Issue link: https://read.dmtmag.com/i/491371
38 STiR tea & coffee industry international tises 18-count Folgers gourmet flavors for $15.77. Keurig sold 5 million brewers in the closing months of 2013. Brewer sales are up 6% in 2014 but will not approach that holiday blow out this year. Changing retail landscape Coffee sales currently face a stiff headwind from a 9-10% retail price increase due to the steep rise in green coffee prices. Folgers experienced a 20% decrease in volume with a 16% decline in profits according to c.e.o. Richard Smucker. "Our rapid ascent of coffee prices to reflect higher green coffee costs took its toll on volume," Smucker told analysts. He predicted coffee vol- ume trends will improve but the pricing impact of higher green coffee costs will continue through the remainder of the fiscal year. "We do not believe there has been a funda- mental change to the at-home coffee category. However, our teams will continue to focus on tac- tical opportunities to address the current market environment," he said in a press release. The National Coffee Association (NCA) re- leases a monthly "coffee market consumption re- port" compiled by StudyLogic that shows in-home consumption up 1.7% in October with at-work and foodservice servings up 4%. Single-serve registered a strong 15.9% growth compared to October 2013. All other retail coffee categories show declines, especially instant and ground roast—evidence of how radically the retail landscape has changed. Sales of capsules in multi-outlet stores are near- ing $3 billion exceeding sales in traditional grocery stores by two fold. As of June JM Smucker's share of the total coffee market was 29% and slipping. Keurig is gaining at 19% with Kraft ranked third at 15%, according to IRI. Market share held by Star- bucks accounts for 12% by value but regardless of brand, consumer loyalty is tenuous. "At least half of customers are switching be- tween three or more brands with K-Cup custom- ers exhibiting lower brand loyalty than instant or whole/ground buyers," according to Rabobank's Ross Colbert, who presented his observations in September at the COTECA 2014 conference in Hamburg, Germany. "Whole bean volume is slipping as consum- ers choose more convenient brewing options," he said. "The fight for more shelf space has intensi- fied due to new single-serve packages, brand of- ferings and package formats. The bag segment is likely to be further impacted by expanded distribu- tion of McCafe premium coffee (Kraft)." Changing attitudes In October at the NCA Coffee Summit in Bos- ton, consultant and former Keurig executive Don Holly predicted single cup brewers will eventually find their way into 50% of US households (up from 15% according to last year's National Coffee Drinking Trends survey). Analyst Judy Hong at Goldman Sachs forecasts Keurig sales will grow at a compounded annual rate of 29.6%. She estimates household penetra- tion of brewers at 23% and predicts this will dou- ble to 50% by 2020. Holly estimated the single-cup segment's growth potential at $8 to $9 billion. Single-serve has caused a shift in consumer atti- tudes, according to Holly. Citing a new NCA report The Changing Coffee Market: Single Cup & Preparation Methods, Holly said that the owners of single-cup brewers are more likely to report drinking coffee daily. Seventy percent of single-cup owners say they drank coffee yesterday, compared with 62% among all respondents. Those who own single-cup brewers also ap- pear to prefer gourmet coffee varieties, which oth- er NCA data shows to be its own growth phenom- enon. Daily gourmet coffee beverage consumption has grown by nine points since 2011 while non- gourmet traditional coffee has fallen by four. NCA's report reveals that 61% of consumers rate the quality of single-cup coffee as "excellent" or "good," up significantly from 26% reported in 2007. At the same time, those who rated single- cup coffee as "fair" or "poor" dropped by a third, from 32% in 2007 to just 12% in 2014. Holly told summit attendees: "while conve- nience is often paramount in the eyes of today's time-harried consumers, they also demand con- sistency in the cup and variety, so that quality be- comes hard to separate from other aspects of the single-cup experience." He speculated that innova- tion in the segment will bring consumers currently unavailable advantages, like advanced extraction of coffee solubles into the cup. Keurig makes its money selling portion packs, earning $3.6 billion in 2014. Brewers by comparison are low margin, earning $822 million, down 1%.