10%. They represent a small but profitable opportunity for expansion in most global
markets. Greater consumer education about freshness and quality and greater penetration of coffee grinders in
households will be keys to success.

Global Coffee Retail Sales Growth 2010-2015

Coffee

Fresh ground coffee

Retail RTD volume
Retail value RSP
Fresh coffee beans

Instant coffee

0 5 10 15 20 25 30 35
% growth
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Global Overview Hot Drinks: Coffee Trends © Euromonitor International

Commodity pricing puts pressure on coffee manufacturers

• Coffee prices posted gains for the sixth quarter in a row in March 2011 as the developing global supply crunch
seeped deeper into market sentiment.
• Coffee futures have risen 20% since 7 June 2010. Traders have increasingly come to understand that two
consecutive years of poor harvests in Central America and key coffee grower Colombia will put a dent in supply that
Brazil is unable to offset, which this year is expecting its biggest-ever harvest, albeit of lower-quality arabica coffee
beans.
• US$1.14 per pound in March 2011 was the highest spike in more than 30 years.
• Coffee prices doubled from US$0.40/lb to US$0.80/lb in just two years, 2005-2007, before settling down, but have
steadily risen since 2010 once again due to low harvests and increased global demand. Manufacturers blame the
role of speculators but most have instituted price increases in 2010 and will do so again in 2011.

World Coffee Prices March 2005 to March 2011

140

120
US cents per pound

100

80

60

40

20

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Global Overview Hot Drinks: Coffee Trends © Euromonitor International

Strong growth despite low per capita in Asia Pacific

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Global Overview Hot Drinks: Coffee Trends © Euromonitor International

Asia Pacific still a tea drinking region

• Per capita coffee consumption of 5 litres/person in Asia-Pacific % RTD Volume 2010
2010 is the lowest of any region in the world and more
than four times below the global average. Tea
consumption, on the other hand, is at 25 litres/person.
• Despite this, US$10.1 billion in 2010 retail value sales
of coffee is second only to Western Europe, attesting
both to the large numbers of people in the region, and
the further potential profit even a small gain in per
capita consumption could translate into.
• Growth in value sales of coffee in the Asia Pacific
region is predicted to exceed the global average for
every year from 2011-2015.
• Instant coffee represents more than half of all coffee
sales with Nescafé as the clear market leader, with
more than a third of all coffee sales in the region.
• But opportunity still exists for differentiation within the
category, especially with premium launches such as
Starbucks VIA Ready Brew. Fresh coffee beans Fresh ground coffee Instant coffee

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Global Overview Hot Drinks: Coffee Trends © Euromonitor International

Developed markets tend to purchase fresh ground coffee

• Fresh ground coffee is most dominant in these two regions, especially in North America where it represents more
than 80% of total RTD volume sales and has seen that proportion grow slightly since 2005. In Western Europe it
represents over 60% of coffee RTD volumes but has seen that share decline from about 2/3 since 2005 due to the
rise in popularity of instant coffees, a trend set to continue as these grow more premium.
• Most value growth is coming from fresh coffee beans, especially value sales growth for premium/gourmet coffee
types. But ground coffee is so heavily favoured by existing consumers that both fresh bean and instant are unlikely to
find sustained growth as a proportion of overall coffee sales.
• Coffee pods are also taking hold in these two regions in particular, helping to keep consumers in the fresh ground
coffee category who might otherwise migrate towards newer single-serve instant coffees.

North America % RTD Volume 2010 Western Europe % RTD Volume 2010

Fresh coffee beans Fresh ground coffee Instant coffee

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Global Overview Hot Drinks: Coffee Trends © Euromonitor International

