Market Reports

Cold brew storms ready-to-drink market

When pharmacist and entrepreneur Phillip McCrory made his first batch of cold brew coffee in his family’s New Orleans kitchen more than 30 years ago, he knew he was on to something. In 1987, he sold his first bottle of CoolBrew. Two years later he established the New Orleans Coffee Company. It was more than 20 years, however, before cold brew coffee drinkers started to warm to the unique brew and other brands started entering the market. Today, this heretofore obscure category of specialty coffee is reaching critical mass, with companies competing for market share and others branching out into ready-to-drink (RTD) cold brew and other innovative brewing and distribution methods. While overall coffee consumption stagnates in the United States, and the retail coffee industry has grown a mild 3.8 per cent per year on average since 2010, according to industry research firm IBISWorld, cold brew is seeing sales grow by leaps and bounds. During 2015, retail sales of cold brew coffee jumped 115 per cent, according to market research firm Mintel. Considering that cold brew is relatively new in the greater specialty coffee market, retail sales have been on an astonishing upward trajectory, climbing 339 per cent from 2010 to 2015. That said, RTD cold brew remains only a small part of the overall RTD coffee segment, making up just 0.4 per cent of sales. Considering 24 per cent of consumers currently drink retail-purchased cold brew coffee, that miniscule market share means a significant untapped market remains for RTD cold brew. What’s more, Mintel’s research shows that one-third of that remaining 76 per cent who are not drinking cold brew are interested in trying it. Cold brew rising
While RTD cold brew has only come into the spotlight in the past year, cold brew as a style has been around for a long time. In fact, while it has just begun to take off in the past five years, the cold brew filtration process dates back to the 1600s. The delayed adoption is largely due to the brew’s lengthy, more costly process, and to the average coffee consumer’s unfamiliarity with the unique concept. Cold brew is made by steeping coarse coffee grounds in cold water for anywhere from 12 to 24 hours. The result is a concentrate that is generally mixed with water or milk. In addition to the extensive time required to prepare just one batch, the cold brewing process requires up to twice as much actual coffee. And as part of the greater specialty coffee trend, that coffee is generally from high-quality Arabica beans. While today’s consumers have proved willing to pay high prices for their gourmet coffee, IBISWorld research says coffee retailers have struggled to accurately reflect production costs in their prices, especially with the volatile nature of the global price of coffee beans. The other factor working against adoption was – and still is – the foreign concept of cold brew to the average coffee drinker. Even the idea of iced coffee took decades to catch on, says Phillip McCrory’s son Jeff McCrory, current President and Co- Owner of New Orleans Coffee Company. The company’s cold brew concentrate, which is now available in more than 3000 retail outlets throughout the country, has driven its 25 per cent annual growth for the past six years. “We were way ahead of our time, but the market wasn’t ready then,” McCrory tells Global Coffee Report. Technically, the third wave of coffee that shifted its focus to high-quality, artisanal coffee didn’t come until several years after the first CoolBrew hit stores. The cold brew trend took another 15 years and RTD cold brew followed a half-decade later. The evolution into RTD
Not unlike other RTD beverage markets, the appeal of cold brew is how it fits into Americans’ increasingly busy schedules. As time-strapped consumers continue demanding fast, convenient food and drink, beverage makers are introducing more offerings to the RTD market. And because research shows that coffee is consumers’ caffeinated beverage of choice, coffee producers continue churning out bottled and canned products and retailers continue making room on their shelves. According to beverage industry expert BevNet, the bottled and canned coffee category experienced the highest volume growth among all beverage segments in 2014. Surpassing even bottled water, volume of RTD coffee products increased 10.7 per cent in the year. While the average American is increasingly seeking time savings and convenience, that average American is also now a Millennial. This “now generation” not only demands speed and convenience (i.e. RTD beverages), but also is the first to grow up with high-quality coffee on every corner as the norm. Because the RTD cold brew market is still in its infancy, the growth in RTD coffee production is largely due to the popularity of other RTD coffee on the market, such as Starbucks’s Frappuccinos and Iced Coffees. Currently, Starbucks dominates the RTD coffee category at an estimated 97 per cent. Naturally, the coffee giant has plans to roll out its own RTD cold brew. In March, Starbucks announced the launch of its first bottled cold brew coffee this summer as an extension of the North American Coffee Partnership, a joint venture between Starbucks and PepsiCo. Starbucks introduced cold brew to its menus more than a year ago, as did Peet’s Coffee & Tea. While Coffee Bean & Tea Leaf introduced its cold brew earlier this year, Dunkin’ Donuts is only now testing the waters in limited markets.
