STiR coffee and tea magazine

36 STiR coffee and tea / Issue 6, 2017 (December / January) Single-Serve Slows A decline in what consumers are willing to pay for capsules is evident rowth in household penetration of single-serve brewers has slowed. The National Coffee Association's (NCA) annual National Coffee Drinking Trends (NCDT) survey reported 29% of American house- holds owned single-serve brewers in 2017 but drip machines in the home still accounted for the majority of cups prepared. Household penetration of brewers increased an anemic 2% over 2015, (compared to five years of double-digit growth with a peak 10 million units sold in 2014). The NCDT found that 32% of single-cup brewer owners, who drank coffee the previous day, said their coffee was brewed with a drip coffee maker; 13% reported drinking coffee brewed with an espresso machine and 7% said they drank instant. Unit sales of capsules slowed to 1.6%, according to market research firm IRi.* Capsule sales totaled $4 billion at multi-outlet stores, plus convenience outlets last year, according to IRi. Folgers, Keurig, Eight O'Clock, Newman's Own, Caribou Coffee, and Dunk'n Donuts branded capsules all lost dollar share in 2017. Private label saw a dollar sales increase of 23% to claim 4% market share with $80 million in sales. TreeHouse Foods chairman and c.e.o. Sam K. Reed told Food Business News that syndicated marketing data counts units in traditional channels and not the totality of the marketplace. Sales at local coffee shops and online, for example, are not tallied. He believes that "household (brewer) penetration has passed the 30% level, which is quite a substantial improvement." "If you do it on an equivalent cup basis, the private label business is still growing very strong, double digit in units, and over a broad scale," Reed said. Price compression in the $4.5 billion category is a greater concern, accord- ing to Jim Watson, senior beverage analyst at Rabobank. In a September webinar hosted by NCA, he said single-cup dollar sales growth last year "slowed drasti- cally" from 45% per year in 2013 to 2%. Volume growth "tells a better story" at 8%, he said, but pricing, which declined 6% in 2017 is "extraordinarily weak." "In America capsules remain relatively expensive," he said. Lower unit prices are why sales of private label capsules increased almost 25% and now account for 16% of the single-serve market in the US, a notable leap from zero in 2011. He said single-cup has not reached its peak. It is merely tran- sitioning from early stage adoption to a more mature (and less vigorous) wave of growth. "Will the rise of private label continue; can it get much bigger?" he asks. By Dan Bolton "Yes," but Watson cited several obstacles. His biggest concern is that US pricing is high compared to other brewing methods and against single-serve systems in other countries. The North American market is not in balance, he says. That is why the price of capsules fell 6% year-to-date. In North America, pods represent 11% of unit volume but a disproportionate 37% of sales revenue, accord- ing to Watson. In Europe unit volume is 17% and pods account for 34% of sales. "Nature abhors a vacuum," he warned. Watson presented examples of "bargain" capsules selling for 32 cents. Third- party grocery comparisons show Lidl prices are 14.6% lower than Kroger and 5.7% lower than Walmart Supercenters. In Europe Lidl sells 10 capsules for €1.99 or 23.5 cents each. He did not cite taste, which in prior studies was a significant concern. NCA discovered that owners of single-cup brewers are genuine coffee fans. Brewer owners are more likely than non-owners to drink coffee daily 68% vs. 52% and they are more likely to drink all coffee beverage types (from traditional to specialty gourmet). "Convenience is king in coffee and across the consumer universe. It provides a great foundation for future volume growth," Watson said, predict- ing long-term and healthier 8% growth, he said. Watson sees the slowing as temporary. "In markets with little competition, innovation suffers. Single-serve is waiting for the next spark," he said. Keurig changes strategy No one asked Keurig to make an expensive DRM (digital rights managed) brewer. Customers instead wanted an eco-friendly My Cup they could fill with their favorite ground roast. No one demanded a capsule filled with syrup and CO 2 crystals to make soda. What they wanted was an environment- friendly, economical capsule with sufficient vol- ume to fill a travel mug instead of forcing them to use two. Commuters wanted a push-button op- tion for stronger brew. They like colors that match their kitchen decor. In 2016 Keurig's very capable engineering team, after the company was acquired by JAB Holding for $13.9 billion, settled down to basics and did all the above. "We've heard that some of our users are seek- ing a stronger cup," said Scott Moffitt, Keurig's chief brand and beverage officer. "We're address- ing that need by giving consumers the option to personalize their coffee even further by introduc- ing an enhanced strong brew feature in a stylish, easy-to-use coffee maker." The new select line brewers (with strong brew button) are priced at $129. Keurig's high caffeine REVV dark roast offers: No Surrender, After- G *Total US multi outlet w/C-store (supermarkets, drugstores, mass market retailers, Gas/C-Stores, military commissaries and select club & dollar retail chains) for 52 weeks ending Nov 5, 2017.

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