Instant coffee becoming more diverse in Eastern Europe

• Instant coffee is the leading type in Eastern Europe with Eastern Europe % RTD Volume 2010
just over half of total coffee RTD volume sales in 2010.
Tea is still the dominant drink in the region, and powder
concentrates are also popular, leading to a considerable
competition for fresh coffee in the daily drinking habits of
Eastern European consumers. Fresh coffee
beans
• Much of the preference for other drinks is driven by a
consumer desire for value. Larger fresh coffee sizes and Fresh ground
coffee
instant coffee premiumisation could both do well in
Eastern Europe if such measures conveyed a value-for- Instant coffee
money message. Consumer desire for convenience will
continue to create a steady demand for instant coffee,
and this could be further developed through more
options on flavours and single serve versus larger bulk
packaging.
• 2-in-1, 3-in-1, 4-in-1, and Italian speciality are minor but Eastern Europe Standard Instant
growing portions of instant coffee sales. In this context, Coffee 2007-2010
standard instant coffee as a percentage of total instant 80.0
coffee value sales started at 79% and steadily declined % total instant coffee value 79.5
through 2009, before a slight rebound in 2010. However, 79.0
this was more related to the economic slowdown, and
78.5
sales

more expensive premium types are expected to gain

sales once again starting in 2011. 78.0

• Private label is a growing threat so there will be a need

77.5
to differentiate among branded coffee manufacturers, 77.0
especially in established packaging formats. New single- 76.5
serve launches will have an advantage over private label 76.0
in the region. 2007 2008 2009 2010
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Global Overview Hot Drinks: Coffee Trends © Euromonitor International

Middle East and Africa has a café culture

• There is a very strong café/on-trade tradition in this Middle East and Africa % RTD Volume
region, with many markets featuring at least one 2010
serving of coffee a day in the on-trade for an average
consumer.
• Coffee benefits the most from this type of
consumption as tea is mostly consumed in the home.
Expanding café culture through new outlets and
promotions should help create premium demand for
fresh coffee.
• Serving size and styles for coffee are different and
smaller than other regional averages, and resemble
espresso rather than fuller 8-12 oz cups. Flavour
launches and single-source coffees will not be as
easy to implement as a result, since these are more
commonly associated with non-espresso coffees.
• Fresh ground coffee represented 47% of total RTD
volume sales in 2010, down from 50% in 2005.
Instant coffee is making gains and is a close second
with 37%. There is a much more balanced
opportunity in this region, with instant still consumed
in the home and ground/espresso style still the most
common in cafés and coffee specialists. Fresh coffee beans Fresh ground coffee Instant coffee

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Global Overview Hot Drinks: Coffee Trends © Euromonitor International

Australasia and Latin America favour coffee over tea

Australasia % RTD Volume 2010 • Both Australasia and Latin America are among the few
coffee drinking regions where the drink is more popular
than tea. Tea in Latin America is seen by consumers
more as a medicinal remedy than an everyday drink.
• Latin America is favoring fresh coffee, similar to North
America. This is driven by expansion of specialist coffee
chains. Fairtrade, organic and these kinds of speciality
coffees are the big growth niche in Australasia, with
most new brands appearing in fresh coffee bean
formats.
• Latin America does not quite have the same demand for
gourmet coffees, but large brands can begin to get
traction in the cities with development of big box
supermarkets.
Latin America % RTD Volume 2010
• Instant coffee accounted for more than 72% of total
coffee RTD volume sales in Australasia in 2010, roughly
unchanged from 2005. Starbucks VIA and other
premium-orientated versions could do very well here,
due to the consumer preference for this coffee type and
the lack of any significant super-premium competitor.
Interestingly fresh coffee beans ranks second, indicating
a growing appreciation of coffee quality and freshness.
• In Latin America, fresh ground coffee accounted for 70%
of total RTD volume sales in 2010 and was similarly
unchanged as a proportion of the total since 2005. Here
there will be a challenge to get value-conscious
consumers to adapt to fresh coffee beans and the added
Fresh coffee beans Fresh ground coffee Instant coffee preparation time associated with them.
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 Hot Drinks: Coffee Trends © Euromonitor International