Independents dominate RTD Austin-based cold brewer Chameleon entered the cold brew market in 2010 sans a brick-and-mortar presence. At that time, it also didn’t have an RTD offering, selling its popular concentrate in a 950- millilitre, multi-serving bottle. Multi-serving cold brew followed in 2012, and then finally a single-serve RTD in 2013. Today, Chameleon offers six RTD cold brew flavours in 300-millilitre glass bottles. Also figuring in the bottled cold brew space is Stumptown Coffee Roasters. The Portland company has been making cold brew in its cafés since 2008. Its famous 310-millilitre “stubbies” came in 2011, which helped kick-start the trend that is only now gaining steam. Today, the RTD cold brew pioneer also offers 475-millilitre cartons of cold brew with milk or coconut cream and 325-millilitre cans of nitrogen-infused cold brew. Austin-based High Brew claims the spot for the first cold brew coffee sold in a can, which it launched in 2014. This year, High Brew announced a US$4 million investment from CAVU Venture Partners and a new distribution deal with Dr Pepper Snapple Group that will help bring the brewer’s products to markets outside Austin. Although Oakland-based roaster Blue Bottle Coffee has long been known for its cold brew, its canned RTD version didn’t hit shelves until March of this year. Having launched its popular New Orleans-style iced coffee in RTD just two years ago, this will be Blue Bottle’s second RTD coffee beverage on the market. Challenges
The RTD cold brew market is already experiencing some of the same challenges as the broader cold brew category. With higher production costs less of an issue now that coffee drinkers are willing to splurge on specialty coffee, the lag on adoption is now largely due to consumer habits. As the McCrorys experienced on a larger scale more than 30 years ago, there are still coffee drinkers who don’t know what cold brew is. Experts and industry players alike cite the common consumer misnomer that “cold brew” means “iced coffee.” Mintel research also points to the misconception of taste: 83 per cent of consumers who are not interested in trying cold brew are sceptical of its taste, despite the brew generally being sweeter and smoother than its hot counterpart. The big challenge now is a market approaching saturation, with dozens of cold brew brands lining store shelves. “The market is getting saturated with numerous players,” says Stumptown’s Vice President of Cold Brew, Diane Aylsworth. She doesn’t see that as a problem, though: “This is very common for a new category. Consumers will inevitably seek out the best products and some of the brands will exit.” The problem Aylsworth does see is “the watering down of what ‘cold brew’ means”, she says, as new brands “slap the words ‘cold brew’ on their RTD coffees that aren’t necessarily high-quality, thoughtfully crafted cold brews. They might not even be cold brewed at all”. In addition to stressing the importance of cold brew producers coming together to protect their premium beverage, she also emphasises protecting the entire value chain to ensure coffee quality and safety for consumers. That quality producers strive for can quickly be lost if the right refrigeration, storage and distribution methods aren’t in place. While shelf life is high – 90 to 180 days – the products need to be kept cold. Refrigerated distribution is expensive, but spoiled product is even costlier. BevNet actually cites refrigerated distribution as the biggest marketing challenge for the RTD cold brew market. To a lesser extent, some producers face manufacturing challenges because there currently are only a limited number of contract manufacturers in the country equipped to make cold brew. In fact, McCrory says he’s regularly asked by other New Orleans coffee chains to manufacture their cold brew, but he says: “I’m not sure if we want to start competing with ourselves yet.” Future of RTD cold brew
As Aylsworth suggests, the stage is now set for a process of attrition over the coming years. Players will have to first set themselves apart in an increasingly saturated market and then keep up as it expands at a rapid pace.
Neither Aylsworth nor McCrory see the cold brew and RTD categories as temporary results of a short-term fad. In fact, Aylsworth sees cold brew as a huge opportunity for the specialty coffee market, and is “a platform that could be a big step forward for RTD coffee”. The overarching trends of time-strapped consumers and Millennials wanting more, and healthier options from RTD beverage makers, will also support RTD cold brew’s promising future. “RTD in general is a fast-growing category,” says Aylsworth. “I think we’ll continue to see consumers trading up to premium offerings because the quality is worth the value.” Supporting her claims, Mintel research cites flavour and convenience as the two main purchasing attributes for coffee drinkers, particularly for RTD coffee. Additionally, while growth in the overall coffee market will stay relatively flat over the next five years, Mintel research forecasts RTD cold brew coffee to become a US$3 billion market. As RTD cold brew companies strive to protect that quality while setting themselves apart, they’ll increasingly innovate. The overall cold brew market has already seen innovation in its brewing, distribution, and serving. Brewers are serving it on tap, infused with nitrogen or premixed and ready to drink. For instance, Stumptown launched its Nitro cold brew in a can last year after success with its nitrogen-infused cold brew on tap. Josh Thompson, creator of Point Blank cold brew, went the functional route with his RTD cold brew. His drinkable cold brew concentrate is sold in 250-millilitre bottles and targeted at consumers looking for a quick pick-me-up. Thompson is positioning Point Blank has a high-quality, better-tasting, healthier alternative to energy drinks. Because Point Blank is based in Newcastle, UK, it’s well positioned for the upcoming 2018 sugar tax. Point Blank’s functional RTD cold brew also hints at the potential for the market to expand globally. Although innovation in cold coffee is slow to develop in the UK, according to the Allegra World Coffee Portal, widespread integration of cold brew is expected to be the next key industry development. Though the United States consumes the most coffee worldwide, according to business intelligence firm DataHero, it barely breaches the top 25 countries for coffee consumption per capita – the UK is 44. That means a lot more coffee-drinking countries for RTD cold brew to exploit. Meanwhile the fast-growing cold brew categories still only make up a minor share of the US$37 billion US retail coffee industry. So while some brands will continue to focus on their niches or regions over the coming years and remain small, others with the financial and consumer power to scale and expand will support cold brew’s inevitable leap into mass market. GCR

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