Coffee and tea brew loftier sales in food retailing: battle with foodservice vendors reaches boil

DSN Retailing Today, May 3, 2004 by Mike Duff

Coffee and tea consumption has advanced recently, but food retailers are faced with fierce competition from the foodservice sector. A new generation of coffeemakers may lift grounds from the grind.

Coffee consumption in the United States has hit a record high. Latte and espresso-based beverage sales have increased most significantly by about 12% since 1997, according to Brand Keys, a brand and strategic planning firm. The Tea Association notes that a slow rise in tea consumption should generate dollar sales increases in the specialty sector of 6% to 10% over the next several years and 3% to 5% in the traditional sector.

According to ACNielsen, tea had still another in a series of dollar sales growth years in food, drug and mass market outlets, excluding Wal-Mart, gaining 2.1% in the 52 weeks through March 20. Liquid coffee was the faster growing segment of two subcategories driving overall category sales. Coffee sales across the board gained 1.9%, while liquid coffee advanced by 14.7%. Consequently, the fastest-growing segment in coffee at food retailers is the very one that's inhibiting growth in all but one other sub categories as consumers respond to foodservice Java to go.

Major food retailers have been exploring the possibilities that tea and coffee consumption, particularly on the premium end, provide. In the coffee section at a Monroe, N.Y., store, Wal-Mart carried a combination boxed set with a 13-ounce tin of Folgers coffee and a Pur water tap filter system for a $14.94 price point. Both brands are owned by Procter & Gamble. The combo product represented another initiative pairing of a small appliance product and a consumable item.

Still, with coffee and tea growth segments well represented now in discount stores, supercenters and other mass-market outlets, retailers may need a spur to significantly augment space devoted to coffee and tea.

No new impetus has come along lately. "We have not expanded coffee or tea offerings," Angela Hood, a Kmart spokeswoman, pointed out.

It's little wonder then that P & G decided to work with Applica and Krups to develop the coffee component of the pod systems that small appliance manufacturers have been developing. Already, Salton has gotten retailers such as Wal-Mart and Target to pair its Melitta coffeemakers with pods.

P&G is counting on pods that are merchandised with coffeemakers to give it a boost with consumers--not to mention secondary real estate on the sales floor. Pods positioned in the coffee/tea section are still important to the P&G sales plan, spokesperson Tanya Hyatt said, but, where possible, the company will urge retailers to add satellite displays. "We will encourage them depending on the channel, depending on the retailer, to shelve some of the pods next to the appliances," she said. "We'll also offer displays and other merchandising materials."

P&G's pods are rolling out in a manner that complements the coffeemaker introduction. "We're going to all appliance-carrying accounts first," Hyatt said, "then rolling out to all our traditional outlets coffee is sold in."