Introduction

Global Overview

Coffee Retailing and Brand Strategy

Rise of Coffee Pods

Conclusion

15
Coffee Retailing and Brand Strategy Hot Drinks: Coffee Trends © Euromonitor International

Nescafé - leading coffee brand

• Nescafé built its success through standard pricing Global Top 10 Coffee Brands 2010
and extensive global distribution, but recently has
not been content to rest upon its significant sales 2010 retail
lead. Brand Company value US$
• The “Nescafé Plan” was announced in August 2010, billion
with CHF350 million to be invested worldwide in
sustainable coffee sourcing including cooperation Nescafé Nestlé SA 10.3
from the Rainforest Alliance and 4C, and also
CHF150 million for Nespresso production. Jacobs Kraft Foods Inc 2.0
• Direct purchases from farmers are to be doubled by
2015, reaching 180,000 tonnes, all certified to 4C Maxwell House Kraft Foods Inc 1.5
standards. Half of this total will also be Rainforest
Alliance sourced by 2020. Folgers JM Smucker Co 1.2
• 220 million disease-resistant plants are to be
distributed to farmers, as well as technical Tchibo Tchibo GmbH 1.2
assistance programmes started, all with the aim of
building a closer, transparent relationship with coffee Lavazza Lavazza SpA, Luigi 1.2
farmers.
• Collaboration and shared value between Nespresso Nestlé SA 1.1
manufacturers and growing partners had previously
been employed primarily by premium global brands
Carte Noire Kraft Foods Inc 1.0
such as Starbucks, but will need to be part of the
core strategy for even standard- and economy-
Melitta
priced brands moving forward. It will help secure
Melitta Unternehmensgruppe Bentz 0.9
existing supply chains in the face of increased coffee
KG
prices, as well as improve the standing of
established coffees in the eyes of an increasingly Starbucks Starbucks Corp 0.8
socially-conscious consumer base.
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Coffee Retailing and Brand Strategy Hot Drinks: Coffee Trends © Euromonitor International

Premium brands in coffee versus tea

• Coffee has seen some global success from premium brands while tea has been more limited. Lipton is dominant in
tea and other brands are still fragmented by region. Nespresso and Starbucks, for all their sales growth in recent
years, each have less than 2% of global coffee value sales. Twinings and Ito En in tea can be premium in foreign
markets but are priced much more like standard brands in their domestic markets.
• Starbucks and other higher-quality brands have performed well in coffee, and nearly every market has at least a
niche for premium brands. Several tea markets on the other hand have few or no premium brands, especially in
regions outside North America and Western Europe.
• An opportunity currently exists therefore in the coffee space, especially for brands that are already known through
coffee specialist chains, whereas a significant level of consumer education would still be needed for tea. This reflects
the decision by tea producers such as Tata Global Beverages to move into coffee.

Hot Drinks Value Sales by Type and by Segment 2010

Coffee

Premium
Standard

Tea

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

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Coffee Retailing and Brand Strategy Hot Drinks: Coffee Trends © Euromonitor International

Coffee “third wave” creates premium demand

• In developed markets where chained coffee shops have existed for many years, one of the latest trends at the
moment surrounds the so-called “third wave” of coffee shops. The third wave refers to a newer group of quality-
obsessed independent coffee shops, often with a focus on premium, single- serve drip coffees. This follows the
second wave, with the emergence of the major chains such as Starbucks and Costa. The first wave was nationally
distributed, branded packaged coffee that often has been available for many decades. The third wave taps into the
authenticity and theatre behind higher quality coffee preparation methods, with coffee often prepared in front of the
customer and an emphasis placed on presentation rather than disposable cups.
• Coffee chains are finding more competition from established bakery products fast food players such as Dunkin’
Donuts and Tim Hortons, and from emerging companies such as Pret A Manger, a sandwich chain that is also
attracting consumers for its coffee. Pret A Manger grew same-store sales by 3% in 2010 amid a much-publicised
expansion to the US. Fast food or sandwich-based coffee shop operators bring new users into the category, laying
the groundwork for future growth.
• Despite this, the market could be reaching a tipping point. For example, in the UK, fragmentation has led to one
artisanal coffee shop in London opening solely to cater for cyclists. The UK has around 1.8 coffee shops per 10,000
people. In London this rises to 3.5. Foodservice volume sales of coffee have in turn only grown by 1% annually since
2008 in the UK, after enjoying 3-4% annual growth in the pre-recession years. If growth in foodservice coffee
consumption continues to slow, it will be more challenging for premium coffee outlets to find success, even with
unmatched levels of coffee quality and preparation. However, new players will continue to enter the market and
independent operators are typically likely to drive quality and new ideas.

