Coffee & Tea Industry Trends

Small Companies Entering the Market

The number of coffee and tea manufacturers increased in recent years, driven by small companies entering the specialty product category. The number of coffeehouses increased over 80 percent between 1998 and 2003, according to Mintel, driving demand for specialty coffee. The popularity of Starbucks has increased consumer interest in premium coffees, and allowed small specialty coffee roasters to succeed in local markets.

Single-Serving Systems

Sales of single-serve coffee systems were expected to reach 4.5 percent of the brewing appliance market in 2005, up from 1.5 percent the previous year, according to NPD Group. Single-serve appliances use coffee “pods” and brew one superior cup of coffee at a time. Pod systems, which target consumers looking for a coffee house experience at home, are significantly more expensive per serving than traditional coffee, and most work only with specific appliance brands.

Young Adults Drinking More Coffee

Between 2003 and 2006, the percentage of adults 18 to 24 who drink coffee daily almost doubled to over 30 percent, according to the National Coffee Association. Coffee consumption among young adults is important, as consumers form many life-long drinking habits in early adulthood. As consumers mature, some start to favor coffee over soft drinks, making the young adult demographic extremely important to coffee manufacturers.

Growing Decaf Coffee Market

Sales of decaffeinated coffee are increasing, and were almost 20 percent of the market in 2005, according to the NCA. Aging baby boomers often switch to decaf for health reasons. This transition has been aided by new processes that improve the flavor of decaffeinated coffee. By providing decaffeinated versions, companies can prevent some consumers from switching to alternative beverages and preserve brand loyalty.

Brand Extensions

Weak long-term market conditions have led companies to leverage coffee brand names into other categories to grow sales. Through partnerships and licensing agreements, Starbucks offers branded premium ice cream, coffee liqueur, and a digital music channel. Companies may also license a brand to improve a product line or introduce products. Green Mountain Coffee licenses Newman’s Own Organics brand to capitalize on the growing interest in natural foods.

Growing Tea Market

While small compared to the global tea market, the US tea market is growing steadily. Tea sales grew each year between 1991 and 2005, according to The Tea Association. Research has identified health benefits in tea and tea flavonoids (thought to have anti-oxidant properties), fueling consumer interest. Increased availability of tea through restaurants and hotels, a growing market for ready-to-drink tea, and interest in specialty teas contribute to market growth. Teahouses, similar to coffeehouses, are starting to expand.