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Coffee Retailing and Brand Strategy Hot Drinks: Coffee Trends © Euromonitor International

Coffee retailing spotlight: India’s Bru World Café

• Building on the success of Bru, India’s leading instant coffee brand, Hindustan Unilever recently opened its first ever
coffee outlet in Mumbai, Bru World Café.
• While Lipton kiosks are aimed at on-the-go consumers, Bru World Café targets those who are looking for a
café/lounge environment in which to meet and socialise.
• Cafés are becoming increasingly popular among young Indian consumers who have more disposable income than
previous generations and who are spending more time socialising outside the home environment.
• Chained coffee shops in particular are leading this expansion, and have increased their proportion of overall
foodservice volume sales from 4% in 2005 to 6% in 2010.

Chained Coffee Shops Share of India Foodservice Coffee Sales 2005-2010

7

6
% volume share

0
2005 2006 2007 2008 2009 2010

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Coffee Retailing and Brand Strategy Hot Drinks: Coffee Trends © Euromonitor International

Coffee retailing spotlight: Starbucks to enter India?

• Starbucks introduced VIA Ready Brew, its instant coffee, to China in April 2011. India is likely to follow as the next
major expansion market.
• In January 2011, Starbucks signed an agreement with Tata Coffee Ltd to source coffee beans in India, and the deal
could also lead to opening retail locations in the near future, particularly within Tata’s existing hotel holdings across
the country. New outlets could open as soon as July or August 2011, now that the problem of acquiring real estate
and local supply is being addressed.
• In February 2011, rival Dunkin’ Donuts partnered with fast food operator Jubilant Foodworks Ltd, operator of
Domino’s Pizza in India. Large international coffee chains appeal to an increasingly affluent younger urban
population willing to pay much more for a cup of coffee, even as the country as a whole remains a tea-drinking
nation. Dunkin’ Donuts expects to open its first outlet in India in early 2012, making this country a likely key
battleground in the near future for international on-trade coffee manufacturers.

Starbucks Asia Pacific Proportion of Foodservice Sales 2004-2009

35
% foodservice value share

30

25

20

15

10

0
2004 2005 2006 2007 2008 2009

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Coffee Retailing and Brand Strategy Hot Drinks: Coffee Trends © Euromonitor International

Rise of coffee specialist chains in tea-dominant regions

• Four of the top 10 value growth markets in percentage
Top 10 Chained Coffee Specialist Growth Markets
terms for chained coffee specialists were traditionally
tea-dominant countries, including two of the top three.
Country % value growth 2005-2010
• In addition, China, though still very much a tea-drinking
culture, has seen one of the biggest increases in
Turkey 804.8 percentage of foodservice coffee sold through chained
coffee specialists, rising from 18% in 2005 to 30% in
Romania 762.8 2010.
• This illustrates the role chained coffee shops can play in
South Africa 653.8 helping to foster a premium coffee culture, even in areas
where this did not previously exist.
Venezuela 503.2
• This can further translate into retail sales for premium
coffee, especially in conjunction with the rise of
Ukraine 493.4
supermarkets in larger cities that create shelf space for
premium coffees and teas.
Belgium 490.2
• International manufacturers are probably the best
Egypt 433.2 positioned to take advantage of this trend, becoming first
movers in emerging markets and helping to educate
Bulgaria 340.0 consumers about differences in coffee quality and
production. Local manufacturers may have better
India 264.2 distribution relationships but lack the supply chain and
marketing spending power of larger rivals.
Colombia 258.0 • Partnerships with such local players may be the quickest
and most mutually beneficial route to market for
Note: Indicates tea dominant countries premium coffees.

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Gains to be had from both instant and fresh coffee

Instant Coffee Leading Growth Markets 2010-2015
100
% value growth 2010-2015

80

60

40

20

0
Indonesia Vietnam Morocco Macedonia Azerbaijan India Pakistan Russia Thailand China

Fresh Coffee Leading Growth Markets 2010-2015

100
% value growth 2010-2015

90
80
70
60
50
40
30
20
10
0

Coffee dominant countries Tea dominant countries

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Coffee Retailing and Brand Strategy Hot Drinks: Coffee Trends © Euromonitor International

Starbucks’ ties in grocery

• Over 2010 and 2011 Starbucks underwent a much-publicised break with Kraft Foods Inc, taking over control of
distribution of its branded coffees in grocery, drugstore and mass channels from early 2011. The promotion of
Starbucks branded products in grocery channels in particular is a key platform in the company’s growth strategy
moving forward. Rather than diluting the brand experience in its branded retail outlets, CEO Howard Schultz hopes
the new approach will strengthen the company’s ties to consumers through integrated reward programmes.
• "We will reward customers who buy Starbucks products in the grocery store with opportunities to get rewards in our
stores and vice versa," Mr. Schultz said. "That's a sea change in our ability to integrate these two channels of
distribution."
• Coffee shops will remain the core of the company's business, but at a time when rapidly opening new stores in the
US is no longer possible, Starbucks, like other retailers, is attempting to do more with what it has.
• Another key to this strategy is likely to be the recently-launched single-serve instant coffee, Starbucks VIA. The
instant coffee’s initial success shows that the packaged food segment can boost Starbucks’ bottom line. By testing
products in its own stores first, Starbucks has an advantage when it comes to pitching those products to
supermarkets.
• The new focus on the supermarkets channel, where several brands have existed for many decades in every major
category and purchasing habits are normally well established, is a risk for Starbucks and other chained coffee shop
operators. However, the ability to test and promote launches in stores, generating anticipation among core
consumers, is also a key advantage such operators hold over coffee brands whose owners are predominantly
packaged food companies lacking such a convenient avenue for experimentation.

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Supermarkets lead coffee retailing

• Supermarkets represented well over half of all coffee retail volumes globally in 2010 and have remained consistently
at that level over the period 2005-2010.
• Grocery retailers and internet retailing are both on the rise, driven by pods and speciality coffees.
• Developing markets will see a shift increasingly away from traditional independent outlets towards grocery,
particularly larger-format chained supermarkets.
• Developed markets are beginning to see a greater presence taken by discounters. Consumers will continue to shop
in such outlets despite the global economic recovery, as habits picked up during the recession years prove difficult to
drop.
• In the US, Walgreens and other drugstores have started new drinks initiatives centred around coffee offerings. This
could drive more coffee sales into this channel in the years to come, providing some erosion of supermarket share in
developed markets in the longer term.
Global Coffee Retail Volume Sales by Global Coffee Retail Volume Sales by
Distribution Channel 2005 Distribution Channel 2010

21.42% 20.52%
7.41% 8.21%
1.60% 1.70%
9.51% 9.11% 0.80%
0.80%
0.20% 0.70%
0.10%
0.10%

58.96% 58.86%

Supermarkets/hypermarkets Discounters Small grocery retailers

Other grocery retailers Non-grocery retailers Vending
Internet retailing Direct selling
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Introduction

Global Overview

Coffee Retailing and Brand Strategy

Rise of Coffee Pods

Conclusion

25
Rise of Coffee Pods Hot Drinks: Coffee Trends © Euromonitor International

Pod sales showing rapid growth

• Sales of coffee pods are still mainly concentrated in Western Europe, though markets are developing in the US and
Brazil, as well as other parts of the world.
• Even with such geographical restrictions, retail value sales of coffee pods exceeded US$4 billion in 2010, nearly four
times the level they were in 2005.
• Although coffee pod machines remain particularly popular in institutional locations, more consumers have begun to
purchase these machines for home use. Having become familiar with their use in the workplace, frugal consumers
are no longer wary of the steep initial investment in such machines, recognizing instead the method of preparation
and the quality and convenience pod brewing can provide. Keurig pod machines by Green Mountain Coffee
Roasters drove this recent growth in North America, overshadowing Nespresso and Dolce Gusto machines by
Nestlé, which are more established in Western Europe and Latin America.

Global Value Sales of Coffee Pods 2005-2010

4.5
4.0
3.5
US$ billion

3.0
2.5
2.0
1.5
1.0
0.5
0.0
2005 2006 2007 2008 2009 2010

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Leading pod markets

• The main event in coffee pods in 2010 was the Pod Value Sales by Country 2010
strategic and juridical battle that started in France
1.4
with the introduction of two copycats of Nestlé’s
Nespresso, namely L’Or Espresso by Sara Lee Corp 1.2
and coffee pods from Ethical Coffee Company 1.0

US$ billion
(ECC) distributed by Casino supermarkets and
hypermarkets. For the first time, Nespresso’s 0.8
monopoly of the strategic segment of high pressure 0.6
pods for espresso was being threatened by other
0.4
players. The factors that could potentially erode
Nestlé’s position are not only the lower prices of 0.2
such me-too offerings, but also their 0.0
biodegradability. However, a number of industry
sources also believe this new competition is good
news for coffee pods and even for Nestlé’s
Nespresso and Nescafé Dolce Gusto machines. • Against the upsurge of a growing number of players in
• Despite a slight slowdown during the second half of pods and capsules and the risk of losing ground or
the year due to competition from the me-too opportunities in the mass market, manufacturers focused
products, Nestlé was by far the most dynamic player on launching machines with exclusive pod systems. One
in 2010. This reflected the ongoing impressive of the best ways to encourage more loyal customers,
breakthrough of Nespresso pods and, from early keep intact margins and limit or delay the entrance of
2009, the success of Nescafé Dolce Gusto pods. private label was to launch single-dose machines with
• However, while L’Or Espresso pods came at the device-specific pods or capsules; evidenced in mid-2009
right moment to counter the hegemony of Nespresso by the Lavazza A Modo Mio that only accepts Lavazza
in espresso pods, Sara Lee’s Senseo pods began to capsules. Multi-task machines were also a priority in 2009
reach maturity in 2009-2010 in Western Europe due as evidenced by the ability of the aforementioned Nescafé
to the competition from private label coffee pods. Dolce Gusto to make coffee, tea and chocolate.

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Nescafé Dolce Gusto creates a new price tier

• Nescafé Dolce Gusto was launched in many European
markets including France, Belgium and Spain in 2009, and
more recently expanded to Argentina and Brazil, as well as
Eastern European markets such as Slovakia.
• In doing so Nestlé has created a more mid-priced pod in an
attempt to attract those unwilling or unable to pay
Nespresso’s premium price
• The machine is cheaper than Nespresso and in contrast to
this brand, Dolce Gusto pods are available in grocery
retailers.
• In Western Europe where pods are most popular, they are
all perceived as premium products. The success of Dolce
Gusto however suggests a more standard price tier is
possible within the category.
• This product should have more appeal in markets such as
the US and Brazil where the pod concept is perceived as
too expensive. Other pod manufacturers such as Sara Lee
could follow, as long as they ensured quality standards were
also maintained. Cheaper pod machines were offered in the
US in 2004-2005 and did not catch on due to poor quality.
• Distribution of pods may be a problem with supermarket
shelves already saturated with pod brands. Nestlé is already
encountering problems in Latin America maintaining
distribution in leading supermarket chains.
• A mid-priced pod system offering the quality of Nespresso
or Keurig could take the pod category out of its niche and
into a more lasting presence.
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Pod forecast shows opportunity

• Some US$2 billion additional coffee pod value sales are expected over 2010-2015.
• In terms of potential threats to growth, the expansion of coffee pods could be hampered by ecological concerns.
Currently, rigid pods are not eco-friendly and they cannot be recycled in every country. As a result, environmental
associations are worried about the predicted ongoing success of coffee pods.
• Manufacturers are likely to focus on innovation in the form of flavours and coffee origins in order to satisfy all
consumer needs, creating an obligation among their respective consumer bases to find pods compatible with their
machines. All manufacturers of pods will have to create new varieties in order to increase the market and prevent
customers from switching to competitors.
• It will be important to offer machines possessing attractive designs and novel technological features in order to tempt
consumers into buying them. Globally, the market has still not reached saturation and that there are still large
business opportunities available to the leading players.

Forecast Global Pod Value Sales 2010-2015

7

5
US$ billion

0
2010 2011 2012 2013 2014 2015

29
Rise of Coffee Pods Hot Drinks: Coffee Trends © Euromonitor International

Other pod formats offer further potential

• Pods is still an underdeveloped area in Leading Tea Pod Markets 2005-2010
tea and other hot drinks.
70
• For markets where tea and chocolate

Retail sales US$ million

pods have been launched, rapid sales 60
growth has followed. The leading market 50
for tea pods, the US, has seen sales
40
triple over 2008-2010 while even the UK,
where tea pods were launched much 30
earlier, saw a doubling of sales over 20
2005-2010. 10
• France on the other hand was the only 0
market with substantial chocolate pod 2005 2006 2007 2008 2009 2010
sales in 2010, and saw a similar story of
US Turkey UK
rapid consumer acceptance only a few
years after major product launches.
• It is a natural progression from coffee, Sales of Chocolate Pods in France 2005-2010
and is already happening in some
markets and likely to build in more 30
Retail sales US$ million

markets if coffee pod volumes grow. 25

• Such launches help add to the versatility
20
of pod systems. There are also cold
(iced) coffee extensions from players 15
such as Green Mountain and Starbucks,
10
indicating that further innovation and
flavour development is likely in markets 5
where pods gain a critical mass of
0
distribution and consumer acceptance.
2005 2006 2007 2008 2009 2010
30
 Hot Drinks: Coffee Trends © Euromonitor International

Introduction

Global Overview

Coffee Retailing and Brand Strategy

Rise of Coffee Pods

Conclusion

31
Conclusion Hot Drinks: Coffee Trends © Euromonitor International

Geographic diversity and premium potential

Tea versus coffee preference in certain markets

needs to be overcome
• The consumer shift towards premium is already there for coffee; therefore it is
much easier to enter and gain traction than it would be for tea in many parts of
the world
• Competition from tea and soft drinks players likely to intensify

Instant versus fresh coffee markets also provide

barriers to entry
• Consumer habits will be slow to change
• Markets where instant dominates are seeing more 3-in-1 and flavoured
varieties
• Rich history and tradition of coffee growing and consumption plays into
premiumisation trend

Exploiting coffee specialists’ popularity to foster

demand for premium coffee
• Preferences vary by region and local market, so one-size-fits-all approach will
not work. Even a brand such as Starbucks has found success through local
variants for different regions
32
Report Definitions Hot Drinks: Coffee Trends © Euromonitor International

Coffee definitions
Coffee
• This is the aggregation of fresh and instant coffee.
Fresh Coffee
• This is the aggregation of fresh ground coffee and fresh coffee beans. Please note that on-trade sales of fresh coffee
are volumes sold to the on-trade sector and not those sold to the consumer. However, the ready-to-drink (RTD)
conversions in million litres are to the consumer.
Fresh Coffee Beans
• Includes all types of packaged fresh whole coffee beans.
Fresh Ground Coffee
• Includes all types of fresh ground coffee, whether premium, mild, standard, decaffeinated, mocha, speciality and/or
flavoured. Fresh ground coffee includes all loose and packaged ground coffee.
Instant Coffee
• This is the aggregation of instant standard coffee and instant decaffeinated coffee
Instant Decaffeinated Coffee
• Includes all types of decaffeinated instant coffee, including flavoured (if it is decaffeinated), freeze-dried granules and
powdered. Excludes ready-to-drink (RTD) coffee usually sold in metal beverage cans or rigid plastic bottles for
immediate consumption; this is therefore included under RTD coffee in soft drinks. Varieties with added ingredients
are also included (for example espresso, cappuccino, creamer, ginseng etc) as long as their main ingredient is
coffee. This includes 2-in-1, 3-in-1, 4-in-1 and instant speciality Italian coffees. Liquid versions of instant
decaffeinated coffee are included under liquid concentrates.

33
 Hot Drinks: Coffee Trends © Euromonitor International

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